kinder, gentler debt ceiling discussion

[Felix]

Given widespread asset poverty and a balanced budget around the corner, things are going to get really ugly for many Americans. And if it's not a cold turkey balanced budget, you will have a trend towards it due to the cuts to social programs - as a "compromise" - the very thing supposed to help in these situations.

I'll just say again that this is an artificially created thing.

Who benefits? A drop in asset prices is a nice new buying opportunity?

[jennypenny]

As the show drags on "first world problems" are starting to surface ...
http://www.washingtonpost.com/local/hal ... story.html

Also see ...
http://en.wikipedia.org/wiki/Asset_poverty

"According to the CFED 2013 Assets & Opportunity Scorecard, 44 percent of households – nearly half of Americans – are living in liquid asset poverty.[5] These families do not have the savings or other assets to cover basic expenses (equivalent to what could be purchased with a poverty level income) for three months if a layoff or other emergency leads to loss of income."

I don't mean to sound insensitive, and I feel badly for the family with an autistic child, but it's only October 10th. They really can't go 10 days? The shutdown wasn't exactly a surprise. No wonder some people react so negatively to ERE. If you don't have 10 days worth of cash lying around, the idea of saving up a lifetime's worth must be impossible to comprehend.

[Felix]

ERE is pretty much the opposite of the common way of dealing with money, which is spending = income. Adapted to this lifestyle, because it's the only thing they know, most people are in the lousy position of living paycheck to paycheck. They are in big trouble once there's a tiny gap.

[Chad]

As the show drags on "first world problems" are starting to surface ...
http://www.washingtonpost.com/local/hal ... story.html

Also see ...
http://en.wikipedia.org/wiki/Asset_poverty

"According to the CFED 2013 Assets & Opportunity Scorecard, 44 percent of households – nearly half of Americans – are living in liquid asset poverty.[5] These families do not have the savings or other assets to cover basic expenses (equivalent to what could be purchased with a poverty level income) for three months if a layoff or other emergency leads to loss of income."

I don't mean to sound insensitive, and I feel badly for the family with an autistic child, but it's only October 10th. They really can't go 10 days? The shutdown wasn't exactly a surprise. No wonder some people react so negatively to ERE. If you don't have 10 days worth of cash lying around, the idea of saving up a lifetime's worth must be impossible to comprehend.

While, I completely agree they need to shoulder blame and responsibility, it doesn't lesson the blame and responsibility on Congress, and yes, in my opinion the Republicans. And, I'm not even convinced Obamacare is setup correctly or the right way to go.

[jennypenny]

While, I completely agree they need to shoulder blame and responsibility, it doesn't lesson the blame and responsibility on Congress, and yes, in my opinion the Republicans. And, I'm not even convinced Obamacare is setup correctly or the right way to go.

I'm not trying to absolve anyone you mentioned for this particular situation. Other things can happen though, and it always surprises me how unprepared people are. It reminded of me of people who complained after Sandy that they were out of food after three days. I was stunned that they only had three days of food on hand with a storm on the way. Do people just not understand risk? Or are we wired to ignore it? A topic for another thread ...

[vivacious]

Stimulus, and deficit spending in general cause fear and uncertainty in the business class. For that matter, among the income tax paying class. Your theories aside, most folks consider borrowed money to be... borrowed. Since most folks who talk about the debt and deficits hold treasuries or know someone who does, they have an expectation that the money will be repaid, eventually. Yes, that is an unrealistic expectation, just look at the history, but the expectation is there, none the less.

That doesn't really make sense. Deficit spending in a recession often improves the situation. There is such myopic thinking on the issue that people forget that keeping forward momentum going on the economy and preventing a worse recession is what's really at stake.

So no, anyone in the "business class" shouldn't worry about deficit spending in a recession.

Look at the history? Until Reagan came along the debt was going down. He invented the modern debt. As I noted before, all Republican presidents after WWII have increased the debt.

