Debt ceiling?

@maxdancona,

But if the US govt borrows money by selling bonds, why does it have to borrow in the first place?
Millions of tax dollars pour into its coffers every week so why isn't that enough to pay for the armed services, welfare, etc etc?
I hear the Nat Debt has grown bigger during Obama's time in office so does that mean the govt has incompetently mis-handled the taxes or what?

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@Romeo Fabulini,

No. It means that the Representatives and Senators vote to send federal money to their districts and when they hear complaints about National Debt blame the President.

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@Romeo Fabulini,

You understand that selling bonds is the way the US borrows money, right (it isn't clear if you get this or not). Selling bonds is borrowing, not revenue. Obviously if the US spends more then it takes in in revenue (i.e. taxes) then we need to make up the difference by borrowing (i.e. selling bonds).

You ask "why isn't the millions of tax dollars" enough? This is a meaningless question. We have spending. We have taxes. How much spending there should be is a matter of debate. How much taxes we should have is also a matter of debate. What we should spend on and who we should tax is also a matter of debate.

Congress has already set the amount of money we spend. Congress has set the tax rates. When you subtract our revenue from our spending, there is debt. This debt is based on the decisions that Congress has made.

None of this has anything to do with the debt ceiling.

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@Romeo Fabulini,

You should also look at the facts rather than just "hearing" about the national debt. Obama is responsible for the bailout plan and stimulus (which most economists agree was a good thing.

Obama is not responsible for the Iraq war or the Bush tax cuts... both of which significantly raised our national debt. Whether either of these were a good thing is another matter for debate.

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@Buffalo,

Buffalo wrote:

I wish I could max out my personal credit card limit, then call the credit card company and tell them I they will either have to increase my current LIMIT or else I will NOT pay what I CURRENTLY owe them.

You do that and then see what happens.

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The US Nat Debt has been increasing at 1.8 billion dollars per day over the past year-
http://www.brillig.com/debt_clock/

Let me ask the economics whizzkids of the forum this question to help me understand-
If you were the ruler of an island with say a population of one million people, all of whom paid taxes, you'd use that money to pay for your armed services and various public amenities, right?
And as long as you didn't spend more than was coming in, everything would be fine and dandy and your island wouldn't have a national debt, right?
But if you DID have a nat debt, it'd mean you screwed up somewhere along the line wouldn't it?

PS- Obama said- "Over the last decade we have spent more money than we take in.", so does that mean he and Bush screwed up?
http://www.whitehouse.gov/infographics/us-national-debt

1 Reply

@Romeo Fabulini,

Quote:

But if you DID have a nat debt, it'd mean you screwed up somewhere along the line wouldn't it?

Absolutely wrong.

Debt does not mean you screwed up. I have already given you an example in personal finances where going into debt (i.e. spending more than you earn) is a very smart move. People who go into debt to invest in things like college and housing come out ahead financially.

If I were the leader of a island there are certainly reasons I would go into debt. I would want a good infrastructure (roads, bridges, an airport, internet) so I can attract businesses. I would want an educated population to make people more prosperous in the future. I may want to fund research to make life better in the future. I would want to make sure my people had food and medical help they need.

Your arbitrary rule doesn't make much sense in the real world.

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So the National Debt is nothing to worry about?
Will it just keep on getting bigger forever and nobody need bat an eye?
I think part of the problem is that people have been brainwashed into thinking it's perfectly normal to be in debt, so maybe I'm just immune to brainwashing.. Wink

For example my bank wanted to "fix me up" with a Credit card last year, but I said "I don't need one, I've got a Debit card which is all i need", to which they replied incredulously "But EVERYBODY needs a Credit card nowadays".
So I let the young lady waste 25 minutes of her time doing the paperwork and computer entries to "fix me up" with one, and when it arrived through the post a few days later i cut it up and binned it.. Smile

1 Reply

@Romeo Fabulini,

You seem to be the kind of guy who only thinks in extremes. Have you considered the possibility that perhaps the truth lies in the middle?

I never said, nor do I believe, that the National debt is "nothing to worry about". I also don't believe that are debt is currently an existential crisis that is about to destroy the country (especially at the very low interest rate we are getting). The debt is certainly something we should be discussing, but these dire warnings that we are heading into imminent disaster and destroying the future for our children are ridiculous.

I am advocating a moderate position. I want a reasonable tax hike and some spending cuts (now that the economy is stabilizing after the great recession)... but I don't don't want to cut investments in education or infrastructure, nor do I think we need to throw our elderly and our poor out in the streets.

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As I've said before, if I ruled an island of a million people, their taxes would generate millions of dollars a week to pay for my armed services and welfare programs, roads, railways, hospitals etc, I wouldn't need to borrow extra money from anywhere at all.
Maybe I should run for US President, ha ha.. Smile

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@Romeo Fabulini,

That's an illogical statement. In the real world, nations (including island nations) often have needs that are greater than their cash on hand.

For example, what if your people need an international airport to run their businesses in order to make money? In this case they need money to pay the taxes for an airport, but they need an airport to make money. How would you solve problem without borrowing money? Borrowing money is a good solution (particularly if you can do it at a low interest rate), it will raise the incomes of your people meaning that in the long run it will pay for itself. By not borrowing money, you condemn your people to poverty.

Of course that is only one example, there are many other examples when a nation would need to go into debt. You might need a hospital. A hospital will easily be used for 30 years or more, but if you need one now you can't wait for these 30 years of taxes. Are you going to let people suffer and die without a hospital until you have 30 years worth of savings (which will take 30 years)?

Or are you assuming that somehow your nation has magic powers to generate revenue with zero investment in infrastructure, education or public health?

