Default in the U.S?

[Teagz]

Do you think it will happen?
At this point, I'm not sure. They've had a while to exceed the debt ceiling, so why wait til the last week? It's stressful and driving me nuts. So, do you think it will happen, and if so, what do you think that means for the average American?

 

[Nordling]

The 14th Amendment to the Constitution, article 4, says in part:

4. The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.

So, if push comes to shove, the President COULD simply declare the debt ceiling law unconstitutional and order the Secretary of Treasure to pay our debts, and ignore the ceiling.

Of course he wants to avoid this, since the Republicans would scream like a swarm of drunken hornets, but like I said, it's in his hip pocket if need be.

 

[morment]

I think it's all just political grand standing, everyone involved with this has to realize how disastrous not raising the debt ceiling would be for the US economy, even if they're saying differently in public, so they'll work something out.

And like Nordling said, there is always that as a last resort

 

[Jupiter551]

I'll buy any cars less than 3 years old for $500 CASH! Keep this in mind in the coming weeks :mrgreen:

 

[Teagz]

lol i think car prices will go up tho, so that doesn't make a lot of sense :/

 

[Bocefish]

Drama queens, the whole lot of 'em. If either side compromises too soon they will be considered weak. Bunch of bovine excrement.

 

[Paulie Walnuts]

The 14th Amendment to the Constitution, article 4, says in part:

4. The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.

So, if push comes to shove, the President COULD simply declare the debt ceiling law unconstitutional and order the Secretary of Treasure to pay our debts, and ignore the ceiling.

Bolded key phrase. It has to be authorized by law.
It's a real point of argument that a busload of law professors and a few dozen congressional hearings and a supreme court ruling would have to decide.
I can be interpreted in different ways.
This is an amendment passed after the civil war, and was in part worded to make sure only debt appropriated by the Congress was valid and was to be paid without question, so that any debt incurred by the confederate states would not be the debt of the USA.

So in a literal sense in which it was written, the congress has to pass the "debt ceiling" law in part to declare it is the debt of the USA, and not the confederate states war debt.
Which of course now, is pretty silly one would think but, in the even say, Texas tried to succeed, and we had a civil war and they lost, the US wouldnt be responsible for any debt Texas got into with a foreign power.
Like I said, its an obsolete amendment that needs rewritten. The president could, in theory say fuck it, we have unlimited credit the 14th says so but he is a constitutional law professor.... he knows better and he knows such an argument would take years to settle.

It can be read that way, that we have unquestionable unlimited credit. It can be read as it was written, to apply to the time (post civil war) and reconstruction. or a few other ways.

The reason why they have to pass this stupid one page bill to raise the debt ceiling is pretty much to declare it is the authorized debt of the USA and not the CSA.

or maybe not.... :lol: It's never been used as an argument to not do it so to argue it would be a long drawn out affair.

Woulda been easier if they had worded it with the idea in mind that someday, reconstruction would be over and the amendments purpose would no longer be needed.

Nobody in their right mind, let alone the president with his educational background, is going to whip that one out and try to argue with it. if he did, and a few yrs down the road they handed down a ruling that it did NOT mean that, we would be super screwed.

It's a great gun to put to the republican's head though. They think he'd actually do it.

It's like that part of blazing saddles when the sheriff puts a gun to his own head and walks himself into the jail as a hostage.
:lol:

 

[Dolicky]

Not being an American I find this fascinating to observer, both the immense debt accumulated and the interpretations of your constitution/bill of rights.

What would be the damage done if you aren't able to raise your debt ceiling? Is it essentially like Greece where government spending will have to be cut in order to remain solvent? Keeping aside the people impacts, something definitely needs to be done to break this cycle. Surely you can't just continue to go into higher trillion dollar debts of which there is no hope of ever paying back?

Cheers,
D.

 

[Lydia_Deetz]

Not being an American I find this fascinating to observer, both the immense debt accumulated and the interpretations of your constitution/bill of rights.

What would be the damage done if you aren't able to raise your debt ceiling? Is it essentially like Greece where government spending will have to be cut in order to remain solvent? Keeping aside the people impacts, something definitely needs to be done to break this cycle. Surely you can't just continue to go into higher trillion dollar debts of which there is no hope of ever paying back?

Cheers,
D.

I think the damage done will be that Social Security will be gone and my crazy 73 yr old granny will have to move in with me! :lol:

But seriously, I have to agree with Boce on this one, excrement, of the worst kind.

