National Debt And Stuff

[Jarhyn]

What if Congress votes against raising the debt ceiling?

Then Congress are fucking morons, who voted to spend more than they voted to collect in taxes; and then also voted not to spend more than they voted to collect in taxes.

This sounds to me like it's a problem of having a bunch of fucking crazy numpties running your country, and not a problem of any other kind whatsoever.

Trump tax cuts were temporary. The GOP leadership now proposes to make them permament. While shrieking about deficits and the need for a balanced budget. Public outcry has forced Mitch McConnell and Kevin McCarthy to announce that cuts to Social Security and Medicare are now off the table. The 2023 defence budget is $858 billions, highest defense budget ever. Most GOP congress critters have signed the Grover Norquist pledge to never raise taxes for any reason. The U.S. national debt is $31 trillion. A balanced budget will not bring the National Debt down a penny.

This is insanity.

Temporary tax cuts are the camel's nose under the tent.

 

[Cheerful Charlie]

If DeSantis became president in 2024, and the GOP took over the Senate, can we expect no cuts to Social Security, Medicare, Medicaid and any other safetly net programs?

 

[Elixir]

If DeSantis became president in 2024, and the GOP took over the Senate, can we expect no cuts to Social Security, Medicare, Medicaid and any other safetly net programs?

WUT?
If Lucy holds a football and Charlie Brown tries to kick it, what do you think will happen?

 

[Cheerful Charlie]

Paul Krugman has posted a series of tweets reminding us of GOP plans to slash Social Security et al. Schemes to privatize SS came courtesy of the Cato Institute.

https://twitter.com/paulkrugman/status/1624480686399782912?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Etweet

 

[Lumpenproletariat]

How could bondholders not get paid?
even if debt ceiling remains, not raised?

laughing dog: We don't know what will happen. There is a clear possibility of some bondholders will not be paid which means default.

No, you're not being serious. ...

I am being serious. Your claim about executive orders saving the day is pure fantasy.

It is not fantasy that the Treasury Secretary is already doing maneuvers to ensure that the bondholders get paid, even though they had warned 2-3 weeks ago that we were approaching default because the Congress was dragging its feet to address the debt. Because of this pressure it was necessary to take new steps to ensure payment to bondholders. How could that not continue, no matter what happens?

As the uncertainty continues, in the coming weeks, more and more fancy maneuvers will be done in order to make sure the bondholders get paid. It's nonsense to say they will give up and declare that the nation is bankrupt, and nothing can be paid for. The measures will become more and more drastic, and there will be time to go from one drastic step to a more drastic step. Whatever they do, the resources exist one way or another for them to save some programs while sacrificing others, and the President does have the power to choose which will be saved and which ones sacrificed, if the Congress does not make those decisions.

You can't say this is unrealistic unless you suggest an alternative, which you're not doing.

There is no one single point in time when suddenly we're in default -- no one date sometime in June or July -- Unless they refuse payment to a bondholder when the payment is due. But that's impossible, because no one sudden event can catch them by surprise -- it's inconceivable that they'd be unprepared to liquidate something or trim down some program budget at that point when the payment is due. Another billion here or there to pay these or those bondholders? next Tuesday? but when they "got there the cupboard was bare" and so her poor doggy bondholder went hungry?

No, not gonna happen. There's no Mother Hubbard's cupboard which will suddenly be discovered empty one morning when they open the door mistakenly thinking there was still a bone left.

The bondholders will get paid, on schedule, and some program recipients will have to put up with cuts. Some kind of maneuver will be done so the bondholders get paid and all the spending stays within the new limits fixed by the debt ceiling. It's probably better for this to happen now, during Biden's term, rather than in 2024-2028 when it may be President DeSantis whose Treasury Secretary will make the tough decisions.

 

[laughing dog]

It is not fantasy that the Treasury Secretary is already doing maneuvers to ensure that the bondholders get paid, even though they had warned 2-3 weeks ago that we were approaching default because the Congress was dragging its feet to address the debt......

