Please explain: United States Default

[JTsyo]

That is like giving a child a credit card with no limit, then sending them into a toy store.

How does that compare though? Did you ever hear Congress compare the deficit to the debt ceiling when making a budget?

 

[Texashiker]

Debts in this context is authorized spending that has to be paid.

How does that compare though? Did you ever hear Congress compare the deficit to the debt ceiling when making a budget?

Here is the issue, the only way to pay the debt is to borrow more money.

The united states government does not print its own money. So therefore we will never be able to pay off the debt.

Every dollar in circulation has been borrowed from the federal reserve.

All of the money the government takes in through taxation belongs to the federal reserve.

 

[Darwin333]

I have always believed that if the debt limit isn't raised that the Treasury is Constitutionally obliged to pay the interest on our debt, which we can easily do with existing revenue and no new debt. Its all of the other programs that hundreds of millions rely on that can't be paid for.

Frankly it doesn't change what would happen to the economy one bit and its basically semantics, but imho, it is what the Constitution demands.

 

[Texashiker]

I have always believed that if the debt limit isn't raised that the Treasury is Constitutionally obliged to pay the interest on our debt, which we can easily do with existing revenue and no new debt. Its all of the other programs that hundreds of millions rely on that can't be paid for.

The treasury can not pay the interest on the debt. Not that it does not have the right to do so. The treasury does not have the money to pay the interest.

All of the money belongs to the federal reserve.

If the treasury payed the interest, the payment would be with borrowed money.

The only true way for the treasury to pay the debt would be through gold coins.

 

[fskimospy]

The treasury can not pay the interest on the debt. Not that it does not have the right to do so. The treasury does not have the money to pay the interest.

All of the money belongs to the federal reserve.

If the treasury payed the interest, the payment would be with borrowed money.

The only true way for the treasury to pay the debt would be through gold coins.

Did you take your meds today? This is just babbling nonsense.

 

[LTC8K6]

Not really, we already gave them an unlimited credit card. Now we are trying to tell the credit card company we arent paying after utlizing the credit. What are the ramification of not paying your bills on time?

Nope, we have to pay debts and we will. And we have the income to pay the debts. There will be no default on any debts unless the admin just decides not to pay them out of spite.

We will have to stop spending money, though.

That's what the politicians don't want.

 

[Texashiker]

Did you take your meds today? This is just babbling nonsense.

I took my meds last night.

And it is not nonsense.

The only way for the treasury to pay off the national debt is to get us off the federal reserve system. And then pay off the debt with US government notes or gold.

http://www.forbes.com/sites/kotliko...has-already-minted-two-trillion-dollar-coins/

 

[fskimospy]

I took my meds last night.

And it is not nonsense.

The only way for the treasury to pay off the national debt is to get us off the federal reserve system. And then pay off the debt with US government notes or gold.

Hahaha. The only way the US government can pay off its debt in this arbitrary monetary standard is through using a different arbitrary monetary standard!

 

[glenn1]

Debts in this context is authorized spending that has to be paid.

There is no budget nor continuing resolution, so there is no "authorized spending" that needs to be paid. Even if you exclude "mandatory spending" from that, debt service costs (interest) and mandatory spending should still not exceed revenues.

If anything, Democrats should welcome this conversation since discretionary spending will soon be entirely crowded out of future budgets, especially once interest rates start to rise. At that point, there won't be any money in the kitty anymore for them to dole out to their constituents and pet projects.

 

[Texashiker]

Hahaha. The only way the US government can pay off its debt in this arbitrary monetary standard is through using a different arbitrary monetary standard!

The only way for the government to pay off its debt is to use something of real value (ie gold), rather than paper money printed out of thin air.

How much value does roman denarius have now? However much the metal they are made out of.

How much value will a federal reserve note have in 2,000 years? Probably not much.

 

[fskimospy]

There is no budget nor continuing resolution, so there is no "authorized spending" that needs to be paid. Even if you exclude "mandatory spending" from that, debt service costs (interest) and mandatory spending should still not exceed revenues.

If anything, Democrats should welcome this conversation since discretionary spending will soon be entirely crowded out of future budgets, especially once interest rates start to rise. At that point, there won't be any money in the kitty anymore for them to dole out to their constituents and pet projects.

