6 ms·

What the Debt Ceiling Really Means

20 points by spottiness 15y ago

mikeryan 15y ago
"What the Debt Ceiling Really Means" - from a conservative think tank's perspective. No one blinked an eye from the conservative side as deficit spending rose all through the Bush administration and the debt ceiling got raised 7 times. Heck this article may even be technically correct but it skews hypocritical when it only becomes an issue during Democrat's administrations.
- sp332 15y ago
  No one blinked an eye from the conservative side Well, the Republican party might not have raised a big stink about it, but plenty of conservatives were definitely complaining. Edit: colindoc84 almost has a good point, so edited.
  - colindoc84 15y ago
    No real scotsman argument already?
    - altcognito 15y ago
      In all fairness, this has been rinsed and repeated a number of times in recent history. Reagan was a true conservative, but was held back by a democratic congress. Bush Sr. just wasn't a real conservative because he raised taxes. Bush Jr wasn't a real conservative because well, he spent like crazy. The Democrats do the same thing: Clinton wasn't a real "democrat" because he signed NAFTA and reformed welfare. Obama "wasn't real" because he couldn't end the wars, close GITMO or reform the finance industry. (a number of other items)
      - jerf 15y ago
        I find it helpful to at the very least split into social vs. fiscal conservatives. It is easy to be socially liberal and fiscally conservative, or socially conservative and fiscally liberal. G. W. Bush was socially conservative and fiscally liberal. Of course you can split things much further than that; nothing really stops you from being an anti-abortion otherwise-social-liberal, but I really think failing to split out social/fiscal leaves you really baffled by who is aligned with who.
- spottiness 15y ago
  The Cato institute is not a conservative think tank, as in "conservatives vs liberals or republicans vs democrats". They are a libertarian think tank, and have been very critical of the Bush administration for exactly the same reasons that you mention plus others. (http://www.cato.org/pub_display.php?pub_id=3750 http://www.cato.org/pub_display.php?pub_id=3750) If the article is technically correct though, that's all that matters. Let's use facts expressed in numbers to make decisions and leave emotional concepts like "hypocrisy" to artists.
  - altcognito 15y ago
    Yeah, but it's completely wrong: "If we are really worried about a hike in interest rates, what about the hike we can expect if we fail to get federal borrowing under control?" Interest rates are as low as they've ever been. In fact, the only "threat" of our rates for borrowing going up have not been for borrowing more, but quite the opposite. http://krugman.blogs.nytimes.com/2011/07/10/feel-the-pressure/ http://krugman.blogs.nytimes.com/2011/07/10/feel-the-pressur... "The real fiscal Armageddon that this country faces comes not from a delay in raising the debt ceiling, but from out-of-control federal spending and government debt." Except that this "out of control" federal spending has been rising at the same rate as a % of GDP essentially since 1950.(minus a blip in 1992) http://www.usgovernmentspending.com/us_20th_century_chart.html http://www.usgovernmentspending.com/us_20th_century_chart.ht... It's fair to say we have both a spending and a revenue problem. This page shows how revenue has been dipping pretty dramatically the last couple of years: http://www.deptofnumbers.com/blog/2010/08/tax-revenue-as-a-fraction-of-gdp/ http://www.deptofnumbers.com/blog/2010/08/tax-revenue-as-a-f...
wccrawford 15y ago
2003? My God, how will we ever live with only the funding from such a... Wait, 2003? We spend THAT much more money than we did in 2003? That's absolutely ridiculous. It's time this country learned to live within its means. That goes for the government and the people in it, too.
- scarmig 15y ago
  Whenever you see numbers like this, always ask two questions. Is it adjusted for inflation, and is it adjusted for economic growth? If you're feeling really wonky, you'd also adjust for sector-specific inflation. For instance, disproportionate increase in the cost of health care. Which I hear the government spends a couple dollars here and there on...
  - Locke1689 15y ago
    What many people (including the writers of this article) don't seem to understand is that major nations don't pay off their debt -- they inflate it away.
- dialtone 15y ago
  More than the size of the increase since 2003 would be interesting to know what are the components of this increase.
- wheels 15y ago
  That's somewhat naive, as is this article, though I assume the author is being intentionally so. Counterintuively, during a recession, the government is usually the only entity that's able to pump enough money into the economy to fuel growth and ultimately end the recession – i.e. the time that its spending is most critical is when its income is at a low. The Great Recession lasted so long precisely because the government tried to "live within its means" rather than getting out the jumper cables. This is also central to the current debate about the best course of action for EU countries, most notably Greece, at present. The danger of simply cutting costs is that it may plunge the country into prolonged recession and ironically impair the country's ability to manage manage its debt effectively. Punditry aside, it's typically been the Democrats in recent decades that have put more effort into reducing the national debt (as Obama is proposing now through increased taxation). At least in theory, if not always in practice, the entire American political spectrum agrees that US debt must be minded and that the current level relative to the GDP is sub-optimal. But the ability to repay debt is linked to the health of the economy, and the goal is to avoid being penny wise and pound foolish.
scarmig 15y ago