You confuse your fantasies with reality. Of course, the Treasury is engaging in measures to meet their responsibilities. But at some point, they will be unable to continue - someone will get stiffed. Once that happens - bondholder, military pensioner, air traffic controller, concrete supplier, etc...., then the problems start.

If Executive orders can fix this, then clearly you think the President has the authority to exceed the debt limit, so there is no reason to expect any spending to be reduced in order to meet the debt limit. In essence, you are arguing there is no debt limit.

Post 216 has a link to explanations about the possible actions the Treasury can take and the possible ramifications. Have someone literate in finance read it to you so they can explain anything you don't understand.

 

[Elixir]

In essence, you are arguing there is no debt limit.

I thought he was complaining there’s no debt limit.

 

[Lumpenproletariat]

How do we get the needed spending cuts and tax increases?
-- by not raising the debt limit again and again and again

It is not fantasy that the Treasury Secretary is already doing maneuvers to ensure that the bondholders get paid, even though they had warned 2-3 weeks ago that we were approaching default because the Congress was dragging its feet to address the debt......

You confuse your fantasies with reality. Of course, the Treasury is engaging in measures to meet their responsibilities. But at some point, they will be unable to continue - someone will get stiffed.

Some spending on programs will be cut (the "stiffed"), and Treasury will be able to continue paying the bondholders. This will be a sacrifice in order to avoid default.

Once that happens - bondholder, military pensioner, air traffic controller, concrete supplier, etc...., then . . .

The latter are not in the same category as the bondholder who has to be paid according to the debt terms. The government employees and also program recipients don't have to be paid at the same level -- those cuts can be done without any default.

. . . then the problems start.

No, the problems have already started and will gradually get worse, but nothing suddenly "happens" which will cause default.

If Executive orders can fix this, then clearly you think the President has the authority to exceed the debt limit, so . . .

You mean he can himself issue the new debt and run up the national debt, by his own individual decision?

What has been done historically is that a President (Nixon) impounded funds which had been appropriated by Congress. Today it's more illegal than it was then, but he could still do it just as Nixon did it back then. But it's not clear if the President has some power to actually issue more debt, on his own, without Congress. It's not clear if there really is a procedure for that. But even if there is some such action he could take, it would be much more difficult than just impounding some appropriated funds. Also he can sell off assets, and probably raise revenue in some way, but these would be more difficult than impounding the program funds, which has been done and could still be done today, though he would be impeached by the House if he should do it.

. . . so there is no reason to expect any spending to be reduced in order to meet the debt limit.

It has been done before. And also there have been meat-ax cuts in spending -- chopping off a percent of the budget, across-the-board -- or there were procedures in place to do it. Congress tried to do it, maybe without much success. But this would be the President alone making the decision, so there'd be no need for consensus or compromise. There is reason to expect it, unless you can show some alternative method to meet the debt payments due even if the debt ceiling is not raised. So far you've given no other means to do it -- other than suggesting that the President could personally issue more public debt, on his own, which you've not shown is possible.

In essence, you are arguing there is no debt limit.

No, the debt ceiling is a debt limit. And if this is not raised, it will still be possible to pay the bondholders their payments due. By cutting spending programs as needed. Or selling assets.

Post 216 has a link to explanations about the possible actions the Treasury can take and the possible ramifications.

I had a look at it. It does not contain any such explanations. It confirms what I already said, that Treasury is doing unusual measures to ensure that bondholders get paid even though some deadlines were passed. Plus that post contains the same standard outcries that the debt ceiling must be raised or the sky will fall.

If it really does say there are other alternative measures which can be taken, you will post it here -- paraphrase it. Of course you can always argue that some publication somewhere proves what you claim. No doubt somewhere in the Library of Congress something has been published which refutes you.

But if you have a real point, you can state it yourself without having to pretend that somewhere else it was published.