If there's no further authorized spending that must be paid out in excess of tax receipts then I guess we won't be hitting the debt ceiling on Thursday, right?

By the way, you kept saying how much the Republicans LOVE the government shutdown and welcome a debt default. Right now they appear to be in the process of basically an abject surrender on both. Can you pinpoint exactly when they stopped loving both of these things?

Or were you just emotionally ranting?

 

[fskimospy]

The only way for the government to pay off its debt is to use something of real value (ie gold), rather than paper money printed out of thin air.

What is the basis for gold having 'real value'?

 

[Ryan]

You guys can sit here and debate about whether or not we are going to service the debt, but the real damage will not necessarily be the default: It will be the international loss in confidence in the American dollar and the Federal Reserve.

http://www.nbcnews.com/video/meet-the-press/53270346#53270346

CHRISTINE LAGARDE: Well, if there was a combination of the government shutdown for a period of time and, more seriously, more damaging, if the debt ceiling was not lifted with a degree of certainty and enough time so that people could, you know, sort of have the assurance that the economy was in good standing, that would bring about so much uncertainty, so much risk of disruption, that the standing of the U.S. economy would, again, be at risk. That some of the obligations that the first economy in the world has would not be respected.

And I think, you know, there was a lot of discussion amongst the finance ministers from all over the world about the technical aspects of it. And you can argue forever as to whether the impact is going to be two and a half, 3%, 5%, how much public spending will have to be cut, how many more people will be unemployed.
But one thing for certain, around the table, it was that if there is that degree of disruption, that lack of certainty, that lack of trust in the U.S. signature, it would mean massive disruption the world over. And we would be at risk of tipping, yet again, into recession.

David Gregory: You know there are some figures in our government, in Congress, Senator Rand Paul, others, who say, "You know, this is overstated. The Treasury can do things that-- the concept of default is hyperbole."

CHRISTINE LAGARDE: But creative accounting is not the solution. And markets know that. The counterparts through the United States know that. And when you are the largest economy in the world, when you are the safe heaven in all circumstances, as has been the case, you can't go into that creating accounting business.
You have to honor your signature. You have to give certainty to the rest of the world. And you have to make sure that your own economy is consolidating that welcome recovery that we have seen in the last few days. Because it impacts the entire economy.

 

[dank69]

Treasury is taking in roughly $225 billion a month. Debt service is roughly $35 billion a month. We are a long ways from a default.

Discussing a default right now is like having a $1200 mortgage every month when you take in nearly $8000 in income and you are saying you need to open another credit card in order to pay for it. The mortgage should be safe in this scenario, as for other expenditures that eat up that nearly $8000/mo, who knows. But you don't need a credit card to cover the mortgage payment, that much is certain.

Where does that number come from? Are we just taking our annual revenues and dividing by 12 to get that? That's not how it works.

 

[Darwin333]

What I was also saying though is that even if that's what you wanted to do it would be an unmitigated catastrophe, 2008 style. Our deficit as a percentage of GDP for the next year is somewhere around 4-5%. Simply eliminating that would...well... obviously cause a contraction of somewhere around 4-5% of GDP. Then on top of that we lose much of our stabilizing mechanisms because they are largely funded by discretionary funds. That means an even bigger contraction. Back to depression territory.

And remember, that's the GOOD outcome.

IMHO, it would do far worse than that if we just went cold turkey and didn't prepare, which is exactly what we would be doing. With that said, you are absolutely correct about the math. The GDP formula is rather simple and removing deficit spending must mathematically reduce GDP by at least the same amount. Some argue that the .gov gets more than $1 of GDP for every dollar deficit dollar it spends due to various, more complicated, arguments.

Regardless, I think we can mostly agree that a completely disorganized removal of 5% of our GDP would result in far more than just a 5% contraction.

Don't get me wrong, I despise the fact that we have such a large debt and deficit but this is the worst possible way to fix it and in fact will not fix it. The VAST majority of the people who are currently calling for our deficit to be reduced would very quickly change their opinion after seeing the results. We would demand that the .gov do whatever it took to stop the pain.

 

[Darwin333]

Where does that number come from? Are we just taking our annual revenues and dividing by 12 to get that? That's not how it works.

True but his premise is correct, we do collect enough revenue every month to pay the interest on our debt.

