What will happen on Aug. 2, that isn't already happening now?

[Little-Acorn]

I keep hearing about terrible things that will happen on August 2, 2011. We will run out of money. We can't pay our bills. Omigawd, we will default on the National Debt.

Please correct me if I'm wrong, but didn't we run out of money two months ago?

That was when the Republicans first dug in their heels and refused to vote for raising the Debt Ceiling. The government quickly announced that, since they can no longer borrow money to pay our expenses, they would have to stop making payments into various Federal retirement funds, etc., to make all the other ends meet.

The world didn't end. We didn't default on the National Debt. We didn't even shut down the National Parks or anything. Although the people who intended to retire on those Federal Retirement Funds, might be in for a rude surprise soon.

One astonishing thing did happen, though it might be under the radar for a lot of people:

The National Debt has stopped going up, for more than two months now. It's the first time that's happened in living memory. It's almost like seeing the sun stop in the sky. Though it never appeared to move very fast, finding it has stopped, is earth-shaking.

My question is, what is going to happen differently on August 2nd, that isn't happening right now (and for the past two months)?

Sooner or later, things will get pretty bad, of course. We have committed to making huge payments to Social Security, Medicare, Defense, Interest on the National Debt, and a host of other things. The amounts we take in as taxes, aren't nearly enough to cover what we've promised to pay out. There's a lot of pain coming our way if things keep going like this.

But's what's so magical about the August 2nd date? What's going to happen then, that isn't already happening now?

 

[ThisTooShallPass]

What happens then is that the Treasury runs out of "extraordinary measures" to continue funding the government, which I believe includes liquidating some emergency funds, selling some assets, etc.

So August 2nd is when we actually hit the debt ceiling head-on.

 

[ProudLefty]

It takes a while to change direction for a ship the size of the United States of America.

When we, as a family, have a crisis we can let this or that slide, make some adjustments, and hold things together for awhile, but eventually it just doesn't work anymore. Don't believe me? Look at some counties in the US with more than 15,000 homes in foreclosure. These things are serious and just pretending that nothing is happening is a pretty dangerous choice.

Will America fall over the morning of August 3rd? Nope. But check with your governors. They are realizing they can not weather the TEA Party's anticipated cuts in spending.

This is not a joke, it is not a game, it is not macho men being macho. This is immature teenagers who believe in fast cars, drinking, and dangerous lifestyles because they are, after all, immortal. Except for their dead friends.

 

[Openmind]

It takes a while to change direction for a ship the size of the United States of America.

When we, as a family, have a crisis we can let this or that slide, make some adjustments, and hold things together for awhile, but eventually it just doesn't work anymore. Don't believe me? Look at some counties in the US with more than 15,000 homes in foreclosure. These things are serious and just pretending that nothing is happening is a pretty dangerous choice.

Will America fall over the morning of August 3rd? Nope. But check with your governors. They are realizing they can not weather the TEA Party's anticipated cuts in spending.

This is not a joke, it is not a game, it is not macho men being macho. This is immature teenagers who believe in fast cars, drinking, and dangerous lifestyles because they are, after all, immortal. Except for their dead friends.

Sounds like some people want to play chicken, like in that all James Dean movie. . .

Doesn't work that way in real life. . .EVERYONE gets hurt!

 

[ThisTooShallPass]

The deficit cannot remain at its current levels. That's all. Whether it's closed with tax hikes or spending cuts doesn't matter -- one way or another we will get a balanced budget and an economic depression.

We can balance it now, voluntarily, and lose a sizable chunk of our GDP. Or we can wait for the bond market to revolt, in which case we'll wind up with a balanced budget anyway, and currency collapse to spice up our depression.

We're playing chicken, indeed, but the danger here is not failing to raise the debt ceiling -- it's failing to deal with the debt issue.

 

[ProudLefty]

The deficit cannot remain at its current levels. That's all. Whether it's closed with tax hikes or spending cuts doesn't matter -- one way or another we will get a balanced budget and an economic depression.

We can balance it now, voluntarily, and lose a sizable chunk of our GDP. Or we can wait for the bond market to revolt, in which case we'll wind up with a balanced budget anyway, and currency collapse to spice up our depression.

We're playing chicken, indeed, but the danger here is not failing to raise the debt ceiling -- it's failing to deal with the debt issue.

Who agrees with you? What knowledgeable person is on board with your position? I ask you this question because I am seeing all these Bachman-type politicians talking about how terrible it is, and these Bachman-types are getting their information from sources who do not know squid from squat.

