Fiscal Cliff

@JPB,

The harm the GOP is now imposing on our economy is that consumers are holding back buying this holiday season which represents 40% of their business every year. They fear the higher tax liability they face, and worry that if they spend money now, they won't have enough money to survive the higher tax rates and to pay their taxes.

The GOP is not only rudderless, but is a guided missile that destroys our economy with one hit.

This standoff is costing all businesses and investors, so I wonder how many small and big business now support the GOP?

They have become armed with nukes against their own country.

We don't need foreign enemies when we have them at home.

0 Replies

@JPB,

JPB wrote:

I agree, other than he does nothing to explain why burgeoning debt isn't a problem. Borrowing money to pay one's debts is a clear indication of a problem (maybe not crisis) in my book

He does give the empirical evidence that there isn't a debt crisis: Creditors are willing to lend at record-low interest rates. Independent of that, aren't you placing the burden of proof for the existence of a debt crisis on the wrong people? Shouldn't it rest on those who say "we need balanced budgets now now now because there's a debt crisis"?

Borrowing money to finance the federal budget --- of which debt service is only a small part --- is less of a problem than you think, for the following reasons:

Unlike individuals, countries are immortal. They never have to pay down their debt. As long as they pay interest, they can roll over the principal indefinitely.
Interest on the debt of sovereign nations is much lower than, say, that on your credit-card debt. Banks charge individuals 20 percent on their credit-card debt; America's creditors are currently paying the US to hold their money. (After correcting for inflation.)
Unlike individuals, countries can print their own money when everything else fails. This is especially handy in the current situation, where the economy is liquidity-trapped and printing money will neither raise inflation nor interest rates.
The economies of large countries are closed systems, whereas the economies of individuals, households, and firms are open systems. In a US-sized country, to a workably-good approximation, one citizen's spending is another citizen's income. Hence, while individuals can improve their balance sheet by raising income and cutting spending, countries as a whole generally can't. In the current economy, trying to raise federal revenue and cut federal spending will worsen the problem you're trying to solve.

Presumably your intuitions about debt management come from your personal money management in your household and your company. They are perfectly accurate in those contexts. But for all the reasons I just listed (and probably others I'm forgetting), they're seriously misleading for the debt-management of countries.

3 Replies

@JPB,

JPB wrote:

I agree, other than he does nothing to explain why burgeoning debt isn't a problem. Borrowing money to pay one's debts is a clear indication of a problem (maybe not crisis) in my book.

It's a problem, but a smaller problem than other problems we currently face - for the fact alone that we can print more money to cover the debt if we need to. Now, this isn't an ideal solution, but it keeps us out of the territory of Greece and other places which cannot do this. And Thomas makes a great point about interest rates being currently mega-low, to the point where we are actively PROFITING off of our debt!

I think a big part of the problem lies in the delusion that our society, economy and government will continue to be steady-state for the next few hundred years. It won't. Technological developments are going to completely revolutionize every single thing that we consider to be normal, and the purpose and point of our government will have to change and adapt. Even what we consider to be 'money' will be drastically different in a hundred years than it is today, just as our current money and finances are far removed from that of a hundred years ago. The purpose of gov't isn't to find permanent and long solutions to problems, it's to keep our society going long enough for technology to revolutionize and obliterate many of those problems.

Cycloptichorn

0 Replies

@Thomas,

We could move this over to the economy thread or a debt ceiling debacle thread but this from the GAO doesn't make me feel warm and fuzzy about your point a)

Quote:

Treasury regularly refinances portions of the government's outstanding debt and issues more debt at market interest rates to finance new deficit spending. Consequently, the amount that the federal government spends for interest on its debt is directly tied to those interest rates. Under CBO's January 2012 baseline budget projections, debt held by the public would be 62 percent of GDP in 2022 and spending on net interest would rise from $227 billion in 2011 to $624 billion (or 2.5 percent of GDP) in 2022. CBO has assessed how changes in interest rates can affect federal spending. CBO notes that if interest rates are 1 percent higher than the rates assumed in CBO’s baseline budget projections, the government’s higher interest costs would add nearly $1 trillion to the cumulative budget deficit over the 10-year period.
GAO on federal budget and debt

1 Reply

@Thomas,

One other point regarding private vs public debt. I may be foolish, but I consider the SHITLOAD of taxes I pay to be "my" money that the government takes to do its business. I am debt free by intent and design. That "my" money is used to pay interest for non-emergency purchasing reallllllly grates my ass.

