26
   

Tick, tick. August 2nd is the Debt Limit Armageddon. Or Not.

 
 
Cycloptichorn
 
  1  
Reply Wed 3 Aug, 2011 12:35 pm
@georgeob1,
Quote:
We will be well rid of him in 2012.


Is this a specific prediction? I think that it would be rather hasty to say that at this point; don't you?

Cycloptichorn
roger
 
  1  
Reply Wed 3 Aug, 2011 12:38 pm
@parados,
I think you missed the whole point of the Laffer Curve concept. It doesn't begin to tell us what taxes will be, or what they should be. All it does is observe that for any given revenue desired, there are two rates that will yield the same revenue, ceteris paribus.

The assumption is that the higher rate will slow down an overheated economy, while the lower rate will increase economic activity. Now, this is an assumption, but I doubt you can dispute it.
Cycloptichorn
 
  1  
Reply Wed 3 Aug, 2011 12:41 pm
@roger,
Quote:

I think you missed the whole point of the Laffer Curve concept. It doesn't begin to tell us what taxes will be, or what they should be. All it does is observe that for any given revenue desired, there are two rates that will yield the same revenue, ceteris paribus.


Only if the 100 other factors which affect revenues collected remain equal, which they never do, which makes the curve useless and in fact pernicious to discussions of policy. The 'concept' is fundamentally false, because it posits simplicity where there is no such simplicity.

Cycloptichorn
0 Replies
 
georgeob1
 
  1  
Reply Wed 3 Aug, 2011 12:42 pm
@Cycloptichorn,
It is my opinion. I could be wrong, but the trends, as I see them, strongly favor his continued decline and defeat in 2012.
0 Replies
 
JPB
 
  2  
Reply Wed 3 Aug, 2011 12:46 pm
@georgeob1,
Quote:
they are demanding cuts in spending now, and if delivered, I suspect will entrertain tax increases later.


You're smoking something.

Quote:
In my view the discriminator here is the likely (in my eyes) effects of the huge increases in government's use of its expanded regulatory power and inefficient giveaways to its favored constituents to significantly slow our economic recovery from the recent recession.


Let's talk about defense spending pork.
0 Replies
 
parados
 
  1  
Reply Wed 3 Aug, 2011 01:00 pm
@cicerone imposter,
Quote:
I will agree with you that the liberals have a difficult time making adjustments to social security, Medicare, and medical, but those are the very programs that needs adjustments to bring revenue in line with cost

Only for future revenues.
For current revenues SS brings in more than it spends and Medicare is covered by it's trust fund.

The current deficit isn't caused by Medicare and SS.
cicerone imposter
 
  1  
Reply Wed 3 Aug, 2011 01:04 pm
@parados,
"Current" is not the issue; the government still "borrows" from the trust fund to spend money. If and when interest rates increase, it increases our governments inability to fund other necessary programs.

Hindsight is not good planning.

Another obvious trend: health cost is increasing at double-digit almost every year. How long do you think the trust fund will survive with the numbers of retirees begin to increase "this year?"

From endofamericandream.com.
Quote:
#12 According to the Congressional Budget Office, the Social Security system will pay out more in benefits than it receives in payroll taxes in 2010. That was not supposed to happen until at least 2016. Sadly, in the years ahead these "Social Security deficits" are scheduled to become absolutely horrific as hordes of Baby Boomers start to retire.
parados
 
  3  
Reply Wed 3 Aug, 2011 01:08 pm
@roger,
It's a meaningless assumption since no one is proposing we tax at the higher rate on the bell curve. The only question is where on the lower half of the curve to tax.
0 Replies
 
parados
 
  1  
Reply Wed 3 Aug, 2011 01:10 pm
@cicerone imposter,
Current IS the issue because we are currently borrowing and that has to be paid back through interest.

Interest from borrowed money will grow faster than SS or Medicare will.
cicerone imposter
 
  1  
Reply Wed 3 Aug, 2011 01:13 pm
@parados,
You're in dream land. If the US government's payment on the debt increases, it's ability to pay those debts becomes less able. That's the reason there's a threat of a downgrade in US bonds. Increasing spending with no revenues only exacerbates our government's ability to reduce the debt. That's not even Econ 101; it's common sense.
parados
 
  1  
Reply Wed 3 Aug, 2011 01:33 pm
@cicerone imposter,
Quote:
Increasing spending with no revenues only exacerbates our government's ability to reduce the debt.

Except the issue is we are currently spending more than we take in and the only fix seems to be cut the programs that are currently taking in more than they are spending.

