geojanes wrote:

danivon wrote:So, anyone who has a clue about stuff able to say what would happen if the ceiling was reached and not increased while the USA had a projected deficit?

That's the point . . . no one knows what happens when the worlds biggest debtor (again by several orders of magnitude) defaults, which, again, is what happens when you can't pay your obligations.

But considering what happened when Lehman defaulted, it can't be good . . .

Default would be very bad. But would hitting the ceiling mean default?

I think it would come down to a choice. Either a partial (or full?) government shutdown, or some defaulting. The extent of the shutdown would, I guess depend on how much revenue was not being covered by tax income (which will vary from month to month) and how long it took to increase the limit again.

Certainly it's not something that I think can be used for brinkmanship without massive repercussions. It should be recalled that the 1990s government shutdown didn't lead (as had been hoped by Gingrich and Dole) to a hit on Clinton as much as it saw a hit on the Republicans. A government shutdown, or sudden massive cuts, always sounds a lit easier to deal with on paper than it is in reality.

As for the sweeping 10% cuts, I think (again), that it may be 'fair' to Brad, but it's not necessarily pragmatic. Surely departments that spend money to collect it, or to mitigate other costs, could be less effective if their budgets are slashed, thus lowering income (or increasing spending elsewhere), making things harder than it seems at a superficial level.

But anyway, I'm sure that hitting the ceiling won't mean an automatic default - although it will make it very hard for the US to not default unless raised soon, and will likely lead to a strain on renewals with creditors looking to increase the rates. I guess it's something that we'd only know what would be the effect if it happened.

Maybe I'm ignorant, but I don't understand the terms "partial default" or "some defaulting." In a cash crunch, the debtor doesn't get to choose which creditor is senior. (Or in parlance of the overextended, which bill to pay.) Consumers in trouble often do this, but it's only because none of their creditors has taken a legal action. Once that action is taken, that's it, it's in the court and the organization/person/company is in default. It's a binary.

Still, you're right, of course, that the debt limit doesn't by definition mean default. The gov't could start liquifying hard assets (Grand Canyon anyone?) or raise revenues, or legislate its way out of this by changing the law on any number of legal obligations (since they do make the law.) But are any of those things going to happen?

No doubt the best minds at Washington are thinking about this very thing. I'd like to know what they come up with without having to actually go through the actual exercise . . .

danivon wrote: It should be recalled that the 1990s government shutdown didn't lead (as had been hoped by Gingrich and Dole) to a hit on Clinton as much as it saw a hit on the Republicans.

It should be noted this was more because of the personalities involved then anything else. Gingrinch came across as a bellicose, whining, braggart, i.e. his crying about being made to sit in the back of Air Force One (or something like that). I don't think you will have that problem with John Boehner.

geojanes wrote:

danivon wrote:So, anyone who has a clue about stuff able to say what would happen if the ceiling was reached and not increased while the USA had a projected deficit?

That's the point . . . no one knows what happens when the worlds biggest debtor (again by several orders of magnitude) defaults, which, again, is what happens when you can't pay your obligations.

But, not raising the debt ceiling does not equal default. Default would be a choice.

Furthermore, if we just raise it, what will happen with spending? Has the President or have Democrats put out anything that shows a substantial willingness to cut spending? The President put out a few benchmarks and made up the 12-year specification so that it couldn't even be scored.

I think the mistake the Republicans are making is keeping all the negotiations secret. Why do I consider it a mistake? Because I don't believe the President is serious. I think he just wants to paint the GOP into a corner (time-wise). I want to know what cuts Democrats are putting on the table. Given how they have grown government over the last 5 years (half with Bush, half with Obama), and given the Senate has not voted for a budget in 782 days, you tell me how serious Democrats are.

But considering what happened when Lehman defaulted, it can't be good . . .

So, the only hope is . . . to keep borrowing and spending?

Please. How about a little compromise?

What will stop BOTH sides from spending more than they take in. I understand the debt service payments. I understand that there is much waste. I have seen it in the military. I have given evidence of waste in the Medicare fraud and welfare fraud arenas. Waste is everywhere in government. If you can't take 10% out of every budget category, then you are not trying very hard.

Yet, we have no takers on the "solve the budget crunch". Perhaps there is MORE leading from the rear on this as well. I expect better from Redscapers. We are intelligent enough to provide a plan and defend it. There are those who do not like my plan, but do not give specifics on what they would do. I take that back. RickyP did say he would raise taxes on the rich, that would not take care of 1/10 of the deficit, but at least it was a start. I have provided the entire monthly statement for the US government. Chop away, people!

bbauska wrote:What will stop BOTH sides from spending more than they take in.

