Debt Ceiling Negotiations

The big problem, as best I can see, is that the President and the Democrats are acting like they didn’t lose the 2010 midterms big time, and the Republicans are acting like they won the Senate and the White House. There are two fundamental truths here, that is the debt ceiling needs to be raised, and to accomplish that, there’s going to need to be compromise. There was no universe where the GOP taking the House in 2010 was going to eliminate the deficit. Those cuts will need to happen over a period of years, and it’ll require a GOP Senate, and a responsible adult in the White House. Note I don’t say Republican in the White House. We tried that formula for six years, and it only resulted in spending that was only mostly out of control, rather than spending that was completely out of control.

24 thoughts on “Debt Ceiling Negotiations”

  1. Why does the debt ceiling need to be raised? It’s an invented Wilsonian era accounting gimmick. Just another flavor of political sausage.

  2. First of all, there’s no crisis. Nothing in the media and nothing on the web that is screaming the sky is falling in any way represents reality. What your witnessing is simply a political negotiation. And with the media – your seeing it through the eyes of people who not only are 100% clueless (and really 99.9% of the talking heads on any Fox, MSNBC, CNN, etc show are clueless about what they discuss) but are being fed talking points/a script that advocates for one side of the negotiation or the other.

    Both sides want what they want. Why would either side compromise now, or at any point, when there is still plenty of time to finish the negotiations. What they are doing is simply staking out a position and moving the needle one way or another.

    Wouldn’t you be enraged if a deal was cut today – while there was still another week available to negotiate – and your favorite program was eliminated? Especially when something you despised survived?

    There can be no deal till the last minute, because otherwise both sides will feel they left things on the table.

    But, at the last minute, a deal will happen. It won’t be perfect, but it will be better than the position we were in.

  3. Tbolt & Packetman: The debt ceiling needs to be raised so we can get a Visa to pay off the Mastercard we used to pay the mortgage while still being able to eat at fancy restaurants.

    We’ll have to cut the fancy restaurant trips to 4 days a week instead of 6, though. We just can’t afford to go out that often, don’t you know!

  4. All they have to do to raise the debt ceiling, and avoid political catastrophe for themselves, is to spend more of our money. It’s going to happen. The congressholes and the community organizer are not about to fall on their swords for us because they overspent.
    They should. It should be easier to sweep these irresponsible incumbents out of office. It might well be less expensive for us in the long run to default, since it would mean losing more of these stinking, rotten overspenders. However, they are not about to do us that favor. Their character flaws include selfishness, as well as overspending.
    In a perfect world, they would be taken out and executed by government agents – tossed off of a convenient acropolis to their deaths for their profligacy, but besides spending our money, they also make the laws and have extraordinary instincts for self-preservation.
    Perhaps we could have an independent commission make the rules for Congress, but Congress would have power over the commission too, wouldn’t it? Is there any getting away from the near absolute tyranny of the legislative branch? Voting, the ever touted but ridiculously ineffective remedy, obviously doesn’t work. What would?

  5. We compromised our way into this mess–hey, I’ll vote for your tax cut if you vote for my spending increase–it would be simple enough to compromise our way out. It’s mostly a sideshow, and it’s difficult whom each side thinks it’s impressing with this bit of theater. Trouble is, disgusted voters still have few real options–who do you vote against in a de facto two-party system when both sides are self-serving blowhards?

    Personally I’d like to see the idea tried of having all candidates run against each other in the primary & the top two vote getters running off against each other regardless of party. That, a radical change to allow for proportional representation of minor parties. What we got ain’t working.

  6. Jake

    We aren’t promising that we will cut down our visits to fancy restaurants to 4 times a week instead of 6.

    We’re promising the next guy will go out to eat at fancy restaurants 4 times a week instead of 6.

    Because the vast majority of the proposed budget cuts are in the future.

    Because the current legislature and administration can dictate to a future congress and administration what they can do, oh wait…..

  7. countertop:

    Not worried too much really that there won’t be a deal, but I’m concerned about what I see from both sides about not compromising, particularly from grassroots groups. That’s not a possible outcome of this negotiation.

    Not raising the debt ceiling is also not really an option, because the government spends more than it takes in. A lot of that is out of control spending, but you don’t really balance the budget without tackling entitlements, and that’s not going to happen as long as Obama is in the White House and the Democrats control the Senate.

  8. ” and that’s not going to happen as long as Obama is in the White House and the Democrats control the Senate.”

    Unless the debt ceiling isn’t raised, stopping them from borrowing more money to do just that.

    Well it may not stop them, but they won’t be able to borrow to pay for that, they’ll have to print more money. Not a great result, but may start waking some up to how bad that can be.

