Fiscal crisis? Overblown or serious?

[mav]

I am attempting to create my first poll. I hope everything goes right.

I would like to hear TGOers thoughts on the impending debt crisis. Do you think this is overblown media hype, or do you think it is very serious? Why?

What should be done?

I would choose the third option down, do not increase the debt ceiling and make serious cuts. I could live with option five until Obama is voted out of office. After he is out, I would expect some serious cuts.

Edited July 25, 2011 by mav
Provided my answer

[Mike.357]

they will make a deal and raise the limit, count on it.

I think it is a Chicken Little scenario where gov't claims the sky is falling. Washington has a spending problem ,not a revenue problem. You can't borrow your way to prosperity.

Don't raise it! Let's see what happens.

[Oh Shoot]

It doesn't matter. It's too late. The issue at present is just another step, doesn't much matter to the overall prob.

The only way the US can ever pay the debt, or soon even the interest on the debt, while maintaining even the most pared down federal superstructure, is to inflate the currency such that creditors receive a fraction of what was advanced.(and of course, the citizenry a fraction of the current buying power of the USD)

Only question if failing to raise the limit would actually speed up the process or not, and that I don't know. Either way, we'll be taking the lumps, might be better to go ahead and get real and get on with it ASAP.

Can you say QE10?

- OS

Edited July 25, 2011 by OhShoot

[Mike.357]

and I forgot to mention, if SS is in such big trouble why has there been a 2% reduction on what I contribute to it?

[Glock30]

Washington has a spending problem ,not a revenue problem. You can't borrow your way to prosperity.

Huge +1.

Nobody wants to give up their pet projects and pork for the home team. Decades of that kind of politics, plus all our wars, plus the Cold War brings us to where we are today. Why were the 1990s so hot? Big spending cuts and inflation, both of which are coming soon in a big, big way.

Edited July 25, 2011 by Glock30

[Oh Shoot]

... Why were the 1990s so hot? Big spending cuts and inflation, both of which are coming soon in a big, big way.

Are you sure you understand inflation, or did you mean growth? The 90's were hot because most all economic indicators showed positive growth while inflation stayed steady but low.

For various reasons, zero inflation is not necessarily a good thing, and moderate inflation can be an outcome of healthy growth in production, ie jobs, salaries, and GNP in general, but we may emulate Argentina of the 1970's sooner than we think as we keep trying to borrow our way out and then use QE (read "counterfeiting") for the payments.

<sick but half serious sarcasm>

Possibly we could go to a conventional war to help things out, but there's not anyone we can afford to crush that has enough assets for us to steal to make up the shortfall. Plus we have to pay the industrial/military complex with the same declining funny money. Plus plus of course, our policy is to spend more in reparations than it cost to crush a country in the first place.

</sick but half serious sarcasm>

Anyway, as always, that's the good news.

- OS

Edited July 25, 2011 by OhShoot

[Guest nicemac]

they will make a deal and raise the limit, count on it.

…Washington has a spending problem ,not a revenue problem. You can't borrow your way to prosperity.

+1

[Guest Lester Weevils]

In "normal times" if there has ever been such a thing, the primary modulator of the money supply is Fractional Reserve Banking.

Fractional-reserve banking - Wikipedia, the free encyclopedia

If lots of people are taking loans which they are capable of repaying, and banks have the reserve deposits to make the loans, and the Federal Reserve is loaning at a rate low-enough for the consumers to tolerate, then every loan grows the money supply. The loan to person A gets paid to person B, C, D, who all deposit the money in banks. Then the banks have bigger reserves and therefore can borrow more money from the Fed.

The money supply can "automatically stretch" to the amount needed for commerce without anybody printing it. It just gets "magically created" every time there is a loan. And when the loans are paid-off all that money "magically disappears" again taking up the slack.

It doesn't necessarily have to be inflationary.

The QE and such grow the money supply in less "natural" ways. Bernanke thinks he can get all that money back if inflation gets out of hand though it seems a world-class stunt if he can pull it off.

