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United States The Almighty Buck Politics

Debt Deal Reached 844

Posted by samzenpus
from the problem-solved? dept.
Global markets are on the rise in response to a deal between President Obama and congressional Republicans on the debt. The deal would cut more than $2 trillion from federal spending over a decade. However, most economists think this isn't enough and does not remove the threat that the nation's AAA credit rating could be downgraded.
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Debt Deal Reached

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  • by eldavojohn (898314) * <eldavojohnNO@SPAMgmail.com> on Monday August 01, 2011 @08:13AM (#36945568) Journal
    As an engineer that uses math on a daily basis, the more I read about the rising debt the more confused I am. It seems that a strategy of Reagan's was to take in less money in taxes than the government spends [wikipedia.org] and this strategy has been intact for far too long. So if you're trying to balance a budget, how in the hell do you justify spending way more money than you take in? Either you have to raise taxes or cut spending. It's pretty clear that Clinton was the only president to break from this norm since then [wikipedia.org] and now we're shocked that our debt crises get worse and worse every term?

    I don't spend more money than I take in. I see commercials for people like that who have credit card debt because they couldn't do some simple balancing and see that they were spending more than they made. Why on Earth are we still implementing tax cuts and deficit spending?! Have we given up any hope of ever getting out of the red as a country?

    This is very basic math ... so basic that when you're taught how to balance a checkbook in high school, they don't even teach it in Math class. It's a general life skill and our country is failing at life in general.
    • by gmuslera (3436) * on Monday August 01, 2011 @08:17AM (#36945598) Homepage Journal

      Why on Earth are we still implementing tax cuts and deficit spending?!

      Because the ones that financed the campaign of the current (and past, for many years) government said so. That's the problem with using math, ab absurdum proofs always go wrong in politics.

      • It's that simple.

        Look up Fractional Reserve Banking. Money (credit) is borrowed into existence. When you take a loan out, your bank creates money and gives it to you. They didn't have the money before the loan was made.
         

    • by risom (1400035) on Monday August 01, 2011 @08:20AM (#36945612) Homepage

      This is very basic math ... so basic that when you're taught how to balance a checkbook in high school, they don't even teach it in Math class. It's a general life skill and our country is failing at life in general.

      Yes, but when using your checkbook you take the value of the currency as a given. A state has (limited) control over the value of it's currency (by limiting or expanding the available sum of printed money), thereby it also has (again, limited) control over the value of it's own dept. Now you might say that playing with the value of the currency can have complex consequences, and that would be true. Still, macro economics work differently than micro economics.

      • Yes, but when using your checkbook you take the value of the currency as a given. A state has (limited) control over the value of it's currency (by limiting or expanding the available sum of printed money), thereby it also has (again, limited) control over the value of it's own dept. Now you might say that playing with the value of the currency can have complex consequences, and that would be true. Still, macro economics work differently than micro economics.

        I completely agree that the analogy is not perfect (never is). What I'm asking is why, if people like Cheney said that "Reagan proved deficits don't matter" [washingtonpost.com] then why are we seeing negative effects? Suddenly we're concerned about our AAA rating? Why should we care? Deficits don't matter, right? If you're saying that a checkbook deficit and national deficit are two completely different things then why are we seeing a threat of losing our credit rating and other money problems that are associated with drowning yourself in debt on a personal level?

        • by KiahZero (610862) on Monday August 01, 2011 @08:51AM (#36945950)

          The potential downgrade has little to do with the amount of debt owed - rather, it is a reflection of the rating agencies' assessment of how likely we are to repay our bonds. Originally, simply raising the debt ceiling would have been sufficient to satisfy the rating agencies. However, now that Republicans have made clear that raising the debt ceiling is an opportunity to extract concessions with the nation's credit rating on the line, some of the rating agencies wanted to see that Congress was capable of reaching agreements without blowing up the world economy.

          • by brian0918 (638904)

            The potential downgrade has little to do with the amount of debt owed - rather, it is a reflection of the rating agencies' assessment of how likely we are to repay our bonds.

            Please reread what you wrote: The amount of debt you owe has little to do ... with the likelihood that you can repay that debt...?

            So, to keep the analogy the same as the current US situation: if I take on so much credit card debt, that I need to get new credit cards just to keep paying the interest on the old credit cards, it will (supposedly) have little effect on my credit rating, because it (supposedly) does not affect my ability to repay the principal.

            This is your assertion, now please support it

            • by skids (119237) on Monday August 01, 2011 @10:25AM (#36947064) Homepage

              Let me help you get this straight: no rating agency was seriuosly suggesting downgrading the U.S. credit rating UNTIL Republicans threatened not to raise the debt ceiling. They were a long way from worrying about whether we would have enough revenue to pay interest, even with the great recession.