Common sense would be to fix the deficit in the general fund before we worry about the future deficit in SS and Medicare.
cicerone imposter
 
  1  
Reply Wed 3 Aug, 2011 02:28 pm
@parados,
We'll just have to agree to disagree.
cicerone imposter
 
  1  
Reply Wed 3 Aug, 2011 03:33 pm
@cicerone imposter,
From USA Today.

Quote:
Poll: Thumbs down on the debt-ceiling deal
By Susan Page, USA TODAY
Updated 2h 8m ago

WASHINGTON — The hard-won, last-minute agreement to raise the debt ceiling and cut the deficit gets low ratings from Americans, who by more than 2-1 predict it will make the nation's fragile economy worse rather than better.

By Carolyn Kaster, AP

In a USA TODAY/Gallup Poll taken hours after the Senate passed and President Obama signed a debt ceiling bill, 41% of people polled said the deal will make the economy worse.

In a USA TODAY/Gallup Poll taken hours after the Senate passed and President Obama signed the deal, a 46% plurality disapprove of the agreement; 39% approve. Only one in five see it as a "step forward" in addressing the federal debt.

"People don't know jack" about the particulars of the agreement, "but what you heard about the process throughout was that it was horrible," says Joseph White, a political scientist at Case Western Reserve University who studies budget policy. "Most people assume that whatever came out of this horrible process was pretty crappy."

The sour reaction even after a compromise was struck underscores why the negotiations were so difficult, says Stan Collender, a former staffer on the House and Senate budget committees who is a partner at Qorvis Communications. "There was almost no way at all that elected officials were going to win on this one. No matter what they did, a lot of people were going to dislike it."

The poll finds some paradoxes.

Though Tea Party conservatives succeeded in setting the parameters of the debate, supporters of the Tea Party are among those most unhappy with the outcome. Only 22% of Tea Party supporters approve of the deal, compared with 26% of Republicans generally and 58% of Democrats.
0 Replies
 
JPB
 
  1  
Reply Wed 3 Aug, 2011 04:48 pm
I believe rjb posted a reference in this thread about the FAA shutdown. This article on the subject is long but worth the read for anyone trying to understand the back story.

Quote:
About 4,000 FAA employees and tens of thousands of workers on FAA construction projects have been on furlough since then. None of them, the Transportation Department stresses, are critical safety workers like air traffic controllers, who are paid under a separate system.

"Safety is not compromised — never has been, never will be," Transportation Secretary Ray LaHood said Tuesday in an interview with MSNBC TV. "What is compromised are 70,000 construction workers right smack dab in the middle of the construction season."

<background story is explained...>

Schumer said Mica's maneuver was like "someone puts a gun to your head and says, 'Give me your money.'"

"You leave out the whole context that there's being a gun held to your head," Schumer said. "And that is not fair, and that is not right."

Here's the thing: Mica has all but admitted that's what he's doing.

The rural airports provision is "just a tool to try to motivate some action to get this resolved," Mica said last month at an airport executives conference.

If the union issue could be settled to House Republicans' satisfaction, "the rest can fall into place within 20 minutes," he said.


more hostage taking.
Izzie
 
  0  
Reply Wed 3 Aug, 2011 05:28 pm
@maporsche,
<pardon me for digressing>

MaPorche - it's good to see you Very Happy ... we've been wondering how you were. Hope all is good in your new life and sorry to read of med issues - hope all will resolve. 'Tis good to see you back young man.

carry on... Wink
0 Replies
 
High Seas
 
  1  
Reply Thu 4 Aug, 2011 07:14 am
@JPB,
JPB wrote:

... worth the read for anyone trying to understand the back story.
Quote:

"You leave out the whole context that there's being a gun held to your head," Schumer said. "And that is not fair, and that is not right."...

more hostage taking.

The number of English words is large but not infinite. If Schumer ever really has someone holding a gun to his head, what words will he use to describe his predicament? If you ever need to call law enforcement to report some criminal is taking hostages, what are you going to call them?



High Seas
 
  1  
Reply Thu 4 Aug, 2011 07:33 am
@cicerone imposter,
cicerone imposter wrote:

........I'm just wondering when the price of bonds are going to drop and the rates increase? The feds inability to service the debt will only become more difficult as our economy continues to shrink.

The entire Treasury yield curve may continue trending lower - not just because we didn't push back the Damoclean sword of the debt hanging over our heads, not just because our economy will continue to shrink as long as this administration continues its catastrophic policies, but also because we're in the middle of a worldwide sovereign debt crisis. Right now even revolutionary Egupt's bonds are paying less than Spain's - an absurd result, but one that illustrates the old definition of a financial crisis: it's the point where the distinction between liquidity and solvency is lost. Economics has few strict mathematical laws, but this is one of them. This FT article explains the mechanism involved; subscription-only so posted in its entirety:
Quote:

Beware of perceived safe havens

By Richard Milne

Risky assets do not cause crises. It is those perceived as being safe that do.