Yes, we have to pay for GW's screw-ups. We know that. But the scenario you paint is not shared by anyone who is knowledgeable.

America is not broke. America is not close to broke. America is not in serious financial trouble, excepting for this disaster that is being forced on us by inexperienced people seriously lacking in basic education.

 

[ThisTooShallPass]

Who agrees with you? What knowledgeable person is on board with your position? I ask you this question because I am seeing all these Bachman-type politicians talking about how terrible it is, and these Bachman-types are getting their information from sources who do not know squid from squat.

Yes, we have to pay for GW's screw-ups. We know that. But the scenario you paint is not shared by anyone who is knowledgeable.

America is not broke. America is not close to broke. America is not in serious financial trouble, excepting for this disaster that is being forced on us by inexperienced people seriously lacking in basic education.

Most professional economists didn't foresee the housing bubble collapse, either. Most of them denied there even was a housing bubble up until the day it burst, and then cried afterward that no one could've seen it coming. They're idiots, in thrall to discredited ideologies and with a terrible track record. And there are, for the record, a few professionals who know what they're talking about, like Chris Whalen of Institutional Risk Analytics, who's been warning for months that a new crisis in the financial sector is brewing and that the economy's going to blow up within a year or three.

There is a debt crisis in Europe. China and PIMCO are slashing their holdings of Treasury debt. The OPEC states are in flames. Japan's in ruins (and will probably start selling our debt to finance its reconstruction once it gets to that point). Social Security's revenue and expenditure lines are near convergence. Our debt has already been downgraded by Egan-Jones and S&P is threatening a downgrade if we don't cut $4 trillion from the deficit over 10 years -- which is about $0.2 to $1 trillion more than is presently on the table with regard to the debt talks that just collapsed. There is already plenty of evidence that bond market demand is in free fall; the only one buying our debt for the last six months has been the Federal Reserve using money it printed up itself, and they just exited the market. So who's going to buy nearly $2 trillion worth of debt annually, hmm?

If America is, indeed, not broke, then surely there's no reason to justify such hysterical levels of deficit-spending. But there is, because we are -- when you back out the 12% of GDP we're deficit-spending annually from our paltry 2% GDP growth rates, you wind up with economic contraction worth 10% of GDP annually. That's a depression in and of itself, and that's just from balancing the budget, to say nothing of the shock it would have on the stock markets, unemployment rates, systemic leverage, etc.

 

[clarkatticus]

Everybody forgets we can also grow the economy out of debt also. Making cuts is necessary. Raising revenue is necessary. More important than both is creating jobs and rebuilding the infrastructure-if these are not done all the cutting and revenue additions are for nothing, the economy will not grow, spending will decrease, revenue will decrease and debt will decrease. The actual national debt has little to do with growth, the economy can grow with a debt or without a debt.

 

[ThisTooShallPass]

Everybody forgets we can also grow the economy out of debt also. Making cuts is necessary. Raising revenue is necessary. More important than both is creating jobs and rebuilding the infrastructure-if these are not done all the cutting and revenue additions are for nothing, the economy will not grow, spending will decrease, revenue will decrease and debt will decrease. The actual national debt has little to do with growth, the economy can grow with a debt or without a debt.

We're currently deficit-spending 12% of GDP and running a 2% GDP growth rate. To balance the two would require that the economy grow 10% faster per annum, a 400% increase in economic growth from our current levels. Got a plan for how we can do that in less than two or three years, before we get a sovereign debt crisis?

 

[PLC1]

The US is like a family that has credit card debt equal to its net annual income. They can't make the minimum payments without borrowing still more. If they don't make the minimums, then the interest rate will increase, and they'll be in deeper doo doo still.

The solution is to spend less, and earn more.

Now Mom blames Dad for the mess, and Dad blames Mom. Dad wants Mom to go get a full time job and make more money (analogy- increase taxes) while Mom says that doing so would increase expenses for child care, commuting, etc. (increasing taxes puts a damper on the economy argument analogy)

Dad wants to decrease family spending by $50,000 over the next ten years, while Mom thinks that $40,000 is enough. They both agree that certain expenditures are sacrosanct, and neither recognizes that $50,000 over ten years is still only $5,000 per year, that such a decrease would result in even more debt, and that neither has a realistic way of accomplishing even that much.

So, they argue and point fingers at each other, blame anyone but themselves, walk out of discussions of family finances, try to convince each other that everything is OK, and generally avoid facing up to any difficult decisions.

What do you foresee for the future of this family?

 

[ThisTooShallPass]

The US is like a family that has credit card debt equal to its net annual income. They can't make the minimum payments without borrowing still more. If they don't make the minimums, then the interest rate will increase, and they'll be in deeper doo doo still.