              That's because there is a big difference between being in a lot of debt (federal deficit) while having a job you won't lose (taxes), and starting to tell your bank you won't be making your next credit card payment not because you don't have the lower interest credit line (HELOC) to offload the debt to, but because you simply refuse to. Once you start acting irrationally (teabagger) then you become a less reliable debt issuer (borrower).

              Is that clear enough now?

            • Please reread what you wrote: The amount of debt you owe has little to do ... with the likelihood that you can repay that debt...?

              Afaict the majority of the US debt is denominated in US dollars and the US government can create US dollars out of thin air either directly or by ordering the fed to print them and hand them over. So really the only way for the US to default on their debt is if they "choose" to do so (in this case by refusing to raise a self-imposed "debt limit").

            • by KiahZero (610862) on Monday August 01, 2011 @10:47AM (#36947406)

              Adding on to what skids just said, Ezra Klein did a pretty good job of summarizing S&P's movement over the past year, so I'll let him do the work: [washingtonpost.com]

              But what was it, precisely, that changed S&P’s view?

              In [David Beers, director of Standard Poor’s sovereign-debt division]'s telling, it was primarily politics. The growth outlook wasn’t any better than it had been in April, but it wasn’t substantially worse. Nor had the debt burden increased with unexpected speed. It was Washington that had unsettled them. The update was clear about this. The title was “United States of America ‘AAA/A-1+’ Ratings Placed On CreditWatch Negative On Rising Risk Of Policy Stalemate” — italics mine.

              “What we’re saying now,” explains Beers, “is we question whether despite all the discussions and intense negotiations, if they can’t reach this agreement, will they be able to reach it after the election?”

              In short, our debt/GDP ratio is not what's driving the potential downgrade; rather, it's the concern that we won't be able to make the decisions necessary to eventually get our debt/GDP ratio stable. As I said, the amount the US owes has little to do with our credit rating (note: not "nothing," but "little"), since we are financially able to repay our obligations and any likely new obligations for the foreseeable future.

            • by AmElder (1385909)

              As a matter of fact that's just about correct, if I understand it right. I know you're trying to be snarky, but I think in approximation and analogy that's how it works. The issue isn't directly how much US owes compared with its wealth (it would never be the absolute value of the debt, anyway), but whether creditors are willing to keep lending, which of course depends on other interrelated things like the growth of the US economy, the money supply, the rate of inflation, interest rates, and how the play

            • by raehl (609729)

              Please reread what you wrote: The amount of debt you owe has little to do ... with the likelihood that you can repay that debt...?

              Well, depends how you look at it. The amount of debt alone isn't important; it's the amount of debt compared with likely future income. And in the case of the federal government, we'll almost certainly repay that debt, even if it's ultimately done with an inflation tax.

              For example, Greece and Portugal and Ireland and Italy would not be such problems if it were not for the Euro

    • by Anonymous Coward on Monday August 01, 2011 @08:23AM (#36945668)

      Why on Earth are we still implementing tax cuts and deficit spending?

      Well.

      *cough*

      Let me lay out the situation as best I understand it.

      DEMOCRATS: Let's cut some spending (BUT NOT MEDICARE/MEDICAID/SOCIAL SECURITY) and raise taxes on the rich.
      REPUBLICANS: Let's cut MORE spending, but leave taxes as is (OR LOWER THEM. THAT'D BE COOL TOO)
      TEA PARTY: Cut spending. DON'T TOUCH TAXES UNLESS YOU'RE CUTTING THEM. YOU'RE CUTTING MY GOVERNMENT PROGRAMS THAT I BENEFIT OFF OF? WHAT THE FUCK MATE?

      Sane Politician: Wait, didn't you say to cut spending?

      TEA PARTY: Yes, but NOT the things we benefit off of.

      Sane Politician: Uh.

      As for raising the debt ceiling, we're like...the only country that has a debt ceiling that limits how much we can borrow. So that results in craziness every few years.

      And yes, this time around the really hellhole was caused by the hardliner Tea Party senators. The normal Republicans wanted to get this shit done sooner, and the Dems were like, "fuckall we'll bend over backwards to get this shit through. Shit, we want to raise taxes, but FUCK taxes so we can get this through NOW." The Tea Party was, essentially, fanatically fighting for an ideology that doesn't really work in the real world.

      If you want them to raise taxes, get more Dems in office. They may be just as crooked as the Republicans, but at least they come off as willing to raise taxes.

      And no, shut up about the laffer curve. Assuming it works, and IF we're at the right side of the laffer curve, explain to me why the economy went up like a rocket back when tax rates were higher than the shithole of an economy we have now.

      • Re: (Score:3, Insightful)

        by Darkness404 (1287218)
        What we really need to do is:

        A) End the many wars we are involved in (Iraq, Afghanistan, Libya, "war on drugs", etc.)