 

[Jupiter551]

Well, as I understand it the US government is in a perpetual state of debt to the reserve bank anyway, and if (at any point in time) enough loans were to be called in the economy would simply collapse - this is what happened in 1939, loans were recalled to the reserve bank on no notice and a bunch of smaller banks went belly-up, market crashed, etc...
Because every link in the economic chain is paying off debt to one further back and because the initial link (the reserve bank) essentially creates money out of thin air (US currency isn't backed by anything...they want more they just print some more treasury bonds and swap them with the reserve bank for a run of bank notes) the level of debt in the economy at any given time far exceeds the market value of every single thing in it.

 

[Paulie Walnuts]

Every expert has an opinion on what might happen.

But we have done this before several times, and nothing happened because it was settled a few days after we "defaulted".

The going theory is, if they dont pass it in time, the interest can easily be paid on the debt with the income we have, and we would have to stop paying out military pay, vets benefits, the owed debt to the federal reserve bank where we pay them to print our worthless money, federal employees paychecks, ect ect.

If we did that quickly, we could theoretically drift along safely for months. But then we'd have to issue back payments so in the end we'd still need the same amount of money.

social security is a point of contention, the technical fact is, Social security itself is a solvent and safe program in and unto itself, so it wouldn't be effected. However it is up to the president and it is his choice to suspend or not to suspend it to help pay the other bills. Ronald Ragan when he was president raided the SS pot and replaced much of the assets with bonds and T bills to create an illusion of prosperity, SO... since SS is funded now but a butt load of T bills...

Gramma might not get her check. Honestly, no one really knows until it actually happens.

When Bill Clinton was president we were operating in the black, with a surplus. 6 months after W tok office the surplus was gone and we had a multi trillion dollar debt.... and it kept growing.

Warfare is expensive. Warfare is what got us into a 14 trillion dollar debt. You'd think we'd learn by now wouldnt you?

 

[Sevrin]

Every expert has an opinion on what might happen.

But we have done this before several times, and nothing happened because it was settled a few days after we "defaulted".

The U.S. has not defaulted. It has shut down operations to avoid having to pay current expenses in order that there would be funds to meet its obligations to debtors.

 

[Jupiter551]

Ronald Ragan when he was president raided the SS pot and replaced much of the assets with bonds and T bills to create an illusion of prosperity, SO... since SS is funded now but a butt load of T bills...

Yup and T bills are pretty much just an IOU from the government lol - they'll try to honour them, but when it comes to the crunch it's just a piece of paper.

 

[JoleneBrody]

Who wants to help me build my cabin?

 

[Paulie Walnuts]

That's why I put defaulted in quotes following the rest of what I said.

Some (many actually) call it "omg we will default at midnight on the 2nd" whe as you say, we haven't in reality.

We have several times failed to pass the raise several times and "defaulted" as many call it.

And before we got in real trouble, the limit was raised. People like to call it "defaulting" when they don't understand that the actual defaulting wouldnt occur for a long time after we passed the deadline.

If they dont pass it and the deadline passes.... we are in danger of defaulting.... at some point after. The GOP and the Teabagger party likes to use words in their most scary context for effect.

You are right, we have never actually defaulted on our debts.
We have several times "defaulted" but missing the deadline and going into shutdown mode.

They really need to stop using that word unless we actually truly and for real default. But they keep saying "we have to make the deadline or the US will default! OMFG the end is near"

When we really mean we are in danger of defaulting at some point after shutdown.
That doesn't sound as dramatic and ya know how the US media love them some drama.

 

[Bocefish]

Warfare is expensive. Warfare is what got us into a 14 trillion dollar debt. You'd think we'd learn by now wouldnt you?

Think again...

The biggest contributors to the nearly $9 trillion increase over a decade were:

-2001 and 2003 tax cuts under President George W. Bush: $1.6 trillion.

-Additional interest costs: $1.4 trillion.

-Wars in Iraq and Afghanistan: $1.3 trillion.

-Economic stimulus package under Obama: $800 billion.

-2010 tax cuts, a compromise by Obama and Republicans that extended jobless benefits and cut payroll taxes: $400 billion.

-2003 creation of Medicare's prescription drug benefit: $300 billion.

-2008 financial industry bailout: $200 billion.

-Hundreds of billions less in revenue than expected since the Great Recession began in December 2007.

- Other spending increases in domestic, farm and defense programs, adding lesser amounts.

If they dont pass it and the deadline passes.... we are in danger of defaulting.... at some point after. The GOP and the Teabagger party likes to use words in their most scary context for effect.

That's why Obama himself uses the term all the time... because he's a closet tea bagger, lol

Some other interesting FACTS:

Congress created the debt limit in 1917. It's unique to the United States. Most countries let their debts rise automatically when government spending outpaces tax revenue. Congress has increased the debt limit 10 times since 2001.

