Raiing the Debt Limit

[Anonymous]

Governor Tim Pawlenty (that's an Italian cornmeal dish, right?) had a column in the Post a couple of days ago (http://www.washingtonpost.com/wp-dyn/content/article/2011/01/21/AR2011012103415.html?hpid=topnews) in which he argues against raising the debt limit. He starts off with a fact I was unaware of, namely that one of Obama's early Senate votes was against raising the limit. Gibbs says Obama only voted that way to make a point, knowing it would pass anyway. But it only passed by a 52 to 48 vote, so it seems kind of embarrassing to me.

Anyhow, Pawlenty says refusing to raise the ceiling would not result in default or damage to our full faith and credit, because we have the cash flow to continue paying our outside obligations, at least for several months. But what internal obligations would we have to sacrifice?

He points out that if you or I exceed our debt limit, on a credit card, say, the bank does not simply raise the limit. But banks often do send offers to raise the limit when you get close, if they think you'll manage to keep making payments, and China will probably keep lending to us. Perhaps the situation is more like the days when I lived in an apartment because I was reluctant to go into debt by taking a mortgage. It was my own decision how much debt I was willing to take on, and admirable in some ways ("Neither a borrower nor a lender be", as that old windbag Polonius counseled) , but not very wise as I look back over the decades in which my home's value went up around tenfold.

Anyhow, the United States is such a different animal than a family, that the comparison is totally spurious -- in my opinion, at least. Some of you undoubtedly know something about the issue. I would like to hear some views, although I am sure there are experts who know exactly opposite truths about the matter.

[Anonymous]

Oops, someone knocked my s off in the title.

[Anonymous]

We hit the debt limit somewhere around the end of March / beginning of April. We probably have wiggle room until mid-late May. But after that, we are stuck.

What do we do then? We can squeak by a little longer by furloughs or similar means to contract short term government spending. But at some point, it starts to impact big things like medicare, social security ,or interest on the debt.

Now you may look at those three items and think hmmm, let's just hold back on interest payments on our debt since that affects bondholders and not your average citizen.

There would be no better way to permanently screw ourselves than to do that. Whether we like it or not, we have a lot of debt. And the cost of that debt would skyrocket if we were no longer a reliable debtor. And reliable in this case does not mean "I'll get the money to you eventually". Reliably means you meet every single interest payment, on time.

And on top of it, defaulting on our debt would throw the financial markets into a tailspin. They build financial products on the assumption that US debt is 100% reliable. If that assumption is wrong, a lot of bad things happen.

And lastly, because of the impact on the financial markets, they would likely send the message early to us that defaulting on debt is not going to be tolerated. The way they would do that is to stop buying our debt ahead of any possible default.

[Anonymous]

re: faililng to raise the debt limit:

It would be a great way to drive ourselves out of our current position as the world's only super-power. Given the rise of the Teabagger Movement, and the resilience of know-nothing right-wing idiocy in general, I'm beginning more and more to think this can't possibly be a bad thing. The sooner the US power sinks to the level of the UK or Italy, the better everyone will be.

[Anonymous]

Congress needs to grow up. The public debt is just the result of all the budgets Congress has passed in previous years. And in December they voted to extend the Bush tax cuts.

And now Congress is saying "but we don't want to pay for the budget, and the extension of the Bush tax cuts, that we passed! Because we'd have to issue debt because we couldn't balance the budget on our own."

This is a search for something symbolic, because they're incapable of reducing the deficit by actual budget or tax measures. The problem is, they may trash our national credit rating in the process, which would result in higher interest rates on the national debt and for the private sector alike.

[Anonymous]

Government too big. Does too much. Unsustainable. Not realistic. Economy sucks. Government must shrink. No money to tax. Must rebuild the private sector. Slash government at all levels. Take half the cuts and put into social sec and medicare. Unwind unreasonable regulations and red-tape. Build nuclear plants, start drilling, mining. Cut corporate taxes. Explode production and take it to the Chinese.

[Anonymous]

Anonymous wrote:Government too big. Does too much. Unsustainable. Not realistic. Economy sucks. Government must shrink. No money to tax. Must rebuild the private sector. Slash government at all levels. Take half the cuts and put into social sec and medicare. Unwind unreasonable regulations and red-tape. Build nuclear plants, start drilling, mining. Cut corporate taxes. Explode production and take it to the Chinese.