Well, atm, there is one side that SAYS they got the message.

Waste is everywhere in government. If you can't take 10% out of every budget category, then you are not trying very hard.

Oh, it can be done. However, I think you'd have to fire almost all the entrenched bureaucrats to get it done. There are departments, programs, and boondoggles aplenty. The problem is rooting them out even after they're identified.

Make me King. I'll take half the President's salary and cut the budget by 25% the first year.

Well Doc,
I want YOUR suggestion as well.

bbauska wrote:Well Doc,
I want YOUR suggestion as well.

Honestly, I won't do it. Why not? Because I would need a complete list of every program the government runs and every agency and bureau. For example, at the end of the Bush Administration (I've mentioned this little bit of esoterica previously), I knew of a young woman who got a job with the government. Her responsibility was to help export American culture to China. I would have to be presented with compelling evidence that this sort of thing is of any value at all.

There are a myriad of million dollar programs and grants that need to go. I know, I know, chump change. However, when you get rid of 1000 of such wastes, that's a billion. A billion here, a billion there, pretty soon you are talking about "real money."

I remember a President who campaigned saying he would go through the budget "line by line." I think he stopped right after reading the title.

Here's why I won't do a straight across the board cut: we already have no "next gen" plans for planes and ships. In other words, for the first time in modern history, we are not developing our next set of fighter jets, bombers, and warships. Our navy is shrinking to the point that if nothing changes, we will have a real nice coast guard in 15 years (since we'll have to mothball the carriers to pay our bills).

I think we have to take great care, but we have to take a serious look at everything. The current Democrat plan is to examine nothing, raise some taxes, and just keep spending.

I think we have to take great care, but we have to take a serious look at everything. The current Democrat plan is to examine nothing, raise some taxes, and just keep spending.

And that is the reason I think BOTH parties are "leading from the rear".

If specifics (Other than a 10%/20% across the board) were wanted, this is what I would do:
Take away Corporate income taxes (add 8.5 Billion)
Remove Department of Agriculture (minus 12.7 Billion)
Remove office of Federal Student Aid (minus 1.4 Billion)
Remove Department of Energy (3.3 Billion)
Remove Housing and Urban Dev. (minus 3.9 Billion)
Remove International Assistance Programs (minus 5.8 Billion)
Remove NASA and Nat Sci Foundation (minus 2.1 Billion)
Reduce Dept of Defense 10% (minus 4.9 Billion)
Privatize unemployment insurance and Remove Dept of Labor (minus 10.8 Billion)

This would place us 5 Billion/month to the good, thus reducing the deficit by 60 Billion/year, not touching Medicare/SS/Medicaid. The military takes a hit, labor takes a hit, the deficit takes a hit, and we do not default (or whatever the crisis mongers will call it).

Steve says there are many wastes. I agree. Let the department heads have to make the call after a 10% budget reduction comes into play. Then hold them responsible for their decision.

bbauska wrote:Take away Corporate income taxes (add 8.5 Billion)

This is a terrible idea. It invites people who own a closely held corporation to shelter even more of their income from taxes than they already do, to say nothing of the fairness of having corps pay for services they use and demand. (They are people in the eyes of the law aren't they?) As it is, corps get taxed on net income, unlike you and I who get taxed on gross. That's enough of a break.

Let the department heads have to make the call after a 10% budget reduction comes into play. Then hold them responsible for their decision.

This is a great idea, and is exactly how Bloomberg has handled budget cuts in NYC. People who know their departments know where the fat is, and there is fat in every organization. Drop the least important xx% and you'll still have an effective organization.

I can work with the corporate tax situation. I am looking to open more money for business, and then the business will hire more.

Danivon does not agree with you, George. He says a 10% cut across the board will force smaller budgets to make do with less. Needless to say, I think as you do. EVERY budget can tighten.

This is a great idea, and is exactly how Bloomberg has handled budget cuts in NYC. People who know their departments know where the fat is, and there is fat in every organization. Drop the least important xx% and you'll still have an effective organization