        B) Close a lot of unneeded military bases in various countries, not only would this save a lot of money, we'd gain the respect of other nations.

        C) Work to privatize social security, but those who've paid in need to get the money that was taken from them by force and promised to them. If the government wants to run social security, make it a voluntary program.

        D) Sell a lot of t
        • by zach_the_lizard (1317619) on Monday August 01, 2011 @08:46AM (#36945898)

          I think giving up military bases could be a profitable adventure. I used to live in Kadena AFB in Japan (I was a military brat), and the bases take up like 10-20% of the island we were on IIRC. Lawns are unheard of off base, but yet many of us were housed in small homes with lawns. I'm willing to bet Japanese investors would go crazy over that land (so long as the US military hasn't massively polluted it; that's been known to happen).

          • True, but Kadena also brings in a lot of money for Okinawa and Japan as a whole so I doubt they are going to want the US to just pack their bags and move out over night. Also, over the past decade or so about 21% of the original land was returned back to Japan for use and they are paying a burden-sharing payment in exchange for keeping the base around.
          • Miltary bases are leased, not owned.

        • by visualight (468005) on Monday August 01, 2011 @08:50AM (#36945944) Homepage

          C) Work to privatize social security, but those who've paid in need to get the money that was taken from them by force and promised to them. If the government wants to run social security, make it a voluntary program.

          No way in hell will that happen and only a fool or a thief would want that to happen. All you'll end up with is an entire generation living "on the streets" and a handful of super-enriched bankers. It was a disaster for Brazil and it would be one for us too.

          Not to mention the fact that social security is what opened the door to taxing wages on labor. It is the definition of evil to take that step and then a few generations laters say "well, we're not going to deliver on our promise of a pension but we're still going to take 30% of your check every week." Don't want Social Security? Then figure out a way to run the government without taxing wages.

          • Not to mention the fact that social security is what opened the door to taxing wages on labor.

            This is just factually incorrect. Income tax first began in 1862 to fund the Civil War; and since the 16th amendment in 1916 it's been a permanent part of the landscape. Social security was enacted in 1935. While SS may have paved the way for direct wage/payroll withholdings, income tax was an established fact well before that point.

            It is the definition of evil to take that step and then a few generations laters say "well, we're not going to deliver on our promise of a pension but we're still going to take 30% of your check every week." Don't want Social Security? Then figure out a way to run the government without taxing wages.

            First, that's a damned weird definition of evil. Second, 30% of your check isn't collected to guarantee a pension - 4.2% of it is. The rest of it is collected to fund local, state, federal governments and medicare.

            • Re: (Score:3, Informative)

              by need4mospd (1146215)

              Second, 30% of your check isn't collected to guarantee a pension - 4.2% of it is. The rest of it is collected to fund local, state, federal governments and medicare.

              While the previous posted was exaggerating quite a bit, saying it's 4.2% is wrong on a MUCH worse level. FYI, your employer pays 6.2% ON TOP of the 4.2% you see removed from your check. One of the MANY little ways the gov. hides how much tax you REALLY pay.

        • by sosume (680416)

          > C) Work to privatize social security, but those who've paid in need to get the money that was taken from them by force and promised to them. If the government wants to run social security, make it a voluntary program

          That's more like private security then social security, isn't it? How can you run social security without it being mandatory? That would lead to most employed having no social security, and most unemployed begging to get in.

          The whole idea is that in general, worldwide, of a thousand people

        • by Anonymous Coward on Monday August 01, 2011 @09:20AM (#36946286)

          "Work to privatize social security"

          Dear god, no, no and thrice no

          social care of those less fortunate souls who cannot afford to live without financial help is the moral responsibility of society as a whole (i.e the government as the body that represents the country) Otherwise the streets would be ovverun with homeless, people.

          Would you really let your neighbour die through lack of food or medicines because they have no money and the government has no social security program? If so you;re a heartless bastard,

          social care is an obligation, not something that government should abolish responsibility for,

        • Adding to your B) we could also stand to shut down a lot of our other military spending by canceling programs to build more (and new types of) planes, ships, tanks, etc. and by reducing the number of people in the military. If there is a concern about putting large numbers of people out of work, then at least let us do that and then start up civilian programs: The companies that built things could transition to building drones for civilian use, rail infrastructure and trains (at all levels from trolleys to

      • by Attila Dimedici (1036002) on Monday August 01, 2011 @09:26AM (#36946350)

        As for raising the debt ceiling, we're like...the only country that has a debt ceiling that limits how much we can borrow.