The solution is to spend less, and earn more.

Now Mom blames Dad for the mess, and Dad blames Mom. Dad wants Mom to go get a full time job and make more money (analogy- increase taxes) while Mom says that doing so would increase expenses for child care, commuting, etc. (increasing taxes puts a damper on the economy argument analogy)

Dad wants to decrease family spending by $50,000 over the next ten years, while Mom thinks that $40,000 is enough. They both agree that certain expenditures are sacrosanct, and neither recognizes that $50,000 over ten years is still only $5,000 per year, that such a decrease would result in even more debt, and that neither has a realistic way of accomplishing even that much.

So, they argue and point fingers at each other, blame anyone but themselves, walk out of discussions of family finances, try to convince each other that everything is OK, and generally avoid facing up to any difficult decisions.

What do you foresee for the future of this family?

To add to the analogy somewhat, expecting to grow the economy out of debt is like hoping for a raise that will make all the family's problems go away.

 

[clarkatticus]

Should have read the entire post. Economic growth at 5% would do the trick, 4% more likely so cuts and revenue will have to be accomplished-4 trillion in both would turn the tide. Some deficit will always exist it is the nature of economics and politics. Inflation will start as soon as the banks start loaning, that will also eat up some of the debt. We need to think of positive answers not just doom and gloom, Congress needs to quit the chicken little routine and talk positive to achieve what has to be achieved. Right now they are just playing politics. Any American not think this is the greatest nation in history? Start acting like it.

 

[ProudLefty]

We're currently deficit-spending 12% of GDP and running a 2% GDP growth rate. To balance the two would require that the economy grow 10% faster per annum, a 400% increase in economic growth from our current levels. Got a plan for how we can do that in less than two or three years, before we get a sovereign debt crisis?

Why is it you continually forget that we already had this beast under control not all that long ago, and then we started a spending spree and a tax cut spree and totally refused to consider the deficit problems that were created. We did that fro 8 years, and now we are expected to fix it overnight by cutting the only programs that were actually working, and working well?

Why should we listen to the people who caused the problem?

Why not listen to the people who have actually solved the problem a couple off times already?

 

[PLC1]

Why is it you continually forget that we already had this beast under control not all that long ago, and then we started a spending spree and a tax cut spree and totally refused to consider the deficit problems that were created. We did that fro 8 years, and now we are expected to fix it overnight by cutting the only programs that were actually working, and working well?

Why should we listen to the people who caused the problem?

Why not listen to the people who have actually solved the problem a couple off times already?

They've all retired or died off.

 

[ThisTooShallPass]

Should have read the entire post. Economic growth at 5% would do the trick, 4% more likely so cuts and revenue will have to be accomplished-4 trillion in both would turn the tide. Some deficit will always exist it is the nature of economics and politics. Inflation will start as soon as the banks start loaning, that will also eat up some of the debt. We need to think of positive answers not just doom and gloom, Congress needs to quit the chicken little routine and talk positive to achieve what has to be achieved. Right now they are just playing politics. Any American not think this is the greatest nation in history? Start acting like it.

Economic growth at 5% would not do the trick. Are you familiar with how compound functions work?

In order to "grow out of debt," GDP must be growing at a rate equal to or greater than the percentage of GDP deficit-spent. Otherwise the interest rate curve will "run away" from the growth curve and we will ultimately wind up with a situation in which the interest payment on our debt exceeds 100% of GDP. Given the present discrepancy, that point is only two or three decades away -- and obviously the bond markets will revolt well before that point.

Deficits need not always exist; that's such a flagrant perversion of all evidence is to require no specific refutation. There is absolutely nothing about the nature of government to require that spending exceed revenue.

And doom and gloom is quite warranted here. This is a bad situation, and your mindless rah-rahing doesn't change that fact. You still have yet to furnish a plan for how we can achieve even 4% growth, when all the combined efforts of the last three years have barely given us a growth rate half of that.

Why is it you continually forget that we already had this beast under control not all that long ago, and then we started a spending spree and a tax cut spree and totally refused to consider the deficit problems that were created. We did that fro 8 years, and now we are expected to fix it overnight by cutting the only programs that were actually working, and working well?

Why should we listen to the people who caused the problem?

Why not listen to the people who have actually solved the problem a couple off times already?

I've said repeatedly I don't see why don't just return to Clinton's budget and cut 5-10% from that.

I don't know why you keep talking to me as if I'm a Republican Congressman. I'm not even registered to vote.