Ramifications of the debt-ceiling issue

Parent Cafe
121

<p>Here’s the response from the other PA Senator:</p>

<p>Thank you for taking the time to contact me about the debt limit. I appreciate hearing from you about this issue. </p>

<p>The federal debt is the sum of the debt held by the public and the debt held in government accounts. A statutory limit has been in place restricting the total federal debt since 1917. Currently, the debt limit stands at approximately $14 trillion. Over the years, Congress has acted regularly to increase the debt limit. The Department of Treasury has notified Congress that the debt limit was reached on May 16, 2011, and must be increased before August 2, 2011, for the federal government to meet its commitments. I am committed to reducing government spending and balance the budget so that borrowing is not necessary for the future. </p>

<p>I understand that the idea of raising the debt limit only reinforces these concerns. Please be assured that the Nation’s fiscal health is of the utmost importance to me. Moving forward, we must promote fiscal policies that are responsible both in terms of spending and paying down our national debt. To that end, I voted in favor of an amendment that would reinstate a law used in previous Congresses to control spending and revenue changes referred to as statutory “pay-as-you-go”. This commonsense rule requires Congress to pay for the laws that it passes and has led to record surpluses in the past. I also voted last year in favor of a bipartisan amendment to curb the growth in spending by capping increases in discretionary spending to an average of one percent and defense discretionary spending to an average of 1.7 percent per year. This is one of many steps that will have to be taken.</p>

<p>I am closely monitoring Treasury’s request and the Congressional proposals to respond to it. Again, thank you for sharing your thoughts with me. Please do not hesitate to contact me in the future about this or any other matter of importance to you.</p>

<p>If you have access to the Internet, I encourage you to visit my web site, [Robert</a> P. Casey Jr. | United States Senator for Pennsylvania: Home](<a href=“http://casey.senate.gov%5DRobert”>http://casey.senate.gov). I invite you to use this online office as a comprehensive resource to stay up-to-date on my work in Washington, request assistance from my office or share with me your thoughts on the issues that matter most to you and to Pennsylvania.</p>

122

<p>Thought I’d give a report on ds’s day in the congressional office.</p>

<p>He worked the afternoon shift, and they received 70 calls, easily twice the number of a usual afternoon. Don’t know how the morning went, but they had 13 voicemails when they got in, which is highly unusual. Additionally, 20 people came to the office today when most days they’re lucky to see one constituent.</p>

<p>At least people are paying attention!</p>

123

<p>How were the calls running? </p>

<p>For cutting spending only? For spending cuts and tax hikes? </p>

<p>Just curious.</p>

124

<p>Overwhelming for cuts and hikes.</p>

125

<p>Tom1944… You are right.</p>

126

<p>The unthinkable is finally becoming reality for U.S. companies, who are beginning to take real steps to prepare for the possibility of a U.S. debt default.</p>

<p>While companies generally expect Washington to resolve the debt-ceiling impasse at the last moment, they are lining up extra sources of financing, and carefully husbanding cash just in case a deal falls through.</p>

<p>All the uncertainty comes just as businesses were starting to spend some of their record piles of cash. The confusion is also giving them another reason to delay hiring and investment.</p>

<p>Many companies, chastened by the turmoil in short-term credit markets …</p>

<p>[Companies</a> Bracing for U.S. Default - WSJ.com](<a href=“Companies Bracing for U.S. Default - WSJ”>Companies Bracing for U.S. Default - WSJ)</p>

127

<p>Just checked the Aussie Dollar = $1.104 US. I have never seen it this high - I remember when the Aussie Dollar was less than half a US dollar. The Singapore dollar is at record highs against the US dollar too.</p>

128

<p>I wonder why people insist on comparing the US economy/budget to a household budget. I think it is an incorrect comparison. I wish one of you informed types would learn us up some on how very different a national economy is compared to a household. If one more person compares their friggin credit card to the US debt I think I’ll… well…stomp my foot (again) and yell about how they’re completely different.</p>