 

[Jupiter551]

Now I know why you're in debt....check out this chat!

 

[Paulie Walnuts]

I stand corrected by Bocefish.

 

[Dolicky]

Thanks for the further info and thoughts. Very interesting to listen into this discussion from across the pond.

Because every link in the economic chain is paying off debt to one further back and because the initial link (the reserve bank) essentially creates money out of thin air (US currency isn't backed by anything...they want more they just print some more treasury bonds and swap them with the reserve bank for a run of bank notes) the level of debt in the economy at any given time far exceeds the market value of every single thing in it.

This is very much the way I understand it too. Chris Maternson explains it really well in "Crash Course". Your bank notes are no longer tied to any physical form of value like gold or silver, therefore it is purely borrowed into existence. This works fine if future generations are prosperous enough to repay the debt, or if the debt doesn't rise too crazily high like it seems to have at the moment.

Warfare is expensive. Warfare is what got us into a 14 trillion dollar debt. You'd think we'd learn by now wouldnt you?

You would certainly hope so. As Bocefish elluded to, there are other things which also contributed to this debt. I see the difference however is that with warfare, there is little transactable value left at the end of it. Economic stimulus packages, Medicare and even some bailouts provide a tangible return to society and the economy. They return assets which hold value and can be transacted against. Warfare has become far too expensive a debt to maintain (leaving aside all the arguments about sovereign nations, safety of its people, etc.) and leaves very little tangible assets to trade with.

I say it again, as an outsider, it's fascinating. Your country is dealing with numbers far in excess that we deal with here in Australia, it's quite mind boggling.

Cheers,
D.

 

[Jupiter551]

This works fine if future generations are prosperous enough to repay the debt, or if the debt doesn't rise too crazily high like it seems to have at the moment.

Yep, actually there's no expectation that the debt in the economy will be paid off - in fact it's impossible because interest alone keeps pace with economic growth, and the amount of capital + interest in the economy far exceeds the capital alone (obviously) - but so long as the interest can be paid off, it stays afloat.

Kind of like an ongoing credit card bill. If you just pay the interest, so long as you keep your job you never really have to pay back the principle, but you'll also be in an increasing level of debt forever.


BTW, am I the only one who gets a disturbing image whenever someone mentions the "teabagging party" LOL.

 

[Paulie Walnuts]

I heard them talking on the news that if we were to forgive the debts we owe to ourselves (to the fed. reserve for the money they print et al) That it would take a nice dent out of the debt.

An entire economy that revolves around fiat currency that is just paper backed by only the speculation of future prosperity is a little crazy. They talk as if at some point it's possible to actually pay off 15 trillion bucks.
With interest.
With only 300 million people of which only about 30% make enough money to pay taxes and of those the ones who make the most not only pay nothing but after their endless deductions, get a refund.

when they print money with no backing, its just normal. If i print money with no backing, it's a crime. It's not fair.

If everyone in the USA went to their computers and printed out 10,000 every year and sent it to the fed we could pay the debt off in no time. I mean, we use their worthless money to buy stuff why can they use OUR worthless money to pay off stuff?

But they call that crazy talk... while they pay the FRB to print more paper money.
Maybe it's because they have big ass fancy printers and we dont?
:lol:

 

[Paulie Walnuts]

Teabaggers... they used that term for a month when they formed that party before someone pointed out to their clueless conservative asses that it actually already had a definition.
So they fliped out and now they all get huffy when you call them teabaggers. "It's the tea party" they whine.

Silly teabaggers. You're stuck with it now.
:dance:

 

[Jupiter551]

But they call that crazy talk... while they pay the FRB to print more paper money.
Maybe it's because they have big ass fancy printers and we dont?
:lol:

Yeah but they pay for the money the fed creates out of paper and ink with t-bonds that the treasury creates out of paper and ink :lol:

Then they lend that money to banks at interest, who lend it to businesses and citizens (again at interest)...and it's just a game of musical chairs each paying interest to each other but by necessity there's always some poor shmuck left standing who loses everything.

It's a scam writ large, and authorised by a sovereign nation. But those last 5 words are the key. Sovereign nations can do whatever they want, there is no higher authority in the world.

 

[Nordling]

Well, I don't agree that printing "money out of nothing" is a bad idea. Money is nothing but a means of exchange, and if they had a better way of doling it out (put the Federal Reserve directly under the treasury department, e.g.), the crazy ups and downs and huge debts wouldn't have to exist. Print money based on the GDP of the country printing it. The labor and enterprise of a country's citizens is a lot more readily available than gold, silver or any other scant resource.

 

[Dolicky]

I think that's the problem Nordling, the money isn't backed by anything, gold, silver nor the GDP of the nation. Nixon changed all that in 1971.

