Debt Ceiling Discussion

[StrangeSox]

So how close to forcing a default on the debt (or requiring some extraordinary actions) do you think we'll get?

[Y2HH]

So how close to forcing a default on the debt (or requiring some extraordinary actions) do you think we'll get?

 

The same as usual, and then they'll raise the meaningless number to avert the "crisis" they created.

[StrangeSox]

Well, the 2011 debacle was pretty unusual, so do you mean it'll be like that (dumb brinksmanship) or it'll be like all of the other times, a minor procedural bill that the minority party feigns principled opposition to while doing nothing to stop it.

[Y2HH]

Well, the 2011 debacle was pretty unusual, so do you mean it'll be like that (dumb brinksmanship) or it'll be like all of the other times, a minor procedural bill that the minority party feigns principled opposition to while doing nothing to stop it.

 

The divided congress and it's generally petty attitude pretty much mirrors our divided nation and the people having the same petty arguments amongst each other. The pomp and circumstance will continue because it looks good on TV/Internets. The argument will remain unresolved and the can will get kicked down the road, as they always do. And we will let them.

[Balta1701]

This one will be bad enough that the economy will either shrink or grow very close to 0% in 2013 Q1. That's my prediction.

[Jake]

From the D's I've heard that we refuse to negotiate this "cliff," and earlier than that I heard that if they do negotiate, they will have to increase taxes even more to get a Presidential signature.

[bmags]

From the D's I've heard that we refuse to negotiate this "cliff," and earlier than that I heard that if they do negotiate, they will have to increase taxes even more to get a Presidential signature.

 

LOL yeah, sure.

[Texsox]

If only other money was coming into the treasury than what is borrowed.

[StrangeSox]

Republicans are already setting up the "default wouldn't be so bad" rhetoric:

 

http://tpmdc.talkingpointsmemo.com/2013/01...bad.php?ref=fpb

[SOXOBAMA]

Obama should just use the 14th amm.

[Balta1701]

Obama should just use the 14th amm.

Terrible idea. First, attempting it leaves the entire effort rapidly vulnerable to a court challenge, which could declare the actions illegal afterwards, throwing the world into chaos in response (same argument I made against the coin thing).

 

This one is worse though, because you have to consider the reaction of the financial markets. If the treasury attempted to print treasury bonds past that limit, someone would still have to buy those bonds. However, you're trying to sell bonds that are at best of questionable legality and most likely subject to ongoing court cases. Its difficult to see how those would be well received on an open market.

[StrangeSox]

From Brad Delong:

 

Stephanie Kelton writes:

 

Brad DeLong is worried. And now I’m worried. He’s worried about “unfunded tax cuts,” which, he says, are “bad juju” in the long run. I don’t mean to pooh-pooh his juju, but what the heck is an “unfunded tax cut”?… Tax cuts leave taxpayers with more money to spend, but they don’t compromise the government’s ability to spend later. Nor is the debt ratio a binding constraint…. Can’t we just admit that the U.S. dollar comes from the U.S. government? That the i$$uer of the currency can never “run out” of money or be forced into bankruptcy…. Until people like us help awaken the population to the way modern money works, the deficit scolds will have the upper hand and the American people will suffer needlessly as Democrats and Republicans alike continue to hide behind the time-honored ”how will we pay for it?”

 

As I understand it, Stephanie’s hope is that the U.S. government can borrow and spend and that investors will always value U.S. government debt so highly as a safe store of value that, even without high inflation, the real interest rate on the debt will be on balance lower than the real growth rate of the American economy. If so, then the issuing of debt by the U.S. government is a very profitable business indeed: it makes something—safe nominal assets—that investors love and are willing to pay for through the nose, and we can finance whatever we want our government to spend on from the profits of this very profitable debt-issuing business.

 

If not, then while it is certainly true that the U.S. government cannot be forced into bankruptcy or “run out of money”, it would be imprudent not to take steps now to guard against the possibility of monetary and financial disruption—not now, not five years from now, but thirty or fifty years from now—when we can no longer refinance our debt on easy terms but instead need to retire our outstanding government debt via high taxes or very rapid rates of money creation.

 

As I have said, repeatedly, austerity now—and probably for the next five years—is counterproductive. But it is not the case that austerity is always and everywhere unneeded.

 

I think that encapsulates my view pretty well. Right now, bond rates are incredibly low (negative in NPV) and we have huge unemployment/insufficient demand problems. Trying to 'solve' a potential future deficit problem in the midst of a weak recovery and a weak international economic structure is absurd. But, eventually, bond rates will rise and carrying substantial debt burdens will cause issues. You can't borrow infinitely forever, but you can work to grow your way out of these problems and balance your budgets when you're in a strong position to do so.

[mr_genius]

The Democrats will get what they want. The GOP will put on a show for deficit reduction, but they will go along with a 'compromise' at the last minute. The compromise will consist of giving the Democrats everything they want. Just the usual, wimpy, GOP.

Edited January 7, 2013 by mr_genius

[StrangeSox]

cool.

[lostfan]

Looks like the GOP is going to go ahead and cave on this (because they made themselves look really stupid the last time, and people actually noticed)

[Y2HH]

Looks like the GOP is going to go ahead and cave on this (because they made themselves look really stupid the last time, and people actually noticed)

 

I think it's already a done deal.

[mr_genius]

Looks like the GOP is going to go ahead and cave on this (because they made themselves look really stupid the last time, and people actually noticed)

 

yes people noticed they caved in and put on some fake show that gave the country hope of a sane fiscal policy. but in the end the went back on their promises and looked like liars, which they are. the GOP is going to have a lot of turnover soon, which is good.

[Texsox]

Looks like the GOP is going to go ahead and cave on this (because they made themselves look really stupid the last time, and people actually noticed)

 

Or the GOP heard voters when they said they were tired of gridlock and will emerge as the party of "getting things done". I see so many polls where voters complain about gridlock in Washington. This could be a nice GOP strategy.

[lostfan]

Or the GOP heard voters when they said they were tired of gridlock and will emerge as the party of "getting things done". I see so many polls where voters complain about gridlock in Washington. This could be a nice GOP strategy.

They were doing what they were doing because they thought it was going to get them further, and it backfired.

 

I think you are giving far more credit than credit is due to the GOP though. If you put a gun to your head and threaten to shoot yourself and I say "put the gun down you f***ing moron," you don't then get props for putting the gun down and not killing yourself. Since the US has fiat currency and borrows money in its own currency that also happens to be the global reserve currency, there's pretty much only one way the US government can default on its debt (voluntarily) and the GOP is privately saying "yeah that was a pretty bad idea."