[Felix]

http://www.independent.co.uk/news/world ... 77239.html

[Felix]

This is interesting: http://www.youtube.com/watch?v=0Jd-iaYLO1A

[Felix]

http://www.rawstory.com/rs/2013/10/12/w ... t-default/

[Riggerjack]

Felix, from your raw story link

On Thursday, the country will be forced to default on its $16.8 trillion in borrowings if it does not secure a rise in the debt ceiling.

With such a misinformed statement in the opening paragraph, why would you read further, or link it here?

The change in parliamentary procedure doesn't seem ominous at all, by comparison to the manipulations used to pass obamacare.

I'd take Lagarde more seriously, if the IMF wasn't such a financially destructive force, on its own.

http://alfred.stlouisfed.org/graph/?cha ... range]=Max

There's a pic of the deficit that Vivacious keeps saying is fixing itself. With a historical perspective.

[Riggerjack]

http://alfred.stlouisfed.org/graph/?cha ... nge]=10yrs

That's a shot of the interest on the federal debt we've been paying for the last 50 years. I read about the 100 billion a week interest we'd be defaulting on, come Thursday. That seemed like a stupidly high number, so I thought I'd look it up. so, 230ish billion dollars, divided by 52 seems like less than 7B/week, until you carry the hyperventilating hysteria, then I'm sure it's easily 100B/week. or maybe even per hour!

All kidding aside, the payments aren't just interest, they also include principle, but that principle paid off can be auctioned off again without raising the debt.

If you look at the chart, it doesn't look like the interest has been all that bad, considering the last 5 years' spending, but remember the purpose of QE is to drop interest rates on federal debt. we've been refinancing long term treasuries into short term treasuries at an almost nonexistant interest rate. When/if QE stops, and that rate jumps back to historical averages, well, it ain't going to be pretty. kinda reminds me of subprime adjustable rate mortgages...

[Riggerjack]

http://alfred.stlouisfed.org/graph/?cha ... range]=Max

And there is a shot of the federal dept, over time. Interesting to see that the debt went up, while clinton and the republican congress were both claiming surplus. that was because of windfall taxes from the dotcom boom, plus republican budget cuts. yet, still adding to the debt, because that "surplus" consisted of SS surplus being spent for day to day operation.

[Felix]

One reason the total deficit, which has been rising continuously in numeric terms, is not problematic (beside it being denominated in Dollars) is because the rise in debt was matched by a comparable GDP growth:


US assets are 4 times as high as its debt. Even if you wrongly compare it with a household who cannot just create the money, that is a pretty good position.

Look at the debt-to-GDP ratio:


The US went into a deficit of 120% of GDP, higher than it is now, during WW2. The debt was never paid back. Yet the US grew so much after that, that the debt became less and less of a problem. So as such, this is no cause for alarm.

With the debt ceiling, you limit the operating account of the treasury. Money does not go in and out there in nice daily units. You have batch payments, there are dates when massive debt payments are due and since they have to be paid out of that account, if it is at the debt ceiling level, there is a default on the interest payment. I have linked to the daily statement of the treasury showing a payment of 35 billion in a single day and a remaining balance of 25 million. These are pretty high fluctuation which cause massive cash flow problems including defaulting on debt interest payments.

Ironically, with the debt ceiling, the debt remains, it just doesn't get paid. The comparison is when I buy a car on credit and then don't make the payments. I still owe the money, even when I can't make the payments on time.

[Chad]

Exactly, Felix. It's something we need to pay attention to and work to reduce, but it doesn't require us to kill the patient. The patient has a very bad cold, not Ebola.

[Felix]

I have said this already, but let me just say it again. This is not about the debt issue, because there is no debt crisis. This is a false panic. The real reason for all of this is that the tea party and those who finance it do not want to see the Affordable Care Act in action. This is the goal.

The debt issue is just pretense and it's a pretty bad one, because the debt ceiling doesn't even do anything about the debt. All it does is make the US become unreliable at paying its bills.

I understand that this government shutdown is a wet dream come true for a sub-fraction of hardcore anti-government libertarians, but I have yet to see a reasonable justification for this course of action.

If this just affected the US, it would be bad enough, but if this goes on long enough, it may well plunge the rest of the world into recession again, too.