  9. Your claim that:
    “the debt ceiling needs to be raised”
    Is WRONG.

    Sure it will hurt some now, if it is not raised. But adding more dept WILL be worse.

  10. I’ve got to second the first comment. Why does it have to be raised? Raising it is not what I would consider a fundamental truth.

    I think the reality is that we should lower it if anything.

  11. Hal,

    You can’t lower the debt ceiling- the debt is already there, lowering it would require use to start paying it off, meaning we would need to run a surplus. doing that is almost impossible at this point because it would require massive spending cuts and massive tax increases- which would destroy the entire economy and push joblessness to probably 25%.

    A default would be catastrophic to the credit markets- which would then cause the collapse of the entire global financial system. Think of Lehman, but X1000000.

    there is also one key fact people forget, THE DEBT NEVER HAS TO BE FULLY REPAID- NEVER. unlike you or me, the Federal Government does not have a finite life span- its life is indefinate- meaning that it can just issue new debt to pay off old debt. It never actually has to pay off the principle completely- as long as we can manage the interest payments we can borrow borrow borrow until their isnt anymore to borrow. I’m not saying that is a good idea (its actually a terrible idea) but it shows that raising the debt ceiling isnt going to destroy us.

  12. sidvicious,

    Forcing them to just rely on tax receipts (no issuing of debt) would cause the 2nd great depression. No economist on Earth would say cutting 1.5 trillion overnight is a good idea.

    Also, you can’t just “print money”. There has to be some collateral behind it. For the fed to print money it would still require the U.S. Treasury to issue debt, which the Fed would have to buy up in order to “print money” (this is called monetizing the debt).

  13. The three big federal spending items are medicare/medicaid, social security, and defense. If the debt ceiling isn’t raised, the government will have to cease one of those three programs. Take your pick. I would also encourage everyone to think about what happens if old people are suddenly faced with not getting a social security check, or not getting their medical bills taken care of. Old people have a lot more time on their hands than you or I do.

    We need entitlement reform, but it’s not going to be an overnight solution. There is no scenario where the government can stop all borrowing next week and avert disaster.

  14. Sebastian,

    If social security recipients don’t get their checks under a no new debt situation, it will be Obama’s fault. There is plenty of revenue coming in to pay SS, Medicare/aid AND defense with a chunk left over.

    If granny don’t get her check, it’s because the president decided someone else was more important.

    Now, you are correct that we need entitlement reform; who>/i> is going to do it if they’re not forced to? We’re currently hearing that spending cuts proposed are spread over 10 years … who believes that any cut beyond year 1 will actually happen? I don’t.

    There will be pain involved in getting the country solvent again; it will only get worse if we wait.

  15. In Fiscal Year 2012:

    Social Security: $761 billion
    Medicare: $468 billion
    Medicaid: $269 billion
    Defense: $815 billion
    Interest: $242 billion

    That totals 2.56 trillion dollars.

    Total federal revenue in FY2011 was 2.17 trillion. If the federal government can borrow no more money, what programs do you want to cut?

    This also assume the government pretty much cancels all other social programs, like veterans benefits, food stamps, student aid, and unemployment. Those programs add so about another 300-400 billion. This also assumes we shut down must functions of government, generally, like the FAA, and other transportation related agencies that cost 117 billion a year.

    I’m not saying the whole budget shouldn’t be restructured, but with the Senate in Reid’s hands and the White House in Obama’s, it ain’t happening. So you have to cut a deal, otherwise Obama can basically hold any of these programs hostage. People are still in the mood of wanting their cake and eating it too. It’s not until both parties understand that we are on an unsustainable path that we’ll be in the space we can fix these problems permanently. We’re not there yet, and won’t be as long as Obama is in the White House.

  16. The packetman,

    Who said we are not solvent? There are two types of insolvency- Balance Sheet and Cash flow

    Balance sheet insolvency is when you have negative equity (liabilities exceed assets). I am unsure if the U.S. fits into this category (i dont know total U.S. debt which includes private and public) but i can tell you that the Asset total of the U.S. is about 50 Trillion- alot larger than our national debt of 14 trillion.

    Cash flow insolvency- when you can’t make your debt payments. The U.S. has never missed an interest payment and has no extrinsic problem making payments (except for self-imposed problems such as what we are facing now).

    Cash flow insolvency is arguably the only one that matters. You don’t default on a debt because you are over-leveraged- you default because you cannot make your interest payments (which is a cash flow issue).

    Also i’d like to add that many major companies operate in a continual state of balance sheet insolvency- it allows them to turn a larger profit by leveraging their investments.