The first paragraph gives it all away: "The clock is slowly ticking toward Aug. 2, the date on which the U.S. faces "fiscal Armageddon" — according to the Obama administration — unless Congress agrees to raise the debt ceiling. But would we?" Yes, it's an Armageddon according to the Obama administration. But also Speaker Bohner. And Senator McConnell. And Moody's. And the CBO. Etc. It's also terribly inaccurate, even from a Cato perspective. A 44% cut in federal spending really isn't accurately described as something that will "almost certainly hurt." Pretending to believe that that's doable in any sensible way doesn't lend much credence to the writer. Even if it were possible to do things as he suggests, it wouldn't solve the central problem. The United States has _legal obligations_ to pay Social Security benefits, make sure our retired soldiers receive their pensions, and other civil servants get the healthcare benefits they're entitled to as part of their agreed upon compensation package. These aren't things you can go "oopsies, I don't feel like paying it, maybe next month." And even if you were to do this with extremely questionable legality, it wouldn't help the central issue, which is faith in the credit of the United States. If I pay off my credit card bill but have to renege on my mortgage and car payments to do so, my credit is still going to be shot. Lastly: this is about two weeks late in Republican messaging. It's now Obama who's pushing for larger long-term deficit reduction and spending cuts than Republicans (on the order of 4 trillion instead of 2 trillion over the next decade). This is, it should be said, not merely twice as big as the Republican package but also twice as stupid and boneheaded. Regardless, that's how things stand--Republicans are likely to refuse Obama's 4 trillion in favor of their 2 trillion, which is only half as stupid so on net good for the country. Good for them, but unfortunately it undermines the Cato dude's argument about it being about the deficit.
- freerobby 15y ago
  I don't understand your last paragraph. Of course we should make good on what we can but if Medicare and/or Social Security (mostly the former) need reform to remain solvent, then why is it stupid to make the cuts that keep them solvent? A working less-than-ideal program is better than a not-working ideal program, no?
  - scarmig 15y ago
zmj 15y ago
That's fairly accurate regarding the first-order consequences of hitting the debt limit. Second-order consequences come from: -An abrupt drop in consumer spending due to paychecks lost in that 43% cut. -Moody's and S&P have committed to downgrading the USA's debt from AAA if the debt ceiling is not raised. Remember the liquidity crisis the financial sector suffered in 2008 due to a sudden shortage of AAA bonds? There are a lot of Treasuries out there. I'll leave third-order consequences up to the post-apocalyptic novelists in the audience.
inthewoods 15y ago
"The real fiscal Armageddon that this country faces comes not from a delay in raising the debt ceiling, but from out-of-control federal spending and government debt. If a little pain now helps solve that problem for the long term, it may well be worth it." Great idea - you're pretty sure that everything will be ok if we don't raise the debt ceiling, so let's go ahead with it and just hope that you're right and it isn't that bad. The only real threat to drive up US interest rates is not raising the debt ceiling. With the stuff going on in Europe, we will likely have more people wanting to buy US Treasuries - not less. These guys are worried about an event that hasn't happened, and doesn't seem to be happening, so instead they're going to do the one thing that can actually cause it happen. Insane.
ebiester 15y ago
I don't understand this. Shut down the military short of non-essential functions, shift money to bringing soldiers home now, and cancel every military contract. See how long before the Republicans capitulate. The executive branch holds the keys to military spending. Foreign aid to Israel and Egypt is magically delayed, too. This debt ceiling could be used to hit goals that the progressive movement has wanted for years and put the Republicans in a weak position for negotiating. Everyone would hurt, of course, but it wouldn't last long before Republicans blinked.
- johnny22 15y ago
  there are defense contracts in every single state of the union, so such a thing is quite infeasible in any near term time frame as that would just make the jobs situation worse than it is now.
  - ebiester 15y ago
    And this is superior to other cost cutting measures how? Jobs will be lost any way you cut the deficit.
NotASockPuppet 15y ago
How callous is this man? 44% cut in funding to who? Not to the Banks and Institutions that caused the GFC and the whole problem in the first place. Please name me one ill or unemployed person who had a hand in this whole mess?
marcamillion 15y ago
This has to be one of the most myopic economic pieces I have seen in a while. I am not even American - heck I don't even live in America - but I shudder at the thought of America not being able to honor all legal obligations. It's not about the money. It's not about how much money the US gov't will collect in August vs how much it has to pay out. America is the largest economy on the planet with the largest bond market and subsequently the largest government bond market. It also happens to enjoy, as the french put it, exhorbitant privilege - because not only can it borrow in it's own currency, but it can print new money to repay outstanding obligations. No other country on the planet has that ability to do that. The entire bond markets have rated the US gov't's abilities to repay said bonds at the highest rating for at least the last 30 years. A 'minor' disruption like this, at a time when job numbers in the US consistently disappoint. When only God HE knows what will happen with the Euro, all it takes is some event like this to send the entire global economy back into recession and possibly worse. If the economy goes into a whirlwind now, where sovereign bond markets are threatened, the repercussions could be even more severe than the credit market freeze we just saw. Imagine if it escalates - although it is easy to say, it will never escalate, well I always said we would never reach this point, and look at where we are now - and creditor countries don't want to invest in Treasuries any more, the repercussions could be disastrous and could lead to Nuclear War. I know it sounds hyperbolic, but imagine if America can't pay it's bills and China doesn't want to lend it money to pay it's bills...what choice does America have but to go to war with China? Especially when the government is under intense domestic pressure because they never extended the damn debt ceiling and avoided this in the whole place. It almost becomes the least worse choice. War with China or domestic revolt. Sure you say, Americans would never revolt - but when SS checks stop arriving and tons of old people can't get their health care taken care of, let's see if you still say that. Not to mention that if America defaults on the debt, it could send ripples all throughout China and cause significant issues there leading to an implosion of economic activity - which would actually incentivize China to go to war with America. Again, I know it sounds very hyperbolic and VERY far-fetched, but so did the real estate market collapsing in the middle of the worst credit bubble burst America has ever seen. It's all about timing. The world is not in a position to deal with a default like this in a measured manner. God help us all, if it ever comes to a default right now. Talk about the perfect storm.