This explains the change ...

 

[Nordling]

I think that's the problem Nordling, the money isn't backed by anything, gold, silver nor the GDP of the nation. Nixon changed all that in 1971.

This explains the change ...

Yups! Trouble is, all the gold in the world, if it were hoarded and stored to "back up" all the money in the world, would make everyone a lot poorer. Basing currency on a limited resource, like gold, silver or platinum, AT BEST would only serve to allow a few people to accumulate most of it and increase the gap between rich and poor. Nixon's idea simply didn't go far enough. Move the basis of currency to the GDP of each nation and in the US, put the Federal Reserve under complete control of the government--and write laws and regulations to prevent periodic swings in the political wind from corrupting it.

All the gold in the world isn't enough to support, financially, the 7+ billion people on earth.

 

[Jupiter551]

Yups! Trouble is, all the gold in the world, if it were hoarded and stored to "back up" all the money in the world, would make everyone a lot poorer. Basing currency on a limited resource, like gold, silver or platinum, AT BEST would only serve to allow a few people to accumulate most of it and increase the gap between rich and poor. Nixon's idea simply didn't go far enough. Move the basis of currency to the GDP of each nation and in the US, put the Federal Reserve under complete control of the government--and write laws and regulations to prevent periodic swings in the political wind from corrupting it.

All the gold in the world isn't enough to support, financially, the 7+ billion people on earth.

I'm not sure you understand the purpose of a gold standard. It's not to "support the population financially" (that doesn't even really make sense) it's to stabilize the value of currency by pinning it to something that has a kind of constant value.

The whole POINT of doing this is you need a commodity that isn't going to fluctuate wildly depending on supply and demand. The price of gold generally keeps pace with the economy and not the other way around. That's a very good quality to have in something you're basing currency on.

Hell, you could back currency with gummie bears if you wanted - but unlike gold you can create as many gummie bears as you like. Gold is not something that floods the market or dries up, its supply from mines is slow and constant, and it doesn't go anywhere - it isn't consumed.

The key point about gold is this. If tomorrow, the US government dissolved and each state seceded from the union, all that paper money and the numbers in your bank account would be worth exactly nothing. NOTHING. Gold on the other hand will always have value.

An ounce of gold is worth more than a million US dollars if the dollars are no longer legal tender. They have no value in themselves, without the government to enforce their value, they have NONE. Gold does, and always has, and always will.

As for basing currency on the GDP, GDP is measured in currency. How the hell do you suggest measuring GDP if you want to base the value of currency on itself...I don't even really understand what you mean.

Fiat currency is regulated by central banks and released or slowed to stimulate or sedate the economy in order to stop inflation/deflation at specific times. Even if you could find some way to measure economic growth via GDP tying the currency would be like putting everything you own in a kayak and sending it down a raging river just to see where the current takes you.

The whole point of the modern monetary system and economics is to regulate the economy to avoid or mitigate problem spots, not to have the economy regulate itself that would be a nightmare.

 

[Dolicky]

Pretty good article on the current debt crisis ... Debt Problem’s Sure Cure: Economic Growth

I'm wondering how the "locals" in the US are feeling about all of this at the moment, especially as the due date looms near? We only tend to hear about the more higher level news here in Oz so I'm curious to know what the feeling is "on the ground".

Cheers,
Dolicky

 

[Jupiter551]

the teabaggers really sound like a bunch of self-centered douchers

 

[Mikeythegeek]

Two problems I have with this whole thing, both of which piss me off.

Problem #1- the fact that we have a bunch of people who were elected to take the "my way or the highway" approach to politics by the retarded Teabaggers. Hello, dumbasses! Politics is all about compromising and making deals. If you're not willing to make a deal, ya ain't gonna get shit dun! But of course, y'all don't want to work with that "scary black guy" in the White House. And I know this is true because my grandmother is one of those dumbasses.

Problem #2- One of the easy ways to fix the issue is raise taxes. No one likes to do that, but it's something you have to do. And the majority of Americans agree that raising taxes should be part of the deal. However, many of these idiots in Washington have decided to be more loyal to some dope named after a fucking Sesame Street character than the American people!

I read yesterday how some were turned off by Obama using Twitter to tell his followers to get on the case of their congressmen and senators to get a deal done. One Republican legislator wrote in reply "Dear #Obamatons you are ruining my interactions with thoughtful democrats with this spam. And U R hurting your President." No, fucktard, you're the one hurting yourself and your party by sucking up to greedy rich fucks and not listening to the American people. You know, the ones who actually VOTE for you? So shut the fuck up, get back to work and get a deal done.