"Ordinary" inflation would show equivalent increases in both cost of living and wages. The only people who get hurt are people living on fixed annuities or people who keep their money in a pillow case. If burgers are $2 and the minimum wage is $2, or if burgers are $100 and the minimum wage is $100, doesn't much matter if everybody has a job on at least minimum wage.

We don't seem likely to see "ordinary" inflation any time soon. It looks more like stagnant wages and rising prices. Not a good thing for wage-earners, but it could be pretty sweet for certain people in a position to take advantage of it.

[1gewehr]

I have survived four rounds of layoffs in the past three years, and had two pay cuts. I count myself fortunate that I am still employed. Increased expenses and taxes are not a way to help increase employment. Increasing regulations and government interference in business do not encourage growth.

[dats82]

I have admittedly not been following this very closely, partly because I cannot stand to hear/see the big O talking on TV. This is just like everything else in his plan to wreck our capitalistic system; "if we do not raise the debt ceiling or taxes, it will be the end of the world." This is not to say we are not in a serious problem, but if we do default, everything is not going to come to a screeching hault. We will still have the ability to pay military, ss, and medicare/caid, but we will just not have to money to pay for all the other stupid sheit we should not be paying for anyway.

I am not an economist, so I realize I could be completely wrong with all this. However, if I am, I still think I would be as right as big O's assessment of the situation. I think it will take something drastic to really make the populous realize the magnitude of our spending problem, and that is exactly all it is, a spending problem.

[Just2Honor]

dats82, Obama is not the only problem. Sure he nearly doubled the debt in two years but the mindset of the vast majority of the elected folks has been the problem for many years. Spend, spend, spend on whatever you wanted and just come up with more ways to increase revenue so nobody notices or borrow the money. How many times did we hear "we didn't raise taxes" when what they did was increase revenue by eliminating/lowering a deduction or increasing the minimum to qualify for a deduction, etc? Well, the time has come to settle up. Mine will be the first generation that does not pass on a better life to our kids. That hurts!

[Guest HvyMtl]

From what I gather, if the debt ceiling is not raised, certain things probably will happen. What, is the question.

Again, I have seen the pundits, and ignored them, they have their own agendas.

Again, from what I can tell, if it is not passed, there will be negative repercussions for all of us.

Interest rates? From what I have read, based on Treasury Bonds... No additional bonds, and lowering of the value (by the lowering of the US credit rating) of the existing bonds, should equal much higher rates. Which will impact credit cards, business loans, car loans, and home loans, by limiting access to these loans, and by increasing existing loans interest rates. This could lead to a major credit crunch. Which would cripple the economy, and increase defaults / foreclosures.

Commodities? Ironically, the values seem to be falling. Lower gas prices? Yeah, perhaps. But the value of all commodities fall fast, expect issues in the corporate sector, increased unemployment etc.

Anyone on Social Security- expect not to get paid...

Anyone using Medicare / Medicaid - expect your Doctors to not get paid, which means expect no medical services.

Anyone work for the fed government, or in the Military? Expect furloughs. And non-payment of wages.

Welfare, same same.

In other words, if the thing is not passed, I expect businesses to shut, or cut back, I see those on Social Security (like my mother and father) losing a lot. I see unemployment going to great depression levels, perhaps even higher. I see another boom of foreclosures. I see the banks get worse then what they were before the Bush/Obama bailouts. I see the value of the dollar possibly collapse. IMHO, we would be the new Greece.

Now, if even part of the above occurs, expect severe political backlash to those perceived responsible. From what I can tell, the GOP seems to be the ones who would lose greatly in this situation.

So, I think there will be a last second deal. Too much political damage to be had.

Oh, FYI: IF the US government does not increase the debt ceiling, the bond rating of 4 States have a high risk of being impacted. The State of Tennessee is one of the 4. So, if you work for the State of Tennessee, or have business with it, expect to have negative impact.

Edited July 25, 2011 by HvyMtl

[Links2k]

I think that there is a spending problem also, but if what I hear about corporations getting tax dollars while they are making billions in profits that is bs. I don't trust either side. Obama is a weak liar and the GOP/TEA Party are not making the best decisions while trying to ensure that Obama is a one term President.