20 points by spottiness 15y ago

"What the Debt Ceiling Really Means" - from a conservative think tank's perspective. No one blinked an eye from the conservative side as deficit spending rose all through the Bush administration and the debt ceiling got raised 7 times. Heck this article may even be technically correct but it skews hypocritical when it only becomes an issue during Democrat's administrations.

sp332 15y ago
No one blinked an eye from the conservative side Well, the Republican party might not have raised a big stink about it, but plenty of conservatives were definitely complaining. Edit: colindoc84 almost has a good point, so edited.
- colindoc84 15y ago
  No real scotsman argument already?
  - altcognito 15y ago
    In all fairness, this has been rinsed and repeated a number of times in recent history. Reagan was a true conservative, but was held back by a democratic congress. Bush Sr. just wasn't a real conservative because he raised taxes. Bush Jr wasn't a real conservative because well, he spent like crazy. The Democrats do the same thing: Clinton wasn't a real "democrat" because he signed NAFTA and reformed welfare. Obama "wasn't real" because he couldn't end the wars, close GITMO or reform the finance industry. (a number of other items)
    - jerf 15y ago
      I find it helpful to at the very least split into social vs. fiscal conservatives. It is easy to be socially liberal and fiscally conservative, or socially conservative and fiscally liberal. G. W. Bush was socially conservative and fiscally liberal. Of course you can split things much further than that; nothing really stops you from being an anti-abortion otherwise-social-liberal, but I really think failing to split out social/fiscal leaves you really baffled by who is aligned with who.
spottiness 15y ago
The Cato institute is not a conservative think tank, as in "conservatives vs liberals or republicans vs democrats". They are a libertarian think tank, and have been very critical of the Bush administration for exactly the same reasons that you mention plus others. (http://www.cato.org/pub_display.php?pub_id=3750 http://www.cato.org/pub_display.php?pub_id=3750) If the article is technically correct though, that's all that matters. Let's use facts expressed in numbers to make decisions and leave emotional concepts like "hypocrisy" to artists.
- altcognito 15y ago
  Yeah, but it's completely wrong: "If we are really worried about a hike in interest rates, what about the hike we can expect if we fail to get federal borrowing under control?" Interest rates are as low as they've ever been. In fact, the only "threat" of our rates for borrowing going up have not been for borrowing more, but quite the opposite. http://krugman.blogs.nytimes.com/2011/07/10/feel-the-pressure/ http://krugman.blogs.nytimes.com/2011/07/10/feel-the-pressur... "The real fiscal Armageddon that this country faces comes not from a delay in raising the debt ceiling, but from out-of-control federal spending and government debt." Except that this "out of control" federal spending has been rising at the same rate as a % of GDP essentially since 1950.(minus a blip in 1992) http://www.usgovernmentspending.com/us_20th_century_chart.html http://www.usgovernmentspending.com/us_20th_century_chart.ht... It's fair to say we have both a spending and a revenue problem. This page shows how revenue has been dipping pretty dramatically the last couple of years: http://www.deptofnumbers.com/blog/2010/08/tax-revenue-as-a-fraction-of-gdp/ http://www.deptofnumbers.com/blog/2010/08/tax-revenue-as-a-f...