Such a statement might sound counter-intuitive. However, it reveals much about the current crisis as well as the recent past. The subprime crisis of 2007-08 was exacerbated by the fact that so many of the mortgage-backed securities spewed out by banks were rated triple A. That meant they could essentially be considered “risk-free” for banks, when, of course, they were anything but.

“Follow the money” might have been the mantra for Bob Woodward and Carl Bernstein in investigating the Watergate scandal. But “follow the debt” would be a better way of summing up where investors should be looking for the next bubble.

And that all points to government debt, which is following in the footsteps of emerging markets, corporates, banks and consumers over the past 15 years.

The sovereign debt crisis is not just limited to the eurozone but may spread throughout the developed world. That risk is evident in the fact that government debt has become the triple A asset of choice since the credit crisis. It has gone from representing about 10-15 per cent of total securities issued over much of the past decade to 35 per cent in 2009.

The danger behind this is that current and future banking and insurance regulations place triple A rated issuance, particularly from governments, on a high pedestal as the risk-free asset. Financial institutions complain, often discreetly, that they are being forced to buy assets they don’t want to.
But the fact that regulators have pushed them into buying triple A government debt means the fallout from the current sovereign problems in Europe and the US would quickly spread throughout the entire financial system.

The scale of the problem is highlighted by a recent report from the Bank for International Settlements, spotted by my colleague Tracy Alloway. It revealed how asset-backed securities accounted for about two-thirds of the explosive growth in triple A securities between 1990 and 2006. In all, triple A issuance went from representing about 20 per cent of all securities in 1990 to 55 per cent in 2009, helped by the big rise in government debt. The push by regulators for banks and insurers to own sovereign debt leaves a sour taste in many people’s mouths, even being likened to “premeditated theft” by professor Geoffrey Wood of Cass Business School. At the very least, it looks odd to force financial institutions through rules to buy assets from the countries that helped draft those rules.

The problem for banks stems from the Basel II regulations from 2004. In the words of one banker, they “empowered rating agencies beyond their wildest dreams”. The rules allow banks to set aside no capital for any sovereign debt rated above double A minus. Even for debt rated below that, if it is the debt issued by the country where the bank is based, there is “national discretion” to apply a lower risk weighting.

To be fair, regulators on both sides of the Atlantic are trying somewhat to reduce the reliance on ratings in the new regulations being published. The Dodd-Frank laws in the US require regulators to reduce their reliance on ratings, raising questions about whether the Basel rules can be introduced there. In Europe, the European Commission announced a similar desire to cut the dependency on ratings this month as it presented its plan to introduce Basel III rules.

But it is clear that ratings will still play a big role with triple A debt the star. For instance, Basel III’s rules on liquidity say that so-called level 1 assets – the highest-quality ones – can include anything given a zero risk weighting by Basel II as well as domestic government debt.

Solvency II, the new regulations for insurers, takes a different approach but ends up in a similar place. It forces insurers to mark their liabilities against a risk-free rate, essentially derived from government borrowing costs. This, in turn, forces them to invest in sovereign debt as, if they don’t, there would be huge volatility between the valuation of their assets and liabilities, leading to big rises and falls in an insurer’s capital. The new rules also make insurers set aside more capital for what are deemed to be riskier investments, heightening the push to buy government bonds.

All this makes the consequences of any “safe asset” blow up all the more serious. Regulators have assigned higher risk ratings to activities such as providing loans to small and medium-sized businesses in a move likely to put a brake on bank lending.

But by favouring triple A government debt they are increasing the risks throughout the financial system as well as in the sovereign bonds themselves by allowing governments to increase their debt burdens so cheaply. The nervousness over a potential US downgrade shows the potential for trouble should this risk-free illusion be shattered.

Copyright The Financial Times Limited 2011


0 Replies
 
joefromchicago
 
  2  
Reply Thu 4 Aug, 2011 08:40 am
@High Seas,
High Seas wrote:
If Schumer ever really has someone holding a gun to his head, what words will he use to describe his predicament?

A Boehnering?
H2O MAN
 
  -3  
Reply Thu 4 Aug, 2011 01:21 pm
The market has reacted to Obamageddon....
0 Replies
 
roger
 
  1  
Reply Thu 4 Aug, 2011 01:22 pm
@joefromchicago,
Nope. A gun becomes a weapon of mass destruction. The hostages turn into a children's hospital staffed by nuns. Congress, of course, continues to be a terrorist organization.
 

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