<p>Also, if one more person prattles on about how the government spending less will improve the economy … for the life of me I don’t see how anyone spending any less improves the economy. </p>

<p>Finally, the paranoid antenna is rising out the top of my head. What purposeful game is Washington playing to distract us/theworld/eachparty/? Are “they” really willing to take the monetary system to the brink for no other reason than Tea Party politics?</p>

<p>[Daily</a> Kos: 10 Things the GOP Doesn’t Want You to Know About the Debt](<a href=“10 Things the GOP Doesn't Want You to Know About the Debt”>10 Things the GOP Doesn't Want You to Know About the Debt)</p>

129

<p>The US has the privilege of holding the world’s reserve currency and this is a tremendous privilege. We can borrow, print or otherwise create money out of thin air and use it to buy goods and services from the rest of the world. Other countries can’t do this with any level of credibility unless they have a very successful manufacturing (or other) economy. Japan does it to weaken their own currency but they are a manufacturing powerhouse.</p>

<p>The problem with privileges, in terms of human nature, is the tendency to abuse it and I think that we have done so over many decades. We’re at the point where other countries have created their own trading blocks so that they don’t have to buy dollars with their currency to engage in trade.</p>

<p>The natural result is that the US dollar has fallen - some may argue that that’s the way things should work. Maybe it is but the privileged status has been a crutch for quite some time.</p>

<p>There are countries out there that are doing quite well without the privilege of holding the world’s reserve currency. They have had to work harder at it with a long-term outlook because printing and borrowing weren’t options.</p>

<p>The stock market finally started pricing in default risk this morning. I’m thinking that the Fed is in full panic mode on the markets and working on their QEIII plans for the fall.</p>

130

<p>You’re not really 100% long, are you BCEAgle91?</p>

<p>You like to stir things up…</p>

<p>Hugcheck, you are right…cutting government spending while the private sector is deleveraging is a pretty insane policy. </p>

<p>I’m having trouble understanding some of the proposals…</p>

<p>As a society, have we decided to gut the middle class?</p>

<p>Cutting the home mortgage deduction, taxing health insurance benefits…these are 100 billion plus a year deductions…that benefit the middle class…
Changing how we adjust for inflation in SS and medicare…hurts the middle class…
Raising the age when people can get medicare buries the middle class…
Cutting the tax deductions for IRA and Keogh plans hurts the middle class…</p>

<p>And lowering the top income tax rate to 29% or less…helps about 2% of the population…</p>

<p>although many of these people will be losers with the loss of deductions.</p>

<p>Cutting government spending when the private sector is deleveraging is going to hurt the middle class…</p>

<p>So…who is going to be hurt and who is going to be helped by the solutions to the “debt” crisis?</p>

<p>It is pretty obvious…</p>

131

<br>

<br>

<p>Yes I am. Not a fun day. But it has otherwise been a good year.</p>

132

<p>I’m not having a good year…</p>

133

<p>Well, at least you have a new home.</p>

134

<p>Yeah…that’s true…</p>

135

<p>People who liken the US government to a household make a common mistake, ignoring second order effects. They assume the change they are proposing won’t cause any other changes. That is, they assume all else is equal-- but it isn’t. </p>

<p>For another, simpler example of second-order effects, consider a small business selling widgets. The business sells 100 widgets a month at $100 a widget. But they need more money, so they say, let’s raise the price to $110 a widget. Now they’ll sell 100 widgets at $110 a month, for more money, right? No! The business ignored second order effects; all else wasn’t equal. When they raised their price, everyone went next door to buy their widgets, nobody paid $110, and our business lost money.</p>

<p>When a single household makes buying decisions, they are justified in assuming all else is equal. One little household isn’t going to change the price of steak by buying less steak. </p>

<p>But when the US government makes decisions, all else is very definitely not equal. If the US buys something (helicopters for the military, or bridge fixing, or corn) in US-sized amounts, it very definitely changes the price, and many other aspects the world as well. Moreover, the US’s economy is so big that when considering effects, we have to consider what happens to the money the US is paying.</p>