Your best point is that the President also can personally issue new public debt, without Congress doing it. You might elaborate on that, and quote some source confirming it. I'm doubtful that any President ever did that, or could do it. But we do know that President Nixon impounded funds appropriated by Congress. The only difference today is that it's officially illegal and he'd be impeached by the House (but not removed from office). Also, he'd have to do it unless you can show there's any other way the bondholders could be paid (if the debt ceiling is not raised) -- which you've not shown.

Have someone literate in finance read it to you so they can explain anything you don't understand.

But I'm so stupid I don't even know who is "literate in finance" that I could ask. So you'll have to explain it because you're so smart.

 

[laughing dog]

Some spending on programs will be cut (the "stiffed"), and Treasury will be able to continue paying the bondholders. This will be a sacrifice in order to avoid default.


.....
The latter are not in the same category as the bondholder who has to be paid according to the debt terms. The government employees and also program recipients don't have to be paid at the same level -- those cuts can be done without any default.

True, payroll theft and stiffing pensioners and stiffing suppliers are not a bond defaults - they are crimes. And, of course, no one will notice or care that vendors are getting stiffed.

You mean he can himself issue the new debt and run up the national debt, by his own individual decision? ...

The Treasury can issue debt to retire debt that is due. And, of course, since you think the POTUS can do anything via by executive order, why not add to debt?

I had a look at it. It does not contain any such explanations....

Then you did not look at it very closely.

But I'm so stupid I don't even know who is "literate in finance" that I could ask.

You said it, not me.

So you'll have to explain it because you're so smart.

Been there, done that. Others in this thread have been there and done that.

 

[bilby]

How do we get the needed spending cuts and tax increases?

You're getting ahead of yourself.

How would we know whether spending cuts are needed?

How would we know whether tax increases were needed?

And are the two necessarily linked in an absolute sense?

The "correct", ie optimum, amount of government spending, would be sufficient to pay for any and all infrastructure that will have long term benefits to the economy in excess of the net present value of the spending. Unless we're going to waste vast effort getting a small army of accountants to calculate this, we probably need a rule of thumb, though.

One such rule would be to say that spending is at least sufficient, if not too high, if and when all infrastructure is maintained at the standard it had in the past, and at least some new infrastructure is being built - probably at around the total value of the rate of increase in the size of the economy. By this measure, we can see that spending has generally been too low at least since the 1980s, and significant extra "catch up" spending is indeed needed.

This rule of thumb can be further simplified: Spending is too low if the existing infrastructure is deteriorating, and/or new infrastructure isn't being built at roughly the rate of economic growth.

If the highways are full of potholes, the bridges are being de-rated or closed (or even collapsing), and new highways aren't under construction, then highway spending is too low.

You can apply similar criteria to other forms of infrastructure.

Tax increases are needed, if (and ONLY if) the extra money that total spending has added to the economy is sufficient to raise inflation to undesirable levels. Right now, inflation is very high, which might suggest that tax increases are a good idea; But up until about 2020, we had a prolonged period of very low inflation. This suggests that tax increases were not needed, probably because (as we just established) government spending has been far too low. Some short term tax increases on the higher income earners might be useful, but as a check against recent inflation, not as a response to the necessary increases in spending.

That also answers our third question - yes, they are linked, but not in any absolute sense. The difference between spending and taxes (the "deficit") should be approximately equal to the anticipated increase in the size of the economy, which is variable, not absolute.

A "balanced budget" is therefore a good idea if, and ONLY if, we expect and desire the economy to remain static and to exhibit zero growth. And tax increases (or cuts) that exactly reflect spending increases (or cuts) are a good idea only if we have a completely stable economy with an unvarying rate of growth (or recession).

Right now, the US economy needs significant spending increases, and (assuming that we will continue to manage short-term inflationary pressures such as COVID and the Ukraine War via interest rates, while managing long term, systemic inflation via taxes) no tax increases are needed until that significant spending increase starts to cause a long-term up-swing in inflation.

I would expect that a suitable increase in government spending to bring it up to the "needed" level would, eventually, have an impact on inflation that would make tax increases "needed", but I would also expect the "needed" tax increases to be dramatically lower than the "needed" spending.