wccrawford 15y ago

2003? My God, how will we ever live with only the funding from such a... Wait, 2003? We spend THAT much more money than we did in 2003? That's absolutely ridiculous. It's time this country learned to live within its means. That goes for the government and the people in it, too.

scarmig 15y ago
Whenever you see numbers like this, always ask two questions. Is it adjusted for inflation, and is it adjusted for economic growth? If you're feeling really wonky, you'd also adjust for sector-specific inflation. For instance, disproportionate increase in the cost of health care. Which I hear the government spends a couple dollars here and there on...
- Locke1689 15y ago
  What many people (including the writers of this article) don't seem to understand is that major nations don't pay off their debt -- they inflate it away.
dialtone 15y ago
More than the size of the increase since 2003 would be interesting to know what are the components of this increase.
wheels 15y ago
That's somewhat naive, as is this article, though I assume the author is being intentionally so. Counterintuively, during a recession, the government is usually the only entity that's able to pump enough money into the economy to fuel growth and ultimately end the recession – i.e. the time that its spending is most critical is when its income is at a low. The Great Recession lasted so long precisely because the government tried to "live within its means" rather than getting out the jumper cables. This is also central to the current debate about the best course of action for EU countries, most notably Greece, at present. The danger of simply cutting costs is that it may plunge the country into prolonged recession and ironically impair the country's ability to manage manage its debt effectively. Punditry aside, it's typically been the Democrats in recent decades that have put more effort into reducing the national debt (as Obama is proposing now through increased taxation). At least in theory, if not always in practice, the entire American political spectrum agrees that US debt must be minded and that the current level relative to the GDP is sub-optimal. But the ability to repay debt is linked to the health of the economy, and the goal is to avoid being penny wise and pound foolish.

scarmig 15y ago

The first paragraph gives it all away: "The clock is slowly ticking toward Aug. 2, the date on which the U.S. faces "fiscal Armageddon" — according to the Obama administration — unless Congress agrees to raise the debt ceiling. But would we?" Yes, it's an Armageddon according to the Obama administration. But also Speaker Bohner. And Senator McConnell. And Moody's. And the CBO. Etc. It's also terribly inaccurate, even from a Cato perspective. A 44% cut in federal spending really isn't accurately described as something that will "almost certainly hurt." Pretending to believe that that's doable in any sensible way doesn't lend much credence to the writer. Even if it were possible to do things as he suggests, it wouldn't solve the central problem. The United States has _legal obligations_ to pay Social Security benefits, make sure our retired soldiers receive their pensions, and other civil servants get the healthcare benefits they're entitled to as part of their agreed upon compensation package. These aren't things you can go "oopsies, I don't feel like paying it, maybe next month." And even if you were to do this with extremely questionable legality, it wouldn't help the central issue, which is faith in the credit of the United States. If I pay off my credit card bill but have to renege on my mortgage and car payments to do so, my credit is still going to be shot. Lastly: this is about two weeks late in Republican messaging. It's now Obama who's pushing for larger long-term deficit reduction and spending cuts than Republicans (on the order of 4 trillion instead of 2 trillion over the next decade). This is, it should be said, not merely twice as big as the Republican package but also twice as stupid and boneheaded. Regardless, that's how things stand--Republicans are likely to refuse Obama's 4 trillion in favor of their 2 trillion, which is only half as stupid so on net good for the country. Good for them, but unfortunately it undermines the Cato dude's argument about it being about the deficit.