I don't trust corporations to bring jobs back to this country because for years they have been making a killing by outsourcing jobs. Why bring jobs back here even for minimum wage if you can get the same work done in another country for pennies? The corporations will lie and say that regulations are forcing them to move overseas, but the truth is the big bucks come from having cheap labor.

I will keep playing the same old broken record. We need a legitimate third party, because the current bums in both parties are playing all of us for suckers.

[Oh Shoot]

...I will keep playing the same old broken record. We need a legitimate third party, because the current bums in both parties are playing all of us for suckers.

(recurring relevant comment):

"The Soviet Union had a single, entrenched, systemically corrupt political party, which held a monopoly on power. The U.S. has two entrenched, systemically corrupt political parties, whose positions are often indistinguishable, and which together hold a monopoly on power. In either case, there is, or was, a single governing elite, but in the United States it organized itself into opposing teams to make its stranglehold on power seem more sportsmanlike."

Dmitry Orlov

Post-Soviet Lessons for a Post-American Century

- OS

[Guest nicemac]

Corporations don't pay taxes. Well,they do, but they pass them right on to the consumer of their product or service. Want to see the economy soar? Lower taxes on businesses. They would move jobs back to American shores and could lower prices. More jobs, more revenue, more tax collections.

You pay more in tax on a gallon of gas than Exxon collects in profit. Yes, Exxon made billions last year. They invested billions and took significant risk to make those billions.

A lot of people that moan about corporate profits could stand to learn the difference between corporate profits and corporate profit margins.

Most evil, big oil companies make less that 10% profit margin. A lot of businesses would close up if they could only make 9.34% profit.

Exxon Mobil Corporation Profit Margin (XOM)

[Guest HvyMtl]

http://www.washingtonpost.com/r/2010-2019/WashingtonPost/2011/05/14/National-Politics/Graphics/reagan_letter_0514.pdf

What Reagan thought of the increase in 1983, when the Congress thought not to pass a Debt Ceiling increase... Interesting read. I think Reagan, was correct, then. Now, yes, the damages he foresaw would still occur. So. No increase and severely cripple the country, or increase, and delay the issue... but perhaps, just perhaps, get the issue resolved? (Politicians wont do the things necessary, when those necessary things will end their political career... So, no. No resolution until forced... Congrats, we are the new Greece... )

[G27]

Dan Ferris - What could really happen if Congress doesn't raise the debt ceiling

[Guest 270win]

The government brings in more than enough tax money to pay treasury bond holders. To say the government will default to the bond holders is a lie. If the treasury secretary defaults his obligation to the bond holders, it will be by his choice or direction by the president.

Most fed agencies that use government funds are executive branch. Very few are congressional or judicial branch. The executive branch has only done token cuts to the agencies that report to the executive branch. The executive branch can lay off employees now and could have several years ago like private companies have done. Instead, the executive branch has not cut back the fed agencies under its control. TSA, FBI, ATF, HUD, DOT, Dept of Ed, Energy, Treasury, IRS, you name it and it probably is executive branch.

[Guest nicemac]

…TSA, FBI, ATF, HUD, DOT, Dept of Ed, Energy, Treasury, IRS, you name it and it probably is executive branch.

Several in that list should not just be cut, but ELIMINATED completely.

[mav]

A lot of people that moan about corporate profits could stand to learn the difference between corporate profits and corporate profit margins.

Hear, hear.

A lot of people would be shocked if they looked at the profit margin of a lot of big retail establishments. Walmart has a profit margin of 3.87%.

[Guest Lester Weevils]

Hear, hear.

A lot of people would be shocked if they looked at the profit margin of a lot of big retail establishments. Walmart has a profit margin of 3.87%.

Yes. The high-inventory-turnover biz's have the best odds of doing well on a low profit margin. Guess it depends on how the profit margin is defined.

If you have a 1 percent profit margin on sales, and a 100 dollar inventory that you turn over once a year, you make $1 per year. If you turn over the inventory monthly then you make $12 per year. If you turn over the inventory daily you make $365 per year.

Places like groceries typically have low margin and fast turnover. High velocity of money thru the place.

[Glock30]

Are you sure you understand inflation, or did you mean growth? The 90's were hot because most all economic indicators showed positive growth while inflation stayed steady but low.