Deficit needs to increase in real (ie inflation adjusted) terms at roughly the rate of economic growth, and to increase in absolute terms at roughly growth plus inflation. If you want any growth at all in a moderate inflation economic environment, you need ongoing increases in deficits. And absent any evidence that such deficits have any non-optional deleterious effects, attempting to prevent deficits from increasing in such an environment is just kicking yourself in the nuts.

 

[Loren Pechtel]

Trump tax cuts were temporary. The GOP leadership now proposes to make them permament.

I'm not surprised.

Note that when it was originally passed the stuff for the rich was permanent the stuff for everyone else was temporary. I think the original intention was to let the stuff for the average man quietly expire, but now they're using it to bash the Democrats.

 

[Lumpenproletariat]

What should be done if the Debt Ceiling is not raised by Congress?

Some spending on programs will be cut (the "stiffed"), and Treasury will be able to continue paying the bondholders. This will be a sacrifice in order to avoid default.
.....
The latter are not in the same category as the bondholder who has to be paid according to the debt terms. The government employees and also program recipients don't have to be paid at the same level -- those cuts can be done without any default.

True, payroll theft and stiffing pensioners and stiffing suppliers are not a bond defaults - they are crimes.

Not if it's cutting government programs, gov't spending, entitlements -- Which is what this is about. It's not "crime" when a program is cut. It is appropriate for gov't to cut some programs, with no moral or legal imperative to continue or keep increasing every program because it's a "crime" not to. Any program can be cut without a "crime" being committed.

Recipients of government programs have to realize that being paid is dependent on the choice by government to continue the program, or not cut it back. All contractors for gov't programs are taking a certain risk because of the possibility of spending cuts. They have to take this into account when they bid on the contracts. Because contracts can be cancelled or reduced, depending on the terms. You cannot call it a "crime" just because some corporate welfare program was cut back or scrapped.

And all transfer payments are subject to cutbacks without this being a "crime." The taxpayers can legitimately choose to reduce certain programs without being guilty of some "crime."

You cannot create a scheme where every program has to be continued, according to your economic doctrine, because it's illegal to reduce that program. No, the taxpayers are entitled to have some programs reduced which are more expendable than others. Such normal cutbacks are a legitimate part of the budget process. But it's not legitimate to borrow from lenders and then fail to repay them with interest when the repayments are due. Such DEFAULT has to be avoided -- there is no option to do any cutbacks in repaying the debt when the payments are due, ever, whereas cutbacks in gov't programs are sometimes necessary.

And, of course, no one will notice or care that vendors are getting stiffed.

Just because the gov't program was cut does not mean any vendors are stiffed, though maybe their business decreases. They took a gamble when they chose to do that production. In some cases they could have legal option to sue and be paid later, perhaps with penalty, if their contract was broken by the gov't. While in other cases they get screwed, because it was a normal business risk. Repaying the bondholders takes priority over companies which lost out because of program cuts. The solution to this problem (if there really is such a problem) is better planning by lawmakers and the contractors. Those contractors are gambling in many cases, and they have to know this and realize that in the more risky cases they could get shafted. It's their responsibility to take this into account, be more careful about high-risk decisions.

In some cases gov't or contractors need to take better safeguards against risky arrangements. This risk-taking reality does not apply to lenders who buy gov't bonds -- unless society makes the decision to stop relying on debt and to adopt a "PAY AS YOU GO" practice for future business, in which case the bondbuyers are expendable and we really can let them get shafted with little problem. But this is not our current gov't system of doing business -- we rely on regular debt. And so we must put the bondbuyers at highest priority to be paid, above contractors and other recipients of gov't programs.

You mean he [President] can himself issue the new debt and run up the national debt, by his own individual decision? ...

The Treasury can issue debt to retire debt that is due.