        You are absolutely correct. We should do away with the debt ceiling and go back to the way the Framers intended and force Congress to authorize every bond issue. The U.S. Constitution explicitly says that Congress is the only body that has the authority to "borrow money on the credit of the United States". In 1917, Congress wanted to give the Treasury the power to adjust the types of bonds it issued on the basis of changes in the market (and to avoid having to have a record of voting to borrow money that could be used against them in a campaign). In order to do so in a way that could at least give the appearance of passing Constitutional muster, they instituted the debt ceiling. There are two legitimate ways to get rid of the debt ceiling. The first is for Congress to authorize the issuance of every instrument of debt individually. The second is to ammend the Constitution to allow the President to "borrow money on the credit of the United States".

        • And the third, sane way is for Congress to authorize borrowing the money to spend at the same time they authorize spending the money.

          That's what other people mean when they say other countries don't have a 'debt ceiling'. In other countries, just like the US, the legislature is required to authorized all spending and all borrowing. The legislative branch always creates the budget, and the ability to borrow. There is no government where the chief executive can decide to randomly spend money, and no government when he can randomly borrow money to do so.

          However, in other countries, they just do those two things at the same fucking time. As they pass a budget, they authorize the borrowing of money to cover that budget, and hence do not have idiotic votes like this one.

          We, however, have insanely decided to pass impossible bills, where we say we are going to spend $X on something, without the ability to do so...and then come along later to make say 'And we we can borrow the money when we need it', making our budget actually possible. No other country is this goddamn stupid.

          • Are you saying that in other countries they decide what kinds of bonds to issue (long term, medium term, short term) when they authorize the spending?
            The problem with authorizing the borrowing at the same time they authorize the spending is that they don't know how much they will need to borrow. They create a budget and project how much tax revenue they are going to receive, but the government never receives that amount of money. Usually, it receives less, although it is theoretically possible that it coul
      • The economy that ended with Clintons last term was the result of the revolution with computing and the internet. It was a once a lifetime event that won't likely repeat itself while we are still alive. It had vey little to do with the tax rate during the period but rather basic research done with tax dollars from the 40's to the 90's. That period has messed with everyones expectations about growth of the economy. This resulted in us spending more money than we took in. The USA is like a man who buys a house
      • by LordLimecat (1103839) on Monday August 01, 2011 @10:06AM (#36946836)

        TEA PARTY: Yes, but NOT the things we benefit off of.

        Making that into a Tea Party-only sentiment is a little dishonest.

      • by Shotgun (30919)

        You misunderstand it. You need to stop listening to JUST the talking points.

        DEMOCRATS: Let's make it appear that we will cut some spending (BUT NOT MEDICARE/MEDICAID/SOCIAL SECURITY) and raise taxes on the rich.
        REPUBLICANS: Let's make it appear that we will cut MORE spending, but leave taxes as is (OR LOWER THEM. THAT'D BE COOL TOO)
        TEA PARTY: Cut spending. Really. For real. Not in 10 years, so that later Congresses can throw the cuts away. Cut the spending now, and cut it enough that we're not spending

    • Re: (Score:3, Insightful)

      by Anonymous Coward

      Well, gov *does* take in ``taxes'' what it spends... just depends on what you consider a ``tax''. For example, by expanding the money supply, inflation can be viewed as a flat tax on everyone. It's not visible, and that's what makes it politically attractive (e.g. politicians would have a hard time saying they want to raise taxes by 10% on *everyone* and *everything*, no exceptions), and yet they do that every time more moneh is printed.

      In that light, the recent government stimulus can be viewed as, ``we'll

    • Re: (Score:3, Insightful)

      Regan's plan was the same that MANY American households use every day: they put whatever they desire on the credit card and make the minimum payment. This has become the Republican mantra. Recall Dick Cheney's "Regan proved deficits don't matter". The notion that increased taxes cost jobs has been proven countless times, and defies logic, yet somehow it's the cornerstone of the current deal. Most borrow and spend households eventually end up in bankruptcy court, failing the death of a rich relative. Sin
      • by gorzek (647352) <[gorzek] [at] [gmail.com]> on Monday August 01, 2011 @09:39AM (#36946492) Homepage Journal

        Sovereign debt is absolutely nothing like private debt, and only a fool would compare the two. Beyond the fact that it is borrowing money (and thus must be repaid) they have virtually nothing in common.

        Families have limited assets that they can mortgage and sell to pay off debts. Families have limited incomes and limited options for expanding said income.

        Governments do not have these problems. A government can lay taxes and print money. Governments also don't "die." In the long run, a country's "income" (GDP) is always expanding. This means the total debt load is not important, only the ratio of debt to GDP matters. As long as that ratio is kept to a manageable level and your interest rates are low, you can keep on borrowing.

        By the way, current interest rates are near zero percent, and if you factor in inflation the real interest rate is negative. It would be stupid not to borrow as much as you can possibly get away with under terms like that. Debt and taxes are not the US' problem. Our real problem is being embroiled in a liquidity trap.