Yessir. I have the degree to prove it. I stand by the previous statements. Just the same, we caught a huge peace dividend - a lot money that had been spent on defense went towards other programs or just wasn't spent - thus the surpluses.

And yes, war has historically pulled our economy out of a rut. Global war, that is, not regional wars like the ones we're stuck in.

[Guest lostpass]

Yessir. I have the degree to prove it. I stand by the previous statements. Just the same, we caught a huge peace dividend - a lot money that had been spent on defense went towards other programs or just wasn't spent - thus the surpluses.

And yes, war has historically pulled our economy out of a rut. Global war, that is, not regional wars like the ones we're stuck in.

The difference between war and massive government spending spending is?

This is something I have started to wonder about. WWII saved the economy, I get it but I'm not quite sure I see the inherent difference between war and massive deficit spending. I guess every bomb is a one use thing so that is one thing going for it but the broader reality seems to be that that the government spent a crap ton of money. Money that came from a crap ton more taxes and such.

I suspect, but haven't researched it, that the difference is that during war the government spent a crap ton of money on manufacturing. Plus you had the enforced employment (draftees) thing going on. I;m not sure that the idea that massive spending really works in our current situation.

[Guest lostpass]

Corporations don't pay taxes. Well,they do, but they pass them right on to the consumer of their product or service. Want to see the economy soar? Lower taxes on businesses. They would move jobs back to American shores and could lower prices. More jobs, more revenue, more tax collections.

You sure about that? Cause I am pretty sure you are dead wrong. Corporations pay all kinds of taxes and those taxes aren't necessarily passed on to the consumer.

I know what you're thinking, you're imagining that the cost of doing business is X. The cost of doing business plus making it worth your while is is X+10% (or something). Then you further imagine that taxes are piled on top of that.

So something that costs a dollar is now a dollar and ten cents. Add taxes into that and you are looking at two bucks or something.

It doesn't work that way, that is econ 101 where everyone is rational and products are sold only according to price. If you take econ 102 you'll realize that that isn't the real world. In the real world businesses don't necessarily pass the the costs onto consumers.

This makes no sense. I'm with you. It does seem like crazy talk. But most businesses charge what the market will bear. They don't worry about the tax burden, they worry about profit. If they can sell something for a million dollars that costs them a nickel to make the tax burden is not a big deal. That's a great business by the way, if you find one let me get in on that.

But, you argue, businesses have to cover the costs! Right you are, doing something is either worth or not, you can either sell it for a profit or you can't.

And now you think I've proved your point, all costs are paid by the consumer.

At th is point I ask you to think about Pepsi. Sure it tastes like malted battery acid but you can buy two types of Pepsi for the same price. You can buy the throwback or the standard pepsi. They cost the same.

The weird thing is that the sugar in the throwback costs 8x the the sweetener in the standard pepsi. How is this possible if all costs are passed on to the consumer? The answer should be obvious.

[Oh Shoot]

The difference between war and massive government spending spending is?

This is something I have started to wonder about. WWII saved the economy, I get it but I'm not quite sure I see the inherent difference between war and massive deficit spending....

It wasn't the war, but the aftermath of winning it. Our deficit at end of war was actually worse than now, % of GNP and all those kinds of measurements wise.

It's just that much of the rest of the "first world", Europe, was devastated and we had the population, raw materials, and also gain in research to lead the world in sales of just about everything. We imported proportionally little but specialty luxury items. And though it didn't seem like much money per person, GIs who didn't have a pot to piss in before the war came home with some money, the GI Bill to better themselves, instant jobs, and a booming market in everything, since we could now make stuff for Americans instead of throwing everything we had into stuff for the war effort. My pop was one of them. Lots of reasons, these are some.

We had another thing, too: room. Room to build cheap housing for all the expanding families. Cheap room. And Glock30 is right about one thing: it took a WORLD war, not these pissy little but expensive whack-a-mole actions. Lots of reasons WWII jump started us, but my previous comment about war pulling us out again was really more tongue in cheek than anything else. It's not the same country at all. We can't boom again like we did after WWII.

- OS