freerobby 15y ago
I don't understand your last paragraph. Of course we should make good on what we can but if Medicare and/or Social Security (mostly the former) need reform to remain solvent, then why is it stupid to make the cuts that keep them solvent? A working less-than-ideal program is better than a not-working ideal program, no?
- scarmig 15y ago

zmj 15y ago

That's fairly accurate regarding the first-order consequences of hitting the debt limit. Second-order consequences come from: -An abrupt drop in consumer spending due to paychecks lost in that 43% cut. -Moody's and S&P have committed to downgrading the USA's debt from AAA if the debt ceiling is not raised. Remember the liquidity crisis the financial sector suffered in 2008 due to a sudden shortage of AAA bonds? There are a lot of Treasuries out there. I'll leave third-order consequences up to the post-apocalyptic novelists in the audience.

inthewoods 15y ago

"The real fiscal Armageddon that this country faces comes not from a delay in raising the debt ceiling, but from out-of-control federal spending and government debt. If a little pain now helps solve that problem for the long term, it may well be worth it." Great idea - you're pretty sure that everything will be ok if we don't raise the debt ceiling, so let's go ahead with it and just hope that you're right and it isn't that bad. The only real threat to drive up US interest rates is not raising the debt ceiling. With the stuff going on in Europe, we will likely have more people wanting to buy US Treasuries - not less. These guys are worried about an event that hasn't happened, and doesn't seem to be happening, so instead they're going to do the one thing that can actually cause it happen. Insane.

ebiester 15y ago

I don't understand this. Shut down the military short of non-essential functions, shift money to bringing soldiers home now, and cancel every military contract. See how long before the Republicans capitulate. The executive branch holds the keys to military spending. Foreign aid to Israel and Egypt is magically delayed, too. This debt ceiling could be used to hit goals that the progressive movement has wanted for years and put the Republicans in a weak position for negotiating. Everyone would hurt, of course, but it wouldn't last long before Republicans blinked.

johnny22 15y ago
there are defense contracts in every single state of the union, so such a thing is quite infeasible in any near term time frame as that would just make the jobs situation worse than it is now.
- ebiester 15y ago
  And this is superior to other cost cutting measures how? Jobs will be lost any way you cut the deficit.

NotASockPuppet 15y ago

How callous is this man? 44% cut in funding to who? Not to the Banks and Institutions that caused the GFC and the whole problem in the first place. Please name me one ill or unemployed person who had a hand in this whole mess?

marcamillion 15y ago

This has to be one of the most myopic economic pieces I have seen in a while. I am not even American - heck I don't even live in America - but I shudder at the thought of America not being able to honor all legal obligations. It's not about the money. It's not about how much money the US gov't will collect in August vs how much it has to pay out. America is the largest economy on the planet with the largest bond market and subsequently the largest government bond market. It also happens to enjoy, as the french put it, exhorbitant privilege - because not only can it borrow in it's own currency, but it can print new money to repay outstanding obligations. No other country on the planet has that ability to do that. The entire bond markets have rated the US gov't's abilities to repay said bonds at the highest rating for at least the last 30 years. A 'minor' disruption like this, at a time when job numbers in the US consistently disappoint. When only God HE knows what will happen with the Euro, all it takes is some event like this to send the entire global economy back into recession and possibly worse. If the economy goes into a whirlwind now, where sovereign bond markets are threatened, the repercussions could be even more severe than the credit market freeze we just saw. Imagine if it escalates - although it is easy to say, it will never escalate, well I always said we would never reach this point, and look at where we are now - and creditor countries don't want to invest in Treasuries any more, the repercussions could be disastrous and could lead to Nuclear War. I know it sounds hyperbolic, but imagine if America can't pay it's bills and China doesn't want to lend it money to pay it's bills...what choice does America have but to go to war with China? Especially when the government is under intense domestic pressure because they never extended the damn debt ceiling and avoided this in the whole place. It almost becomes the least worse choice. War with China or domestic revolt. Sure you say, Americans would never revolt - but when SS checks stop arriving and tons of old people can't get their health care taken care of, let's see if you still say that. Not to mention that if America defaults on the debt, it could send ripples all throughout China and cause significant issues there leading to an implosion of economic activity - which would actually incentivize China to go to war with America. Again, I know it sounds very hyperbolic and VERY far-fetched, but so did the real estate market collapsing in the middle of the worst credit bubble burst America has ever seen. It's all about timing. The world is not in a position to deal with a default like this in a measured manner. God help us all, if it ever comes to a default right now. Talk about the perfect storm.