 

[Texashiker]

What is the basis for gold having 'real value'?

As with anything else, value is based on demand.

Does not change the fact every dollar in circulation belongs to the federal reserve.

 

[Genx87]

IMHO, it would do far worse than that if we just went cold turkey and didn't prepare, which is exactly what we would be doing. With that said, you are absolutely correct about the math. The GDP formula is rather simple and removing deficit spending must mathematically reduce GDP by at least the same amount. Some argue that the .gov gets more than $1 of GDP for every dollar deficit dollar it spends due to various, more complicated, arguments.

Regardless, I think we can mostly agree that a completely disorganized removal of 5% of our GDP would result in far more than just a 5% contraction.

Don't get me wrong, I despise the fact that we have such a large debt and deficit but this is the worst possible way to fix it and in fact will not fix it. The VAST majority of the people who are currently calling for our deficit to be reduced would very quickly change their opinion after seeing the results. We would demand that the .gov do whatever it took to stop the pain.

I am in the same boat as you. Our spending and debt levels are imo out of control. But this is not the way to go about solving it. And this would make it worse as the world economy tanks.

And why I think we need to get rid of the debt ceiling all together. Work on solving the spending when enacting laws. Dont put a limit on spending after you have authorized it and risk sending the world economy into the tank.

 

[fskimospy]

IMHO, it would do far worse than that if we just went cold turkey and didn't prepare, which is exactly what we would be doing. With that said, you are absolutely correct about the math. The GDP formula is rather simple and removing deficit spending must mathematically reduce GDP by at least the same amount. Some argue that the .gov gets more than $1 of GDP for every dollar deficit dollar it spends due to various, more complicated, arguments.

Yes, as we have discussed before it depends on the situation. It is not accurate to say that a $1 decrease in government spending must mathematically lead to a $1 contraction of GDP at all times due to crowding out and other effects. It can be more, or it can be less. In this case it is likely to be more.

Regardless, I think we can mostly agree that a completely disorganized removal of 5% of our GDP would result in far more than just a 5% contraction.

Don't get me wrong, I despise the fact that we have such a large debt and deficit but this is the worst possible way to fix it and in fact will not fix it. The VAST majority of the people who are currently calling for our deficit to be reduced would very quickly change their opinion after seeing the results. We would demand that the .gov do whatever it took to stop the pain.

Yes. Although I disagree vehemently with reducing the deficit at all at the moment, there is a large difference between doing something that I believe to be bad public policy and doing something catastrophic like this. Reasonable people can want dramatically reduced deficits. I do not believe any reasonable person can want to reduce them this way, at least if they have the slightest understanding of the issue.

 

[fskimospy]

As with anything else, value is based on demand.

There is a great deal of demand for US dollars.

 

[Texashiker]

There is a great deal of demand for US dollars.

You are mistaking US dollars for federal reserve notes. Which is common, so no big deal.

But for the sake of this discussion lets try to get it right.

Every so called "dollar" the government brings in through taxation belongs to the federal reserve. So the government is paying debt to someone who already owns what we are paying them with.

 

[MiniDoom]

What is the basis for gold having 'real value'?

Chemical Stability & Corrosion Resistance, Scarcity, Stability of Supply, High Density - Difficulty of Faking, Malleability & Ductility.

What real value does paper money have (without gov backing), besides being able to burn it to stay warm?

 

[dank69]

True but his premise is correct, we do collect enough revenue every month to pay the interest on our debt.

Is it though? Where are the sources of these numbers? Even if we do have enough to pay the interest on our debt, we don't have enough to pay our actual debts as they come due.

 

[fskimospy]

You are mistaking US dollars for federal reserve notes. Which is common, so no big deal.

But for the sake of this discussion lets try to get it right.

Sorry, the federal reserve derives its authority to make notes from the US government and every dollar is an obligation to the US government.

We really should get this right for the sake of discussion.

 

[fskimospy]

Chemical Stability & Corrosion Resistance, Scarcity, Stability of Supply, High Density - Difficulty of Faking, Malleability & Ductility.

What real value does paper money have (without gov backing), besides being able to burn it to stay warm?

Money has whatever value we all agree it has. Needless to say, use of gold as a currency base is completely arbitrary. BTW, gold's scarcity is one of the biggest reasons why it is terrible to use as a currency.