National Debt

[Embar Angylwrath]

Debt limit when Obama took office a little over two years ago... $10.5 trillion
Debt limit today... $14.3 trillion

Obama's administration has increased the US debt on the average of about $4.5 billion dollars... per day.
Average monthly increase... just a little shy of $140 billion per month.

Geithner now predicts (because of the accelerated spending) that the debt limit will be reached by mid May.

Get that people? Mid May. Roughly 30 days from now.

If there is no agreement to extend the debt limit by that time, the US Treasury goes into crisis mode. They triage payments and honestly, I don't know which creditor has legal standing over another. Do US bonds or service debt get paid first? Or do vendors and employees. My guess is the legal priority is : 1) Interest on debt, 2) Legislated spending (entitlements, etc), 3) Bond redemption, 4) Expenditures related to national security, 5) Payroll, 5) Vendors... but in all honesty, I really don't know the heirarchy.

Welcome to Hope and Change.

[Ddrak]

There's about 2 months after the debt limit is reached before any defaults actually happen. Defaults don't mean that people don't get paid at that time, it just means payments are delayed and incur penalties in some cases. Payroll and legislated spending come first by a long margin. My guess is interest on debt is likely to be the first thing renegotiated.

The real damage is the credit rating of the United States and its standing as a global standard currency. Once you lose that, QE is no longer possible because it simply devalues your dollar instead of magically generating more.

What's a better question though is whether the spending has been justified. Remember, the US went through some pretty serious financial strain a few years back that (allegedly) required a bunch of government spending to cushion. What should Obama have done?

Dd

[Ddrak]

Just for context:

debtlimit.gif

Dd

[Embar Angylwrath]

That graph is astounding. We're not through his 3rd year in his presidency and Obama has incurred more debt than the entire 8 years Bush was President. His administration is responsible for about 30% of all national debt we've incurred.

Edit: Its more accurate to say he's increased spending 30% since Bush left office. And that spending has debt associated with it.

[Embar Angylwrath]

Did a tad more research. Service on debt is about 6.5% of expected revenues, so the US can easily service debt as long as Treasury prioritizes it. So a refusal to lift the spending limit won't neccesarily hurt the credit rating of the US... a Treasury decision to not pay the debt will, and that's in Obama's hands, through Geithner. So if we default on debt, the blame will lay at Obama's feet. The GOP kinda has him on the ropes with this one.

[Lurker]

Defaulting on the debt is one issue. Not being able to fund the government is another. So what happens if the debt ceiling isn't raised and we can no longer borrow money?

[Kulaf]

It.....is........ALIVE!!!!!1!

[Lurker]

Well, I've been lurking but too busy and/or unmotivated to post. But some assertions are too outrageous to pass up.

[Harlowe]

OMGz0R Lurker....LURKS?

[Embar Angylwrath]

Defaulting on the debt is one issue. Not being able to fund the government is another. So what happens if the debt ceiling isn't raised and we can no longer borrow money?

First.. glad you're back. Partha needs your help and honestly, I missed your contributions.

Second.. to answer your question... we won't fall deeper in debt. Do we really need to spend roughly ten trillion more than we did ten years ago? If so, I ask you to explain why we need to spend 3x more now than we did a scant 10 years ago.

[Lurker]

Can you describe the magical process by which we instantly reduce spending by 1.5 trillion per year? The Government has commitments written into law and neither side has come close to recommending even 100 billion in annual cuts, let alone 1.6 trillion. We can't cut enough spending and restoring sanity to the revenue side is out of the question because the GOP will block any attempt to do that.

So thinking "we won't fall deeper in debt" is just childish wistfulness on your part. It's not reality based in the slightest.

Give it some honest thought. What happens if the debt ceiling isn't raised and we can no longer borrow money?

[Kulaf]

Wait....I know this one.

We have to MAKE cuts, instead of just TALKING about it.

[Lurker]

More childish wistfulness without any explanation for how 1.6 trillion in cuts would actually happen.

[Ddrak]

I don't think anyone is seriously suggesting the debt ceiling shouldn't be raised. I don't even think there should be serious debate on that issue. I'm also inclined to say that attaching conditions to a bill that does it is just silly as well - akin to threatening to kill yourself unless you get your own way.

Yes - there needs to be a plan to reduce debt levels and that plan should involve both spending and taxation elements.

As to the credit rating of the US, it can still be damaged even if all payments are made. A lot of it is the calculated risk of missing payments, not the actual miss. S&P ratings are a fair bit different to Experian.

Dd

[Kulaf]

More childish wistfulness without any explanation for how 1.6 trillion in cuts would actually happen.

Actually I was being serious. It is only when this country is facing crisis that politicians put asside what is best for themselves and their party and advocate for what is best for the country.

But as to "explanations", when Embar first posted this:

http://www.nytimes.com/interactive/2010 ... aphic.html

No one from the left on this board weighed in with cuts. Both Embar and I both posted how we would balance the budget. Care to take a shot?

[Harlowe]

Cut military spending, get out of two wars and I wouldn't have extended Bush's tax cuts. Of course none of us on this board are qualified to really address the issue.

[Kulaf]

Cut military spending, get out of two wars and I wouldn't have extended Bush's tax cuts. Of course none of us on this board are qualified to really address the issue.

I implemented your suggestions in the linked profiler and it comes out about 80 billion shortfall in 2015, and roughly 800 billion by 2030. Mind you this is just to balance the budget......not to reduce the debt. You'd have to do more.

[Lurker]

My solution was around 60% revenue changes and 40% cuts.

Which really has nothing to do with Embars assertion we wouldn't default on our debt if we failed to raise the debt ceiling, or that we wouldn't need to worry about borrowing to fund the government because all deficit spending would suddenly stop. It's one thing to make choices on an online calculator. It's another thing to understand what is possible given our political realities. Saying "we won't fall deeper in debt" and that we won't need to borrow money in a few months is the definition of childish magical thinking.

It is only when this country is facing crisis that politicians put asside what is best for themselves and their party and advocate for what is best for the country.

Yeah. Nothing would bring everyone together to come up with sensible solutions faster than a global economic catastrophy caused by Republican refusal to raise the debt ceiling. Makes perfect sense.

[Kulaf]

Just curious......have you had a change of heart on the Bush tax cuts or did you simply omit expiring them?

[MeGusta]

While I would not be as abrasive or confrontational as my colleague, I would say that it is not reasonable to assert that we could simply fail to raise the ceiling and not suffer dire financial consequences as a result.

If you want 1.6 trillion the math is quite simple. Reduce DoD spending by 12.5 % annually, remove the U.S. military presence from 20th century conflict zones such as Europe, Korea, and Japan, eliminate all of the "Bush" tax cuts not directly related to small business growth, eliminate any subsidy or tax breaks for a company who has exported jobs, eliminate oil company subsidies, and streamline government agencies.

Until we have a grown up conversation about the proper responsibilities of government, corporations, and citizens we are doomed to argue irrelevancies.

My solution also ended up being around 40% cuts and 60% revenue changes