  17. Roken

    I don’t agree with that. It would force them to limit spending. Monthly receipts have more than enough to pay the debt maintenance, SS, government workers, etc.

    We have just printed money. It’s called quantatative easing. The only thing behind out money is the faith and credit of the US government, and has been that way for a long time.

  18. Sidvicious,

    It would be disasterous. We are not talking about $100 million, we are talking about 1.5 TRILLION- equivalent to about 10% of the economy. You really think that we could absorb 10% of our economy disapearing overnight without an issue? you are sadly mistaken. Look what lehman did to the global financial system. It would be like asking you to reduce your salary by 1/3 overnight- my guess is it wouldn’t be easy and probably would result in complete restructering of your lifestyle.

    Yes, we did print money. But in order to do it the Fed had to buy up treasury debt. If the debt ceiling isnt increased, the treasury can’t issue more debt, therefore the Fed cannot buy it up to “print money”. For every debit there must be a corresponding credit (and vice versa).

  19. also 1.5 trillion reduction would lead to massive layoffs, which would reduce tax revenue and increase spending on unemployment benefits. $1 in cuts does not lead to $1 in deficit reduction

  20. roken: Actually, depending on how you count them, the U.S. Government has defaulted as many as seven times, most recently in 1979.

    I’d agree that a permanent default would be a very bad thing. Something like what happened in 1979, though on purpose rather than by accident, might not be the doomsday the media has been portraying.

  21. Roken,

    That is very true in ideological principle but the Fed gov is not forever. Nor is the USA. History is proof enough that governments do not last eternally. Often they collapse because of such monetary policies we are seeing today.

    You are right about what it would mean to lower the debt ceiling. But I suggest it because it frames better to me the crisis we find ourselves in.

    I get what you’re saying about the nature of the Federal Government. And realize they are not operating like you and I do when it comes to debt but I do not think that is the way it should be. And I think you and I agree that debt is not a good thing. I also agree with you that raising the debt ceiling is not going to destroy us this time. Though I think the presence of such a ceiling is to keep us from destroying our dollar.

    But it’s not exactly going to cure us of our problems either. The gov has in mind just kicking the problem down the road. They operate in crisis mode only and do not desire to address issues to keep future economic crisis at bay. More important is one-up-manship and getting re-elected. At least that’s how it appears to me.

    Also, I have come to recognize a principle of life. Debt is a form of slavery. Ie. You are at the whim and work for the one to whom you are a debtor.

    I think that translates up to the Fed gov. too.

    Thanks too, for responding. I appreciate that.

  22. “We tried that formula for six years, and it only resulted in spending that was only mostly out of control, rather than spending that was completely out of control.”

    Um, I won’t bother reviewing the increase in the national debt and the budget at that time, but I sure seem to recall that the spending and debt were completely out of control during that time. I distinctly remember the graph charts, they maintain the “up up and away” pattern and did not deviate from the historical course of ever more rapid increase. Correct me if I’m wrong.

    “If the debt ceiling isn’t raised, the government will have to cease one of those three programs. Take your pick. ”

    How about we cancel all of them and many more? Heck, why not all of them? Works for me, I am not a beneficiary of any program (I live in poverty rather than take the “benefits” which would afford me a luxurious lifestyle).

    “I would also encourage everyone to think about what happens if old people are suddenly faced with not getting a social security check, or not getting their medical bills taken care of. ”

    They would have to rely upon their family, freinds, neighbors, townsfolk, and charities. My god! What a nightmare – relying on the people closest to you who are best able and most willing to help you instead of faceless cold hearted bureaucrats enforcing an insane labyrinth of arbitrary and capricious rules from hundreds or thousands of miles away! And they might have to stop taking the 8-10 unnecessary drugs and avoid all of the terrible side effects and complications! What an awful thought!

    “We need entitlement reform, but it’s not going to be an overnight solution. There is no scenario where the government can stop all borrowing next week and avert disaster.”

    It might not be overnight, but it will be so quick that it will seem overnight. That’s what happened to the Soviet Union. Here today gone tomorrow.

    A disaster next week would mean that by 2020 we will have sorted out things into some sort of routine. If we wait until 2020 to have the inevitable disaster – we will have depleted much or most of the remaining resources we have now (i.e. topsoil, infrastructure, literacy, numeracy, liberty, the rule of law, etc) – and it will be a lot longer before we pick up the pieces.

    There is no easy, pleasant, or good solution. There are only hard, ugly, and bad solutions. Better to bite the bullet now and have the foot amputated than wait and lose the leg or the whole dang body later. While much and in fact most of our prosperity is false and empty we still are an incredibly wealthy nation with plenty of resources, but it won’t take long to destroy what remains now that looting is an acceptable form of politics and big business.

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