Of course a magical nation would never need to borrow money.

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Let me clarify that my fabled island is the only land mass on a planet, therefore it's totally self-contained and there are no other nations to borrow money from even if it wanted to.
As I said, its one million population generates more than a million tax dollars each week and every week, year in year out, which is ample to pay for hospitals and other necessities.. Smile

1 Reply

@Romeo Fabulini,

If it is a fabled island or magic island.... I concede the argument.

Of course in the real world, an isolated population of a million people with no external trade would certainly be unable to support a capitalist system. Without the efficiency of borrowing or trade you would likely have a very low standard of living. There are plenty historical examples of this, North Korea is perhaps a modern example.

Modern countries borrow money and participate in trade because there is a very big economic benefit. Being able to borrow and trade significantly raises the standard of living in your country.

Of course, if you want to have a society that is pre-capitalist... plenty of societies existed before there were modern financial tools. But you will not be able to sustain a modern standard of living. Modern societies require factories and hospitals and research facilities and universities... all of which require a very large upfront investment yet easily provide enough economic value over the long run to justify the cost.

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Nevertheless, the top government men and financial "experts" have been to Harvard, Yale and other high-falluting colleges, yet the fact remains the national debt is growing at the rate of over a billion dollars a day!
Obama admits it's a "problem" and blames it on both the Democrat and Republicans, so obviously they've all screwed up somewhere along the line.. Wink

http://www.whitehouse.gov/infographics/us-national-debt

1 Reply

@Romeo Fabulini,

Again you are having trouble accepting a moderate position. I agree that the national debt is a problem. It is not a crisis, it it something that we should work to reduce. There is a lot of room between the claims that debt constitutes a dire emergency and the claim (that I agree with) that the national debt is something to work to improve.

Also your claim that "obviously they've all screwed up" has no basis in fact.

I personally think that the Bush tax cuts and the wars were "screw ups". But I also accept that this is my subjective opinion and that many Americans disagree with me.

1 Reply

@maxdancona,

Quote:

Again you are having trouble accepting a moderate position. ... the wars were "screw ups". But I also accept that this is my subjective opinion and that many Americans disagree with me.

Yeah, Max, and it's also many people's subjective opinion that Hitler did all the right things to try to save Germany.

You're having a great deal of trouble accepting reality.

Quote:

The International Military Tribunal at Nuremberg held following World War II that the waging of a war of aggression is:

essentially an evil thing...to initiate a war of aggression...is not only an international crime; it is the supreme international crime, differing only from other war crimes in that it contains within itself the accumulated evil of the whole.[54]

Benjamin B. Ferencz was one of the chief prosecutors for the United States at the military trials of German officials following World War II, and a former law professor. In an interview given on August 25, 2006, Ferencz stated that not only Saddam Hussein should be tried, but also George W. Bush because the Iraq War had been begun by the U.S. without permission by the UN Security Council.[55] Benjamin B. Ferencz wrote the foreword for Michael Haas's book, George W. Bush, War Criminal?: The Bush Administration's Liability for 269 War Crimes.[56]

Ferencz elaborated as follows:

a prima facie case can be made that the United States is guilty of the supreme crime against humanity, that being an illegal war of aggression against a sovereign nation.[57]
...
The United Nations charter has a provision which was agreed to by the United States, formulated by the United States, in fact, after World War II. It says that from now on, no nation can use armed force without the permission of the U.N. Security Council. They can use force in connection with self-defense, but a country can't use force in anticipation of self-defense. Regarding Iraq, the last Security Council resolution essentially said, "Look, send the weapons inspectors out to Iraq, have them come back and tell us what they've found -- then we'll figure out what we're going to do." The U.S. was impatient, and decided to invade Iraq -- which was all pre-arranged of course. So, the United States went to war, in violation of the charter.[57]

http://en.wikipedia.org/wiki/Legality_of_the_Iraq_War

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Returning to my self-contained island model where I'm ruler of its one million population who generate millions of tax dollars a week which I use to fund hospitals, roads, railways, armed services and welfare programs etc, how on earth would it be possible for me to go into national debt?
What did Bush/Obama do wrong?

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@Romeo Fabulini,

Why do you keep pushing this issue when I have already conceded the point.

This magical island you have dreamed up is instantly prosperous. You propose that it automatically generates millions of dollars a week in revenue before it invests in airports and roads and hospitals and education and the internet. Of course, in this case, you will never need to borrow money (although the people will still have to wait to have enough savings to have that expensive medical center they feel they need).

But you are right. If you ignore the reality that there are needs that come before prosperity and that country needs to invest before it can gain wealth, then of course you never need to borrow money.

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Max wrote:

Quote:

Why do you keep pushing this issue when I have already conceded the point

Conceded what point, that I'm right and you're wrong?
I'm just throwing out very simple questions to try to learn a bit about economics and am hoping to get a few straight answers.
For example my island paradise is the only land on the planet, so even if I wanted to borrow money, who would I borrow it from?

1 Reply

@Romeo Fabulini,

I am giving you straight answers.

Island "paradises" with no trade tend to have very primitive societies with little development. We humans started living in caves, eating what we could hunt or scavenge and dying early of disease or injury. Primitive societies weren't really that great to live in. Of course human societies that are isolated from contact with the outside world (such as the island you propose) don't have much choice.

Trade and modern economics have the advantages that we can build the infrastructure we need and invest in development (before we reap the benefits of said infrastructure and development).

We developed the modern economy with its system of borrowing on credit and its reliance on trade because it gives us all the benefits we enjoy. Of course we could go back to living in caves without the complex modern economy. I wouldn't want to.

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