        Republicans have fucked this country six ways to Sunday and voters have ordered them to fuck us some more because they don't have a clue about, well, anything.

    • Either you have to raise taxes or cut spending.

      ...OR you "print" more money and hand it to the MIC [wikimedia.org] so they can spend it at todays value, before the rest of the population cottons on that it must be devalued. Don't worry, all that printed cash eventually "filters downs" to weaker hands, forming bubbles here and there like in the housing market. Take a course that explains it with references: one of many [chrismartenson.com] (worth starting at chapter 1 but if your in a hurry)....

    • by dkleinsc (563838) on Monday August 01, 2011 @08:42AM (#36945862) Homepage

      So if you're trying to balance a budget ...

      That's where you went wrong in your analysis. The Republican Party has absolutely no interest in balancing the budget. This has been shown time and time again: For instance, when George W Bush took office with a slight budget surplus if you count Social Security (which you probably shouldn't), he immediately cut taxes to put the budget in a hole.

      Based solely on their actions when in power, this is what the Republican Party really believes in:
      1. Cutting taxes on the wealthiest Americans. That's why, if you're somebody who makes their living off of investments, you pay a 15% capital gains tax, whereas if you make considerably less by working you pay a 25% income tax and a 12% FICA tax. Thanks to their actions, the tax rates are the lowest they've been since at least the 1940's.
      2. Neutering or completely getting rid of any government agency that could serve as a check on corporate power. They would love to live in a world without the EPA, OSHA, MSHA, NLRB, or the SEC.
      3. Getting rid of anything that smacks of aid to the poor and downtrodden. Social Security, Medicare, Medicaid, TANF, food stamps, housing assistance, and minimum wages all come under that category.
      4. Expanding the 'national security' portion of government as much as possible, preferably with large no-bid contracts for their family, friends and business associates. They like being able to spy on anybody and everybody, starting wars that they don't need to start, and taking over Latin American countries with little or no military forces to speak of.

      I'm no supporter of Democrats either, but one of the biggest myths out there is the idea that the Republicans want to balance the budget when it's abundantly clear they have no intention of doing so.

      • by Nidi62 (1525137)

        2. Neutering or completely getting rid of any government agency that could serve as a check on corporate power. They would love to live in a world without the EPA, OSHA, MSHA, NLRB, or the SEC.

        In their defense, the NLRB is thoroughly corrupt. I work part time for a major corporation that just had a labor vote. The NLRB changed the rules where, previously, "yes" votes were taken as a percentage of all eligible employees in the company(whether they voted or not). Now, the number of "yes" votes are taken as a percentage of only those who voted. The union still lost the vote, and they are now claiming interference by the corporation because the company publicized the date of the vote throughout t

      • by stdarg (456557)

        1. Cutting taxes on the wealthiest Americans. That's why, if you're somebody who makes their living off of investments, you pay a 15% capital gains tax, whereas if you make considerably less by working you pay a 25% income tax and a 12% FICA tax.

        The 15% tax after all of the other taxes you mentioned are taken out. Companies pay salaries which pay those taxes. Whatever is left goes to investors. If they pay lower salaries and lower taxes, there's more for investors. If you had higher taxes on investors, it would just balance out. You can't magically make everybody rich by fiddling around with numbers!

        3. Getting rid of anything that smacks of aid to the poor and downtrodden. Social Security, Medicare, Medicaid, TANF, food stamps, housing assistance, and minimum wages all come under that category.

        True but conservatives do push for tax exemptions for charity and religious organizations.

        Calling Social Security "aid to the poor" is accurate but ver

    • by trout007 (975317)

      The history of the debt is punctuated by one major constant. War.
      See http://en.wikipedia.org/wiki/File:US_Federal_Debt.png [wikipedia.org]
      There are several peaks which coincide with wars followed by peacetime declines.
      Revolution
      War of 1812.
      Civil War
      WWI
      WWII
      Cold War (Regans Spending)
      Global War on Terrorism

      The Korean and Vietnam wars were overshadowed by the recovery from WWII which was massive.

      A minor factor is when we had Central Banks. These helped allow deficit spending war or peace to occur.
      These are the times when we di

    • The additional "elephant in the room"(strictly speaking, only part of the elephant actually stands for it; but enough to factor in) is the "starve the beast" bloc.

      These people see running unsustainable deficits as a deliberate long-term strategy to force the state into a financial crisis where it simply cannot avoid radically shrinking. What I have never been able to figure out, though, is how many of these are truly far more radical than they let on, and how many are just stupid. Allow me to explain:
    • by hey! (33014) on Monday August 01, 2011 @09:38AM (#36946488) Homepage Journal

      So if you're trying to balance a budget, how in the hell do you justify spending way more money than you take in?