<p>So, if I decide to borrow money have my house remodeled, I can just look at the market price for house remodeling. I’ll have to pay the market price, plus the price for my loan, and I can safely ignore all effects outside my household. I shouldn’t borrow if I can’t afford to pay back the loan, because it’s not going to pay itself back.</p>

<p>But if the US decides to borrow money to fix the thousand worst bridges in the US and the fifty worst freeways, we cannot ignore second order effects. Those construction workers would pay taxes, so some of the money would come right back to the government. Moreover, when the unemployed construction worker gets a job fixing a bridge, he can now spend more. The donut shop down the street and the vendor of steel-toed boots can hire new workers to serve the now-employed construction workers. The trucking company that delivers the steel to the construction site will buy new trucks and hire new drivers. All these newly employed people pay taxes, to make up for the cost of borrowing the money (at, in this case anyway, very cheap rates) to pay to repair the bridges and roads. So, for our investment, we not only get bridges and roads repaired, and we at the same time increase tax revenues and increase employment. And maybe there are bad second-order effects as well-- maybe the construction is particularly polluting, or (if we already have full employment and high interest rates) by hiring workers away from other projects we drive up the interest rate, drive up wages and cause inflation.</p>

<p>We can argue about the magnitude of these second-order effects, and whether they are worth the initial cost. But the point is, for US budgeting, second order effects are large and we must take them into consideration, but for household budgeting, we can and should ignore second order effects.</p>

136

<p>Very few households buy lots of things that they don’t need when they have no cash to pay for it - ships that were never used before being decommissioned, planes that the Air Force never wanted. You don’t build airports that are never used because one of your pals wanted one to put his name on. </p>

<p>You don’t pay your contractors or household help double the going rate. </p>

<p>The so called job stimulus plan cost around $200,000 per job! </p>

<p>Sadly, most of this debt was spent on dumb stuff…wars, hefty benefits, payouts to cronies…no wonder people are so mad.</p>

137

<p>If the government runs low on cash, who’s first to get a check from Uncle Sam? According to a top Pentagon procurement official, defense companies, like other government contractors, may have to start forming a line.</p>

<p>Richard Ginman, the director of defense procurement and acquisition policy, told reporters at a breakfast this morning in Washington that if the government can’t borrow money, it will be the Treasury Department and the White House Office of Management and Budget that will determine the sequence for paying the bills as revenue comes in.</p>

<p>[U.S&lt;/a&gt;. Debt Battle - Washington Wire - WSJ](<a href=“U.S. Debt Battle - WSJ”>U.S. Debt Battle - WSJ)</p>

138

<p>Those who hold government debt will be the first to be paid.</p>

139

<br>

<br>

<p>Money market funds are scrambling over this issue and the potential issue of a downgrade.</p>

<p>BTW, as an on-topic statement (appropriate for the Parents’ forum):</p>

<p>“Both plans single out graduate students for a hit. Grad students would lose their subsidized student loans, saving the government $21.6 billion over 10 years. Student-loan-repayment incentives would also be severely curtailed, for another $3.6 billion in savings. And Pell grants would get small increases.”</p>

<p>[U.S&lt;/a&gt;. Debt Battle - Washington Wire - WSJ](<a href=“http://blogs.wsj.com/washwire/2011/07/26/live-blog-the-u-s-debt-battle/]U.S”>http://blogs.wsj.com/washwire/2011/07/26/live-blog-the-u-s-debt-battle/)</p>

<p>These are in both plans. So it looks like graduate school will get harder to finance in any plan that passes. Apparently graduate students are low-hanging fruit.</p>

140

<p>Interesting. If you tick off one graduate student… you tick off one voter (or possibly even fewer, if the grad student is a PR). If you cut the funds from an undergrad, the action will produce several angry voters: the undergrad and the parent(s).</p>