And that's a bit high a price for some people in the US not wanting universal health care despite it being passed as a law three years ago.

As a sidenote:

I'm still reading up on this, but it seems that according to the CBO, Obamacare would actually reduce the deficit (?):

http://en.wikipedia.org/wiki/Patient_Pr ... on_deficit

It would make sense, since the main reason the US pays more for healthcare than most modern countries despite not having a universal health care plan, is that the prices for healthcare services are just unproportionally high.

http://www.flickr.com/photos/79361163@N00/4276192185/

But it would make the debt argument even more absurd.

[Seneca]

As a sidenote:

I'm still reading up on this, but it seems that according to the CBO, Obamacare would actually reduce the deficit (?):

http://en.wikipedia.org/wiki/Patient_Pr ... on_deficit

As the Obama administration's recent $75mil propaganda campaign has shown, there are some critical assumptions underlying the ACA not being financially disastrous, one of which is the transfer of wealth from the young/healthy to the government and back to those that were on Medicare or were otherwise availing themselves of the sickcare system without paying.

Whether or not and how that will happen is not yet known.

History has shown the costs of entitlement spending programs to be massively underpredicted, it's not likely the ACA is the exception to the rule, especially with how it was passed.

http://policyinterns.com/2013/08/29/aca ... finalized/

With that said, rightly or wrongly, the political maneuvering going on here is not just a single tactical issue like the ACA. The ACA just happens to be the name stenciled on the football this time, but is a continuation of the long running ideological battle between the House and the President, which is why both sides are so dug in. Both sides are equally at fault, MSM reporting be damned.

[Felix]

I don't really want to get into the pros and cons of Obamacare here, so I'll stay silent on this issue. But thanks for giving me the opinion from the other side on these estimates.

[Seneca]

I don't really want to get into the pros and cons of Obamacare here, so I'll stay silent on this issue. But thanks for giving me the opinion from the other side on these estimates.

It is totally unknown at this point anyway, so it's all conjecture. I want you to be right, but doubt it, especially based on what I'm hearing from healthcare workers I know...


What is kind of interesting about this considering the "Generation Differences" thread we have going, is that this is basically the Gen X legislative body dug in against our first Gen X president over ideological boundaries, individual consequences be damned.

[Chad]

It is totally unknown at this point anyway, so it's all conjecture. I want you to be right, but doubt it, especially based on what I'm hearing from healthcare workers I know...

Healthcare workers are rather poor at judging this type of thing. At least the ones I have talked with. Most are rather clueless about the financial side of it, especially doctors. The others are just using the rather poor "big government" or "small government" arguments. Neither operate in reality and build fictional worlds for how their ideology succeeds.

What is kind of interesting about this considering the "Generation Differences" thread we have going, is that this is basically the Gen X legislative body dug in against our first Gen X president over ideological boundaries, individual consequences be damned.

Based on what source we look at Obama is either out of Gen X by a year or two, or just barely in. Given how "soft" the generation "science" is I don't think we can say either way on Obama.

Though, Cruz and Ryan both fall well into Gen X.

[Seneca]

In 2009 we, those not laid off, were furloughed 20 days, lost things like 401k match etc- bad year for semiconductors, but not the worst. Not unexpected, not much gnashing of teeth about it either. Those of us that have been around for a while know to be ready for these times.

I was talking to my grandparents (greatest gen, grew up in depression) and they were upset about government employees that might lose houses, people not getting their WIC, etc etc after only a few days' interruption. (!!) I was so stunned that people who had survived on their wits and local communities through the depression, much union drama as a steelworker in California and more, were talking like this, I did not think to point out that interruptions in employment are not uncommon, and people should be ready for this. All of us. Just like they showed time and again.

I told my wife this shutdown is a good thing for some of these workers, they need a wakeup call if they think a government job makes them immune to interruptions in job income. Anti-fragility.

Taleb from the fiscal cliff discussion last Q4-

http://www.valuewalk.com/2012/12/nassim ... iew-video/

http://www.moneynews.com/StreetTalk/Tal ... 65814?s=al