You're probably distorting the facts about this, because if that's all there is to it, then the "debt ceiling" is irrelevant to anything and no one would be making a fuss over it. Because the Treasury Secretary can just issue all the new debt needed (for upcoming deadlines) regardless how high it is, and in fact the annual deficits could be increased to $5 trillion or $10 trillion with no problem whatever. So you're obviously leaving something out when you dismiss the "debt ceiling" this way. Clearly there is some present limit on Treasury's power to just issue all the new debt the President might need for promoting his latest corporate welfare or "job creation" or pork programs he cooks up to win some votes somewhere.

Probably there is some defined limit to this power which makes it impossible for Treasury to suddenly increase the new debt another $5 trillion or $10 trillion or so, as you're suggesting.

And, of course, since you think the POTUS can do anything via by executive order, why not add to debt?

Theoretically, perhaps. But in practice it's much more difficult than just cutting programs, by impounding funds, and also selling off assets. Both of these have been done -- President Nixon impounded funds, and President Reagan allegedly sold assets (did a shell game, via Oliver North, indirectly transacting through 3rd countries) without authorization from Congress. Probably it was illegal (maybe even still denied by some Republicans) but much easier to get away with than issuing new debt against the will of Congress.

If you can name a case of a President personally issuing new debt, contrary to Congress, you could elaborate on this.

Part of the problem with this would be the inability to persuade investors to buy such bonds, because there's a strong possibility of default in such a case, as a later Administration or later Congress might take action to nullify such debt, saying it was illegal. Whereas if the President impounds funds allocated by Congress and uses it to repay bondholders, that's a done deal which cannot be revoked by a later President or Congress. Ditto selling off assets. Once Reagan delivered unauthorized aid to the Contras in Nicaragua, that could not be revoked by a Democrat Congress. Though it's disputed, probably U.S. assets were used in some way, involving other countries and unauthorized transactions. An illegal payment by the President, unauthorized by Congress, is much easier to get away with, once it has happened, than illegal borrowing by the U.S. and repayable later.

The basic principle is that the President, because of his extra power, might have to resort to drastic steps -- like impounding funds, reducing a program, even selling assets -- if he can get away with it and there's a need so high in priority that makes it necessary, for the sake of the country's long-term interest.

You still have not identified what other action could be taken, later, if and when the debt ceiling remains unraised, and the bondholders have to be paid. You're probably wrong in suggesting that the President unilaterally can issue new debt without limit, because if so, President Biden would already be doing it, and also earlier Presidents, to deal with the debt ceiling impasse.

Possibly you're right that there is some very limited ability to do such a thing, like up to some limit like $10 billion or so, some amount too small to fix the debt ceiling crisis.


What steps to take if the DEBT CEILING is not raised by Congress:

Post 216 has a link to explanations about the possible actions the Treasury can take and the possible ramifications.

I had a look at it. It does not contain any such explanations....

Then you did not look at it very closely.

If it really offered any possible actions treasury can take, other than impounding existing funds allocated by Congress (cutting spending programs), you would have stated what these were. Why are you unable to state what steps the Treasury could take?

Again, you're probably wrong to suggest that the Executive Branch has power to issue new debt, for some sudden unexpected need like failure of Congress to increase the debt limit.

Been there, done that. Others in this thread have been there and done that.

You can't quote anyone who has explained what Treasury should do in case the debt ceiling is not raised by Congress.

Everyone here, in that post and others, has only exploded with outcries why the DEBT CEILING MUST BE RAISED or else the sky will fall.

 

[Cheerful Charlie]

The U.S. is running $1.2 trillion estimated deficit for 2023. The U.S. is now burdened with a $31 trillion national debt. How did we get here. Here is a New York Times article that examines that question. A long read, but worth considering. Deal with this is going to be a major issue for the 2024 elections. Read on.

How the U.S. Government Amassed $31 Trillion in Debt

Two decades of tax cuts, recession responses and bipartisan spending fueled more borrowing — contributing $25 trillion to the total and setting the stage for another federal showdown.

www.nytimes.com

 

[bilby]

The U.S. is now burdened with a $31 trillion national debt.

No it's not. It just has one.

How is a national debt a burden?

The interest, and the capital, are US dollars, of which the nation has an unlimited supply.