      I'll take a crack at this.

      If you evaluated private enterprise budgets the same way you did the federal budget, you'd see that it's quite common for even profitable [note 1] companies to lay out more cash than they take in, by issuing corporate bonds. If you step back and look at the actual financial effect of issuing a bond on a corporation, you'd see that what it does is allow the corporation to spend more cash than its operations can raise. Why would they want to do that? Because restricting their spending to what they take in also restricts their ability to grow.

      If you are an engineer, you'll recognize this as an optimization problem. The corporation can always grow more by outlaying more cash, but its supply of cash is limited. So it obtains more cash by issuing securities to be paid out from future, expanded revenues. But there is a point where the interest burden on the debt assumed exceeds the amount of growth generated. That determines the point at which you stop borrowing. If businesses were deterministic (which they aren't), there'd be an equation of corporate value as a function of cash outlay that takes into account the present value of growth against interest costs.

      Of course this is a gross simplification, of course, but the financial principle is the same. You manage your cash outlays and borrowing in such a way that (a) you maximize net growth while (b) being able to meet your current obligations.

      I don't spend more money than I take in.

      Didn't take a student loan, did you? Nor a loan for a house?

      The problem with people and credit cards (or bad mortgages) isn't taking on debt per se, but taking on debt to obtain things of no long term value or dubious long term value. Let's take an eighteen year-old who wants to be an engineer. Would it make sense for him to work for ten or fifteen years at a low wage job so he could pay his way through college without borrowing? You'd be a fool to advise that, because the education would add so much to his value as an income generating concern that a loan at reasonable interest rates is a financial no-brainer.

      So here's the takeaway lesson: don't worry about borrowing; worry about stupid and pointless spending. It's very easy to prove that the smart money doesn't think that the US has a borrowing problem, by looking at the credit rating of US Treasury securities. Up until now, that has been viewed as the safest possible investment, and ironically if our credit rating drops it will be *because* we aren't willing to borrow money to meet our current expenses, the way any well-run business would.

      Of course, there is a psychological link between easy borrowing and stupid spending, but the problem is still stupid spending. Credit is buying money, and credit card interest is stupid spending because the interest rates are high.

      note 1 : "profit" and "positive cash flow" are different things altogether, but as individuals our wealth is usually so insignificant that we can conflate them as a first approximation because we aren't that far, in financial terms, from living hand-to-mouth. The situation for a largish business is different. Companies might well borrow money and pay dividends in the same quarter, and it would raise no eyebrows.

  • great (Score:5, Insightful)

    by Anonymous Coward on Monday August 01, 2011 @08:15AM (#36945580)

    Debtor says, "I would like to borrow some money."
    Creditor says, "And what do you owe now?"
    Debtor: "So much I need at least 145 years to pay it back."
    Creditor: "Tell me your plan."
    Debtor: "I have no plan to pay it back. I will only pay the
    interest."
    Creditor: "You want your kids, grand kids, and great grand kids to pay it back?"
    Debtor: "It will be very painful for me not to get the loan. I can print up some money if I need to."
    Creditor: "You have no plan."
    Debtor: "I am working on a plan to borrow a little less than usual - 10% less."
    Creditor: "You have no plan to balance the budget, you plan only to keep borrowing, you print up money, you dump your debt on 3 future generations and counting, and you want us to believe you have integrity, and are worthy of credit and trust?"
    Debtor: "I want what I want when I want it, and I want it right now.
    Give me the loan or I will print the money!"

    • As the saying goes, "if you owe the bank $100,000, the bank owns you. If you owe the bank $2billion dollars, you own the bank."
  • Ponzi Scheme (Score:5, Interesting)

    by igreaterthanu (1942456) * on Monday August 01, 2011 @08:15AM (#36945582)

    Can someone explain to me why US Treasuries should be rated AAA in the first place?

    Money is paid out to investors out of new investor's money, and the cycle continues. Last time I checked, this is also known as a Ponzi Scheme and it is inevitable that it eventually collapses.

    These are the same people who rated junk mortgage bonds as a good investment, so I'm not surprised.

    • Re: (Score:3, Interesting)

      by Serpents (1831432)
      The rating agencies are a kind of a self-fulfilling prophecy. They give you good rating and people throw their money at you without bothering to check if the rating is justified; they rate you poorly and everyone will panic and there's no way you can convince them to listen to your explanations.
    • Re:Ponzi Scheme (Score:4, Insightful)

      by blueg3 (192743) on Monday August 01, 2011 @08:46AM (#36945894)

      In a Ponzi scheme, payments are made solely through new investor's money. The government, on the other hand, does have a fairly sizable revenue stream.

