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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 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.

  • by Darkness404 (1287218) on Monday August 01, 2011 @08:24AM (#36945678)
    ...There was no Federal Reserve prior to 1913 when it was created in a secret agreement by bankers and then spun to the public as a way to "regulate" and prevent abuses in the banking industry.

    However Jefferson opposed the first bank of the United States which was similar to the Federal Reserve system but yet entirely different because it didn't deal in fiat currency and money creation.
  • by (741064) on Monday August 01, 2011 @08:25AM (#36945680)
    Reseach the economic state the US was in just before Reagan. Reagan did the same thing JFK did, lowered taxes which increases revenue. Reagan's policies are widely recognized as bringing about the second longest peacetime economic expansion in U.S. history, surpassed in duration only by the 1990s expansion that began under George H. W. Bush in 1991. []
  • 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." []
  • by Anonymous Coward on Monday August 01, 2011 @08:46AM (#36945896)

    Clinton did NOT balance the budget -- he did an accounting trick to appear to balance the budget.

    That trick? He took the income from Social Security payments (the ones going into the supposed "lockbox") and moved that income to the general funding of government.

    Never once did Clinton balance any budgets. Instead, he stole from future Social Security recipients and forced those payments to be made by future taxes and spending shifts.

  • 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).

  • 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.

  • 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.

  • by need4mospd (1146215) on Monday August 01, 2011 @09:46AM (#36946574)

    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 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: []

    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.

  • You ARE crazy (Score:5, Informative)

    by swb (14022) on Monday August 01, 2011 @11:05AM (#36947676)

    Sounds more than a bit far out and almost totally misinformed.

    China's military options for collecting on their debts are almost zero. Where will China export the goods it needs to keep its economy going if they start a war with the United States?

    Further, China buys US treasuries to keep their currency valuation down so that they can continue to be the low-cost contract manufacturer to the world. Without keeping their currency low, the strength of their economy would push their currency higher, making them uncompetitive as exporters and pretty much derailing the vast majority of their economy.

    A derailed economy REALLY scares the Chinese leadership, as their number one focus is maintaining order and putting a couple hundred million people out of work does not help with order.

    The US is almost totally in control when it comes to Chinese owned debt. Its denominated in our own currency. Any threat to dump it would probably be met by a US threat to simply void it. They could stop buying it, but it would have a deleterious impact on their currency valuation.

    What's missing from the recent coverage over the the debt ceiling dust up is the sentiment of many Republicans that Government is too big and by squeezing it from a revenue side they hope to stop its expansion and try to shrink it. This has been a long-term Republican strategy, but its largely been a failure. It may have slowed some expansion, but generally speaking the net outcome has been to cause deficits to be run up.

    I largely think that some tax increase is necessary. I'd personally like to see a tax increase across the board, including low-income earners. I'd eliminate the earned income tax credit that basically allows some 40 percent of the population to pay no taxes -- I don't think a reasonable tax on them would amount to much, but I think it creates a free ride which is a poor tax policy. I think it would also philosophically undermine the "40 percent of Americans pay no taxes" line which is used to refute increasing taxes on the wealthy who can frankly afford to pay them.

    More importantly, we need to have a long discussion in this country as to what's vital from the government (roads, infrastructure, safe food and medicine as a start) and what's merely nice if we can afford it.

  • by nedlohs (1335013) on Monday August 01, 2011 @11:19AM (#36947908)

    The debt problem started dozens of presidents ago..


    "Dozens" would put us at a minimum two dozen presidents ago. That president fought in the Civil War. Three dozen and the President was born before the Treaty of Paris.

  • by dachshund (300733) on Monday August 01, 2011 @11:19AM (#36947910)

    Every single Reagan budget was pronounced DOA by Tip O'Neil (D), Speaker of the House. Every single budget that Congress approved was far larger then what Reagan wanted but had no choice but to sign it.

    This is factually incorrect [], and honestly it's not even hard to check. Why didn't you?

    over Reagan's 8 years, Congress approved smaller budgets than he requested on average, and the deviation from what he requested averaged less than half a percent. He raised the debt by $1,860 billion and Congress reduced his budgets by $16 billion. Otherwise he would have raised the debt by $1,876 billion.

    Everyone is entitled to their own opinion, but we all have to work from the same set of facts. If your political stance requires that you believe things that are not true, that doesn't necessarily mean that your politics are wrong. But it's a strong indication.

    Take some time. Familiarize yourself with the numbers. Decide what you really believe, not what other people have told you. Then resume posting to Slashdot.

  • by DavidTC (10147) < ... > <>> on Monday August 01, 2011 @12:28PM (#36948834) Homepage

    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.

If you're not part of the solution, you're part of the precipitate.