That said, I go batshit crazy over the Republican threat to allow us to default on our obligations. If they don't want us to pay our bills then they shouldn't obligate us to begin with.

Ok, back to the fiscal cliff....

3 Replies

@JPB,

Why would a hypothetical make you uncomfortable if the premise of the hypothetical is false? The yield on inflation-indexed 10-year treasuries is negative. Inflation-indexed 30-year treasuries are barely positive. The US government should roll over all its debt immediately, lock in today's ridiculous interest rates for decades to come, and then borrow borrow borrow until inflation and interest finally bump up!

1 Reply

@JPB,

If federal debt is such a problem for you, you can always pay back your share of it.

2 Replies

@Thomas,

I think the only thing I would add is that current debts as a percentage of GDP is "low" compared to past presidents.

Also, austerity programs have the opposite effect to the country's economy.

Another point is that the baby-boomers are beginning to retire at faster rates, and that costs the government more money to operate. If the GOP refused to approve the debt ceiling, it only forces our government to borrow more and pay more interest. It does the exact opposite of what they think they are doing.

The GOP is clueless about economics.

1 Reply

@Thomas,

Thomas wrote:

The US government should roll over all its debt immediately, lock in today's ridiculous interest rates for decades to come,

Which, apparently, it has no intention of doing.

0 Replies

@JPB,

JPB wrote:

One other point regarding private vs public debt. I may be foolish, but I consider the SHITLOAD of taxes I pay to be "my" money that the government takes to do its business.

You can only earn that money because the government exists and provides a stable environment for which to do so. Without a strong national government and currency, you would have very little ability to profit the way you currently do.

So, the gov't doesn't just take 'your money' to do it's business; it takes 'your money' so that you can continue to do your business.

Cycloptichorn

0 Replies

@Thomas,

Thomas wrote:

If federal debt is such a problem for you, you can always pay back your share of it.

Quote:

The great burden of government is that it spends your money. Those politicians who have devoted their lives to exacerbating that burden--like Bob Dole and Bill Clinton--would prefer to divert your attention to relative nonissues like the deficit. Don't fall for it.

I totally agree. I'm going to buy a bunch more bonds and go back to bitchin' about the size of the budget.

1 Reply

@cicerone imposter,

cicerone imposter wrote:

I think the only thing I would add is that current debts as a percentage of GDP is "low" compared to past presidents.

I wouldn't go as far as calling it "low", but it certainly is nothing unheard of. Here's the federal debt, as a percentage of GDP, since the beginning of the 20th century.

http://static3.businessinsider.com/image/4bf7f0947f8b9ac23f940400-619-449/gross-federal-debt-as-a-percent-of-gdp.jpg

1 Reply

@JPB,

I admire you for putting your money where your mouth is. Good for you!

(Note, however: the average citizen's share has risen to 55,000 dollar since Landsburg wrote that article.)

0 Replies

@Thomas,

Thank you for the correction.

In defense of the current debt level, I don't have any complaints about it because Obama helped the recovery from the Great Recession, gave tax cuts to the middle class, and extended unemployment benefits for those who could not find jobs. Those reasons are justified over fighting "illegal" wars in other countries where we spend billions (unfunded) and lives of our military - while killing tens of thousands of innocent people.

0 Replies

@Thomas,

Quote:

If federal debt is such a problem for you, you can always pay back your share of it.

But "your share of it" seems to be calculated to include the babies, the infants, the kids and the skint.

0 Replies

@JPB,

We're sure lucky we'll never have to roll over existing debt at a higher rate, and that other governments will continue lending.

1 Reply

@roger,

roger wrote:

We're sure lucky we'll never have to roll over existing debt at a higher rate

Not in my lifetime, if the federal government does it all now. (That's assuming I'll die before I'm 74, but still it's pretty good.)

2 Replies

@Thomas,

Another thought about our national debt. If Obama had not saved us from the Great Recession, our GDP would be at a point where our national debt would be "out of line" and worsening. The GOP has myopia; most of our current debt was created by republicans.

1 Reply

@cicerone imposter,

Government spending is a part of GDP.

1 Reply

@Thomas,

Thomas wrote:

roger wrote:
We're sure lucky we'll never have to roll over existing debt at a higher rate

Not in my lifetime, if the federal government does it all now. (That's assuming I'll die before I'm 74, but still it's pretty good.)

But, there's no indication they're doing so. And, some of us do have progeny we're thinking about

1 Reply

Related Topics

Quick Links

My Account

able2know