      Since money is fungible, you can't say that the money to pay back bonds is necessarily paid with the income from the issuance of new bonds and not from revenues. This applies to individuals, too -- if, every month, I put $1000 on a credit card and pay it off every month, it's logically the same as having a perpetual balance on the card. The creditor certainly doesn't think so, though (in only one scenario am I charged interest, and most credit card companies will get upset if you don't pay *anything* back), because in the former scenario, I have revenue backing my credit.

      • by nedlohs (1335013)

        Seriously.

        You are claiming that if I run a Ponzi scheme and I make sure that some of the payments actually come from a revenue stream other than investors money then it actually isn't a Ponzi scheme?

        So as long as I invest say 10% of the each investor's investment in something that pays some return , say a savings account at the local bank, and a cent or so of each payment out of that then I'm all legal?

        How stupid are these people who don't do that and go to jail?

        Your credit card example is pretty much irrel

    • Re:Ponzi Scheme (Score:4, Interesting)

      by JamesP (688957) on Monday August 01, 2011 @08:55AM (#36946000)

      Can someone explain to me why US Treasuries should be rated AAA in the first place?

      Easy

      the US never defaulted, that's why

      Of course, past performance doesn't correspond to future gains.

      It also helps that US bonds can be used as money, and are used as such.

      • by Vaphell (1489021)

        it defaulted at least twice
        - confiscation of gold and devaluation of dollar (40%) in 1 swift move
        - 1971 when dollars stopped being redeemable for gold (the us printed too many of them and foreign powers tried to excercise the right to get gold for inflated dollars)

        changing the rules during the game to fuck the other team over qualifies as default.

  • by Pollux (102520) <speter.tedata@net@eg> on Monday August 01, 2011 @08:19AM (#36945606) Journal

    An agreement has been reached, but it hasn't been passed by either the house or senate yet. (It's almost certain to pass the senate, as that's where the compromise originated. The house, on the other hand...well, we'll see.)

    Yet, in the back of my mind, there was a part of me wondering whether an agreement would ever be reached. The conspiracy theory in me kept saying that there were enough rich fat cats who were paying off key congressmen to sabotage the process and make sure that no agreement was ever reached. Why? Because billions of dollars had been invested in credit-default swaps [go.com] against the United States debt.

    • by Seumas (6865) on Monday August 01, 2011 @08:34AM (#36945776)

      Of course they'd reach a deal. This is all theater. A bunch of showboating and grandstanding to get your name out there and get people hearing your soundbites while, in the end, accomplishing nothing and buckling. Spend two months saying "we spend too much!" and then agree to some bullshit "we agree to cut our expected spending over the next decade and count it as actually cutting costs" and call it "job done".

  • Going further in to debt is not a good strategy to becoming debt free. A person can't drink themselves sober, and economies can't borrow themselves out of debt. The US government should have minted two $1 trillion dollar platinum coins, thus creating debt free currency, deposited that into the Federal Reserve Bank, and then wrote checks against it. Instead they're going to borrow $2 trillion from the private Federal Reserve Bank. Now the US is going to have to make interest payments on that borrowed money. The US spends 500 billion dollars a year on interest payments. If they had created the money at the mint, they wouldn't have to pay interest on it. Watch the recent Still reports to learn more about this: http://www.youtube.com/user/bstill3 [youtube.com]
    • by asylumx (881307)

      Going further in to debt is not a good strategy to becoming debt free

      It's called "investing" -- you spend money to make more money than you spent. Whether you go into debt or not is inconsequential, assuming you are successful in your investment.

  • Strange situation (Score:3, Insightful)

    by teg (97890) on Monday August 01, 2011 @08:22AM (#36945640) Homepage

    For someone from a country with a better grip on its economy, the whole ordeal seems rather strange:

    • An agreement was made on the budget just a couple of months ago. The debt ceiling increase is just a consequence of the budget, not a separate item. So why the fight?
    • It's rather obvious that cuts alone won't do it. The amount is just too big, there needs to be a mix.
    • Going back to see when the deficit started coming, it's rather obvious that the Bush tax cuts can't be afforded. Still, noone is talking about letting them expire. And when the budget is balanced again, always be vigilant in finding expenses to cut so tax cuts can be funded.
  • by Anonymous Coward on Monday August 01, 2011 @08:22AM (#36945644)

    According to Lexington at the Economist [economist.com], this whole hoopla was the Republican's fault.

    the Republican House has come up with is a non-solution (since the Senate cannot buy it) to a problem entirely of the Republicans' own making. The reason for this crisis is that instead of just raising the debt ceiling in the customary way so that the government can pay the bills Congress has already run up, the Republicans decided to point a pistol at the American economy and threaten to pull the trigger if they did not get the spending cuts they wanted.