And refusing to raise the debt limit will do this ... how? The public debt is just Treasury's attempt to finance what Congress approved for spending and taxes. It's just posturing to tell Treasury that it can't issue debt to finance Congress' own decisions.

[Anonymous]

Anonymous wrote:Government too big. Does too much. Unsustainable. Not realistic. Economy sucks. Government must shrink. No money to tax. Must rebuild the private sector. Slash government at all levels. Take half the cuts and put into social sec and medicare. Unwind unreasonable regulations and red-tape. Build nuclear plants, start drilling, mining. Cut corporate taxes. Explode production and take it to the Chinese.

Great. The way to handle that is to spend less, not to signal that we are going to default on our creditors.

[Anonymous]

They have to raise it - there is no choice. Even if the crazy tea party people that just came in have no clue the financial ruin this would create if not done, the R leadership actually has some intelligent (although highly misguided) people in it who recognize the reality of the situation.

If they were serious about the debt - they would have already proposed entitlement reforms to begin to address this in a serious way instead of tryign to tinker around with the small amt left over once you leave Medicare, Medicaid, SS, and Defense aside. But instead they keep talking about just inane things like slashing agency budget by 30% or so rather than focus on what's actually driving the huge run-ups in costs in unsustainable ways. And no, the tort reform fairy will not magically fix this situation, even if that were to move forward.

[Anonymous]

I'm surprised there hasn't been more discussion on this topic. What the heck are the Republicans doing? I just can't understand how anyone thinks it's a viable option for the US to default on its debts.

[Anonymous]

Failing to raise the debt limit is absolute madness. This country is on the way to being a banana republic.
A country that has no reason to default defaulting on its debt is something you would barely expect from Nigeria, yet it is what the US is contemplating.
Insane.

[Anonymous]

But musn't we exercise some responsibility and accountability? We can't keep borrowing and borrowing and borrowing, spending and spending and spending, and when the bills come do, borrow some more. We've already seen how that works out. We f'ed up getting ourselves into this mess and sometimes you have to sleep in the bed you lie in. I do agree that defaulting would be terrible but, ya know what, act like a terrible spoiled brat and you get treated like a terrible spoiled brat. We, as a nation, wanted low taxes and tons of entitlement. Well, that's not viable. But we kept on doing it and, when you act that way, eventually you bottom out.

Mind you, I am no Republican. Far from it. I think most Republicans are using this as a power ploy because they have a fundamental lack of understanding of what it means to default. I'm just someone who is tired of American largesse and thinks this might just be the kick in the ass it needs. Even if it means a 30-year recession. That's what we deserve after our entitlement and bratiness.

[Anonymous]

I just can't understand how anyone thinks it's a viable option for the US to default on its debts.

I think the Rs are being completely irresponsible by thinking this is viable/acceptable, but I also don't think that w/o a raise we MUST default on our debt - interest on the debt and new debt creation is only part of the budget. It would be horrendously painful - and that means military, Medicare, Medicaid AND Social Security cuts would HAVE to happen - but it is mathematically possible to internalize the new spending limitation and keep up w/ paying our creditors.

[Anonymous]

Anonymous wrote:

I just can't understand how anyone thinks it's a viable option for the US to default on its debts.

I think the Rs are being completely irresponsible by thinking this is viable/acceptable, but I also don't think that w/o a raise we MUST default on our debt - interest on the debt and new debt creation is only part of the budget. It would be horrendously painful - and that means military, Medicare, Medicaid AND Social Security cuts would HAVE to happen - but it is mathematically possible to internalize the new spending limitation and keep up w/ paying our creditors.

In theory, you may be right - but that's irrelevant. First, because no politician, republican or democrat, is going to vote to to slash core programs for constituents in order to pay foreign debt. Second, even if they did, the effect on the national and global economy would be much the same as defaulting.

[Anonymous]

I think it is worse than cutting Medicare or ss. Because of the unevenness of tax receipts the Horton term cash flow could mean freezes that are bigger.