And pretty much how Chrétien/Martin handled the debt reduction through the 90s in Canada. Each minister got an umbrella budget and made it work. They gave each deputy a budget and they made it work and so on. The huge difference is that their very successful debt reduction thru austerity program also coincided with a rapidly expanding economy. And that's the biggest problem in the US.
Most economies have fairly balanced domestic and export economies. The US export economy is small in comparison to its domestic economy...due to the export of manufacturing and service jobs starting in the 80's and continued unto about 2008. Any damage done to the domestic economy if government spending is limited, actually hampers the recovery. So although you reduce spending you reduce the revenue generating domestic economy....
And thats another reason to resist corporate tax cuts but to instead look at how corporate tax law has allowed international corporations to avoid US taxes... You kmow, like the oil royalties in Saudi being counted as taxes rather than production expense and lowering the oil corporations tax payments to the US.
I'd also add a sunset clause to any subsidy or grant program in the US. That is that any program needs a complete authorization every say 5 years. That means its entire worth and purpose and how its working is re-examined and rejustified.
What happens very often is that laws get passed but never get taken off the books and clunk along long after they've outlived their purpose. And that can lead to permanent beauracracy where the originbal idea might have funded a 5 year project team...
On Monday morning NPR had an excellent program (I listened as I drove) on examining the US military budget. They said it was about 800 billion not counting he additional costs of the 5 conflicts. That is that even if the costs of every conflict were eliminated there would still be an 800 billion dollar expense annually. Which is more than what the entire rest of the world spends put together..... Everyone made the point that simply "bringing the troops back" from Germany S. Korea etc would have no real reduction. And in fact, since the hosting nations often subsidize the costs of the US bases in their countries might increase the costs. There would be some economic benefit to the US economy because spending would be localized in the US but not a huge benefit since most resources start in US industries and the only extra economic benefit would be in spending by troops and some limited operating expenditures.
So an actual reduction in troop levels and equipment is required. In a time of high unemployment the forces are a key employer for young men with few other options...So it may actually ad to unemployment.
On the oterh hand, there are no realistic threats to the security of the US on a par with the cold war and the communist regime. If the US eschews foreign occupations (the really expensive operations) a lot of the assets currently maintained over seas can be seriously pruned.

Ricky:

The US export economy is small in comparison to its domestic economy...due to the export of manufacturing and service jobs starting in the 80's and continued unto about 2008.

What's your source for this statement? Here's what I found after a quick Google:

http://forecastchart.com/graph-us-exports.html

P.S. It is a logarithmic scale!

Ray, the US trade deficit is the greatest measure of the difference between the export economy and the domestic consumption economy.
In 208 the trade deficit with China was $250 billion. total trade deficit was $600 billion.
The largest export to China from the US was scrap metal and waste. (7.6 billion) (Next came semi-conductors, an industry protected by reagan in the 80s, aircraft and parts, and oilseeds and grains)
The largest sectors exporting from China to the US was computer equipment at $46 billion.

The portion of the US economy that is export trade is about 30% OF Germany about 50%,. Of China about 70%. (I'll find those charts for you later..There OECD I think, but I have to check a book. I have to go out.) The point isn't the the US isn't exporting more on a dollar amount. inflation and over all growth make that certain. But as a share of overall economic acticity those exports were less than they once were. By a large margin.
But that where in the 50's, 60s, 70s and early 80s America was exporting a lot of high value manufactured products that employed a lot of people in good paying jobs. Not so much now. And the American consumer represents a larger share of the economy than ever because when the jobs were exported, the products actually became imports.... Certainly more than any other trading nation.
So the dynamic is that exporting all those manufacturing jobs diminshed the ability of the domestic economy to consume. For a short while the housing bubble supported that, but it was a mirage.
How do you recover from a domestic recession where consumers no longer have money to spend when for 25 years you've depended (as has much of the world) on that domestic spending to run 2/3 of the economy?
The only way is exports. And what is that? More scrap metal?

Ricky:

The portion of the US economy that is export trade is about 30% OF Germany about 50%,

Yes, but you do realize that there are huge geographic differences between a country in the middle of other western industrialized countries (100 million German people surrounded by 250 million other westerners) and a country of over 300 million people bordered by 2 oceans, a sparsely populated northern neighbor, and a much less developed southern neighbor. In other words, just because you can make an argument, you should think about what you are saying so that you don't hurt your credibility.

By the way, if California was a country, I presume that it's relative export activity would rival that of Germany's.

Again, your original statement:

The US export economy is small in comparison to its domestic economy...due to the export of manufacturing and service jobs starting in the 80's and continued unto about 2008.

Me:

What's your source for this statement? Here's what I found after a quick Google:

http://forecastchart.com/graph-us-exports.html

P.S. It is a logarithmic scale!

Ricky:

the point isn't the the US isn't exporting more on a dollar amount. inflation and over all growth make that certain.

Well, you could look at the table I linked. From 1980 through 2008 the US has averaged an annual rate of 7.7% export growth. That's more than the rate of inflation and our annual economic growth rate combined.

Ricky:

The only way is exports.

The point I'm making is that we have had real year over year export growth. Yes, we export much less steel. But we export a lot more semiconductor chips, biotech, and software. That's the way it should be. We also no longer export buggy whips.