    Also, I think it was horribly hypocritical of the Republicans to blame "entitlement programs" for the problems and never mentioning the wars and their action of lowering taxes during war time - that's what killed us. All the other reasons like Obama Care are just distractions - especially when you consider that it hasn't even taken effect yet. And why is SS on the table in this context? Bullshit!

    Yes eventually Social Security will have to be addressed but to include it in the debt ceiling was ludicrous.

    By the way, the debt ceiling allow the government to pay it's current bills and nothing more. Thinking that it allows for increasing government spending just shows how little we Americans truly understand how our government operates - myself included.

  • Umm...duh? (Score:5, Interesting)

    by HarrySquatter (1698416) on Monday August 01, 2011 @08:22AM (#36945646)

    The deal would cut more than $2 trillion from federal spending over a decade. However, most economists think this isn't enough and does not remove the threat that the nation's AAA credit rating could be downgraded.

    Of course it's not going to do anything substantial. You really thought the Republicans were fighting this fight truly to solve and end the debt woes of this country rather than politicking for 2012? Especially when the terms of last 3 Republican presidents accounted for $9.5 trillion of the $14 trillion this country carries? This in no way makes excuses Obama pushing even more debt on pile, but the Republicans hardly have a case for being "fiscally conservative" when Reagan, Bush and Bush Jr piled on 67% of the current debt.

  • The best part... (Score:5, Insightful)

    by Anonymous Coward on Monday August 01, 2011 @08:30AM (#36945726)

    The actual funny part is.... You all still think there is a difference between republicans and democrats.

    They've kept that thru all of this. It's outstanding. Best scam ever. Wish i'd thought of it.

    Keep the population arguing over D/R while we rob them all blind. It's genius!

    Oh wait... i live here too.. shit.

  • by mwasham (1208930) on Monday August 01, 2011 @08:35AM (#36945790) Homepage
    "No plan under serious consideration cuts spending in the way you and I think about it. Instead, the cuts being discussed are illusory and are not cuts from current amounts being spent, but cuts in prospective spending increases. This is akin to a family saving $100,000 in expenses by deciding not to buy a Lamborghini and instead getting a fully loaded Mercedes when really their budget dictates that they need to stick with their perfectly serviceable Honda." http://www.ronpaul2012.net/2011/08/01/ron-paul-on-the-debt-ceiling-debate-just-freeze-the-budget/ [ronpaul2012.net]
  • The US spends more money on its military than all other countries combined. Why not save a bit there, on the biggest budget post of them all? Saving some small posts here and there without even looking at the expenditures that really digs holes in the wallet seems, insane.

    Seems military spending is sacred even if countless research has show excessive waste and that US military could get by on half the money without any noticable effect on the defence capabilities.

    To an outsider it looks as if the US is on the exact same path as the USSR was some years ago when it overspent all its money on the military complex. Once that happens the US will have the exact same situation that Soviet has had, with states wanting to jump off the sinking ship.

    • by gtall (79522)

      Easy, DoD costs about $700 a year. The deficit in this last year was about $1.4 trillion. So you won't be balancing squat by merely cutting defense.

      And the real issue isn't past debt, it is future debt. The Me Generation of Baby Boomers is retiring to the tune of about 10,000 per day. They are all going to demand their SS and Medicare (or whatever that morphs into). They will suck down more than they ever paid in, but they will never admit it and will demand more. So either those two programs get re-defined

  • by cvtan (752695) on Monday August 01, 2011 @09:03AM (#36946098)
    All this wrangling has nothing to do with the debt or trying to help the economy. Some people were just horrified when Obama was elected and will do anything, even sell their own country down the river, to get him out of office Following Rush Limbaugh logic, conservatives can't be seen as doing anything that might help the president. Hey, if the country defaults, there is a 50% chance Obama will get blamed and might lose the next election! Those odds are good enough for us!
  • by mbone (558574) on Monday August 01, 2011 @09:38AM (#36946484)

    About the only thing right about the summary is the spelling.

    The deal would cut more than $2 trillion from federal spending over a decade. However, most economists think this isn't enough and does not remove the threat that the nation's AAA credit rating could be downgraded.

    This debt crisis is entirely manufactured and artificial, the reason the country's AAA rating could be downgraded is because idiots are playing political games with our credit worthiness, and most economists think that the economy needs stimulus, not immediate cuts in spending. (Oh, and since current Congresses can't bind future Congresses, the $ 2 trillion number is also meaningless.)

  • by Hartree (191324) on Monday August 01, 2011 @09:55AM (#36946710)

    It still has to pass both the house and senate. The house may still be a problem.

    Until it does and is signed, "the check is in the mail".

I judge a religion as being good or bad based on whether its adherents become better people as a result of practicing it. - Joe Mullally, computer salesman

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