News Will a failure to raise the US debt ceiling force a default?

[mheslep]

This might be a pattern for state governments to follow soon.

New York State Takes Control of Nassau’s Finances

UNIONDALE, N.Y. — A state oversight board has seized control of Nassau County’s finances, saying the wealthy and heavily taxed county had nonetheless failed to balance its $2.6 billion budget despite months of increasingly ominous warnings.

http://en.wikipedia.org/wiki/Nassau_County,_New_York" is the 10th richest county in the US, 1st in New York state. Apparently the recently elected county executive attempted to renegotiate contracts with the unions, but they refused. Adios to one and all now.

 

[WhoWee]

The morning after...
http://www.cbsnews.com/stories/2011/01/26/national/main7285697.shtml

"(CBS/AP) Washington - The day after the federal deficit was a central theme to both President Obama's State of the Union address as well as the GOP's official response to it, the Congressional Budget Office released new figures underscoring the urgency of the issue.

A new estimate predicts the federal budget deficit will hit almost $1.5 trillion this year, a new record. "

 

[talk2glenn]

So the United States could close the Pentagon and disband the entire armed forces tomorrow, and the Federal deficit would be reduced by... about 45%. But military spending is driving the deficits, right?

For that matter, the United States could close the entire federal government, and still be running a deficit.

The problem is entitlement programs.

 

[WhoWee]

Would you ever consider it a long term strategy to run your household on 40% borrowed funds - knowing that interest rates are being suppressed artificially?

My bold
http://www.msnbc.msn.com/id/41272983/ns/politics-more_politics/

"The eye-popping numbers mean the government will continue to borrow 40 cents for every dollar it spends.

The new Congressional Budget Office estimates will add fuel to a raging debate over cutting spending and looming legislation that's required to allow the government to borrow more money as the national debt nears the $14.3 trillion cap set by law. Republicans controlling the House say there's no way they'll raise the limit without significant cuts in spending, starting with a government funding bill that will advance next month. "

 

[Al68]

For that matter, the United States could close the entire federal government, and still be running a deficit.

The problem is entitlement programs.

They wouldn't be if the agencies that write and send the entitlement checks were closed. "Mandatory" or not, unlike a failure to make interest payments on the debt, failure to pay entitlements would reduce the deficit.

If we stay on the track we're on, our grandchildren will have no choice but to refuse to feed the beast, and the federal government will have to declare bankruptcy and default on most or all of its debt. And I consider the consequence that the federal government would no longer be trusted enough to be able to borrow an advantage, not a disadvantage.

For far too long, too many of us have bought into the silly notion that private individuals are under some moral obligation to fund the promises of power hungry politicians. We are not. We are not. We are not.

And what's really crazy about entitlement programs like Social Security is that Democrats refuse to even consider phasing it out as we know it. Coercing people into a ponzi scheme against their will isn't some short term plan pending a permanent solution, it is their permanent solution for retirement security. They can make semantic objections to the phrase "coercing people into a ponzi scheme against their will" all they want, but it doesn't change the fact that that's exactly the long term solution they insist on.

 

[WhoWee]

They wouldn't be if the agencies that write and send the entitlement checks were closed. "Mandatory" or not, unlike a failure to make interest payments on the debt, failure to pay entitlements would reduce the deficit.

If we stay on the track we're on, our grandchildren will have no choice but to refuse to feed the beast, and the federal government will have to declare bankruptcy and default on most or all of its debt. And I consider the consequence that the federal government would no longer be trusted enough to be able to borrow an advantage, not a disadvantage.

For far too long, too many of us have bought into the silly notion that private individuals are under some moral obligation to fund the promises of power hungry politicians. We are not. We are not. We are not.

And what's really crazy about entitlement programs like Social Security is that Democrats refuse to even consider phasing it out as we know it. Coercing people into a ponzi scheme against their will isn't some short term plan pending a permanent solution, it is their permanent solution for retirement security. They can make semantic objections to the phrase "coercing people into a ponzi scheme against their will" all they want, but it doesn't change the fact that that's exactly the long term solution they insist on.

We can label this post OPINION - my opinion - please.

I have to give the politicians more credit than you Al. I'll cite the recent expansion of Medicaid and the passing of "healthcare reform". These actions cemented the bonds between Medicare, Medicaid, Social Security, the Medical industry, and the Government.

The expansion of Medicaid is an unfunded mandate - a burden on the states. The Federal Government is also responsible for a portion. However, the states can't print money and won't be able to chase an increasing interest rate. When the states begin to default - the Federal Government will either have to bail them out or oversee their restructuring. This might lead to a further transfer of power away from the states to the (ever-expanding) Federal Government.

Even if the debt ceiling is not increased - the Medicaid expansion will continue at the state level - it's like a balloon payment - and like every other bubble - it will pop.

Again, IMO.

 

[PhilKravitz]

The IMF says that in order to close the gap between projected future liabilities and projected future revenues a 14% of GDP tax increase would be needed. That is federal tax goes from 14.9% of GDP (current level) to 28.9% of GDP. So. I expect tax increases and no default.

 

[Al68]

The IMF says that in order to close the gap between projected future liabilities and projected future revenues a 14% of GDP tax increase would be needed. That is federal tax goes from 14.9% of GDP (current level) to 28.9% of GDP. So. I expect tax increases and no default.

The problem is that no realistic tax policy would achieve that. That kind of (effective) federal tax rate is not only far above the point of diminishing returns, it would drastically reduce GDP, making the government's problem worse, not better. And that's not even considering the damage to the rest of the economy, the part of it that isn't government. The part of it that not only pays government's bills but has its own bills that some of us think are rather important. The part of it that constitutes the overwhelming majority of the country.

 

[mheslep]

The IMF says that in order to close the gap between projected future liabilities and projected future revenues a 14% of GDP tax increase would be needed. That is federal tax goes from 14.9% of GDP (current level) to 28.9% of GDP. So. I expect tax increases and no default.

The US government has failed to collect more than 20% of GDP in revenues in modern times, and not more than 19% for more than very short periods. That includes times when income tax rates on the top bracket were more than 90%. Taxes will not, can not fix this federal deficit problem.

 

[PhilKravitz]

Taxes will not, can not fix this federal deficit problem.

Are you suggesting a 14% of GDP cut in federal spending? Roughly half of their spending.

 

[mheslep]

Are you suggesting a 14% of GDP cut in federal spending? Roughly half of their spending.

At 43% cut. Yes, over the two year term of this Congress. The time for the OMG! calls was a couple years go when the US was buying car companies and raising discretionary budgets by 20%. Too late now.

 

[PhilKravitz]

At 43% cut. Yes, over the two year term of this Congress. The time for the OMG! calls was a couple years go when the US was buying car companies and raising discretionary budgets by 20%. Too late now.

Hurray! I agree completely.

 

[mugaliens]

The US government has failed to collect more than 20% of GDP in revenues in modern times...

While managing to spend quite a bit more of unaccounted funds.

 

[Vanadium 50]

The problem is that no realistic tax policy would achieve that. That kind of (effective) federal tax rate is not only far above the point of diminishing returns, it would drastically reduce GDP, making the government's problem worse, not better.

Al, Al, Al. You need to start reading more left-leaning blogs. The have the solution: tax last year's income - i.e. a wealth tax.