The "national debt" is an accounting term of art. it's a "debt" only in the most technical of senses, and is simply the difference between the amount of money created by the federal government, and the amount subsequently destroyed by that government.

It's simply unimportant. It's neither a burden not a boon; It's just a number - and far from being an important number.

If you're worried about the economy, the numbers to worry about are GDP, inflation, interest rates, balance of trade, currency exchange rates, unemployment, and stock and commodity indices.

National debt is only a useful measure to people wanting to scare the crap out of voters who know little or nothing about economics. The rules around national debt in the US are an archaic hangover from commodity money, when congress had to make sure the US didn't run out of gold to pay her creditors. Today their sole value is that they provide an regular excuse for the economic morons to threaten to destroy the economy now, unless their crazy plans to fuck it over for political gain are implemented.

The only thing the debt ceiling achieves today is to let congress hold a pistol to their own heads, and threaten to refuse to pay for the stuff congress already bought, unless their destructive policies are enacted.

What matters is the things money is spent on (does it help to build productive national infrastructure*?), and the amount of tax needed to offset poorly targeted spending (because to the extent that doesn't help to build productive infrastructure, it will cause inflation unless recovered as tax). The absolute size of the deficit isn't important. At all.








*I'm using "productive national infrastructure" in the broadest possible sense here. It not only includes such things as building roads and bridges that enable commerce for years or decades to come, but also maintenance of that infrastructure, and such "soft" infrastructure such as a healthy and productive population who have disposable income to feed into the economy - even if some of that income is just handed to them by the government. Any and all spending is beneficial if (and to the extent that) it provides a long run increase in GDP, above and beyond that fraction of GDP that is the direct result of the spending itself.

 

[Cheerful Charlie]

Vast national debts mean large amounts of interest paid on the debt.

The interest buys us nothing. It does not pay for a single shool lunch, or fills a single highway pothole. This what we get to pay for the luxury of large tax cuts for the rich starting with Reagan, or the war Bush lied us into. Or the big collapse of the economy under Bush with the sub-prime mortgage fiasco. It buys us nothing. Nothing at all. 9% of our federal budget goes to paying interest. 40 years of incompetence.

 

[bilby]

The interest buys us nothing.

It also costs you nothing.

So...

 

[bilby]

The debt ceiling should NOT be raised.

It should be eliminated completely, as it serves exactly no useful function or purpose.

 

[bilby]

This what we get to pay for the luxury of large tax cuts for the rich

The problem with large tax cuts for the rich isn't the deficit or debt that they cause, it's the redistribution of wealth. Tax cuts are inherently inflationary, and so they make everyone who didn't get a cut poorer, while those who did become richer.

They are bad because a healthy economy is one in which the maximum number of people have a strong influence, and such tax cuts serve to increase the influence of a smaller number of already influential individuals, while reducing the influence of a larger number of already marginalised individuals.

Of course, if you're a wealthy person, you're not likely to see this as a major problem.

Insofar as money is speech, tax cuts to the rich get them a bigger megaphone, while turning down the voices of the poor to inaudible levels.

Taxes should be highly progressive, to reflect the benefits society grants to the rich, by placing the burden of providing that society on the shoulders of those who gained most from its existence.

Progressive taxation is democracy. Tax cuts, particularly those that target the rich, are aristocracy. We already decided that it's best to give votes to everyone, rather than just have a king or emperor who imposes his decisions on the rest of the population. Now we need to decide that what applies to votes applies also to dollars - everyone needs them, or their opinions will be utterly disregarded.

 

[Cheerful Charlie]

The debt ceiling should NOT be raised.

It should be eliminated completely, as it serves exactly no useful function or purpose.

That ain't gonna happen until the happy day the Democrats control the Presidency, the House and the Senate by sizable margins

 

[bilby]

The debt ceiling should NOT be raised.

It should be eliminated completely, as it serves exactly no useful function or purpose.

That ain't gonna happen until the happy day the Democrats control the Presidency, the House and the Senate by sizable margins

Whether or not it will or can happen has no bearing whatsoever on the fact that it should.