OK, now this is out of hand: debt limit raised again today.

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](http://www.newsday.com/news/politics/wire/sns-ap-bush-debt-limit,0,7762448.story?coll=sns-ap-politics-headlines)

This is ridiculous. Defaulting on Treasury notes? Who would have ever thought that possible? We’re borrowing money to pay debts, and our leaders are OK with this? It’s no wonder our national savings rate dipped into the negative numbers for the first time recently. Our government can’t do the right thing, why should we?

Something needs to be done. If that means that the tax cuts are rescinded, I’m all for it. If that means that my poor ass has to pitch in, I’ll do it. But I can’t read something like that and not be outraged by it. I cannot in good conscience pass this off to my son, or his son, yet I find myself helpless to do anything about it.

Sooner or later these debts will be called. What will we do then? Default? We need to get a grip, people.

Damn. Just…damn.

How about those fiscally conservative republicans?

Democrats (or other responsible spenders) will be in Congress and raise taxes and/or cut programs to pay for it all - and the people will become outraged and vote them back out of office.

Something needs to be done.

I know!

Let’s cut taxes on the wealthiest americans and throw in some corporate giveaways!

then maybe we could cut funding for IRS enforcement so even less money flows in.

I am with you that I wouldn’t mind a tax hike to help fix this. I don’t want to see one new fucking social program, no new entitlements or added services either. There should be no promises, just pure cash outlays by the people to pay for overspending with nothing but a hard life lesson to show for it.

The government and the people need to understand the consequences of overspending and mismanaging money. That will help for the future but we still have to get rid of this debt.

We will do it now or do it 5 times as hard later. The problem isn’t going away and the solution is as simple as can be.

Permanently repealing the death tax and invading Iran might help. Maybe we could inject more religion into the federal government, and outlaw global warming too.

Maybe Bush should invest some in Powerball tickets - you never know.

Not only would legalizing pot and taxing it help a little, but we could all get high enough to laugh at the situation.

Stoners are widely known not to be responsible with money. Legal wacky weed will only help people escape from the real-life consequences they must suffer in order to make themselves whole again.

‘Pay-go’ rejected

Shoulda listened to me in 2002 . . .

Direct quote here in post #78. Full thread here. Written in the immediate aftermath of the 2002 electoral debacle (Woo hoo! Let’s kick Saddam’s ass!), it makes for pretty good reading four years on.

So do drunks. Let’s criminalize alcohol.

By my crude calculations, winning that three hundred million dollar jackpot from a few weeks back would pay for roughly five hours of federal spending.

Now, now…no one likes a smarty pants.

Sorry. That didn’t really parse. I should say that drunks are even more irresponsible with money.

I don’t think anybody could have foreseen massive tax cuts on the wealthy and a war leading to a huge deficit…

Who woulda thunk a failed businessman who continued to get more money from Daddy’s friends while running businesses into debt would be financially irresponsible with governmental money? I’m shocked and astounded at this unforseeable turn of events!!

Ray Charles could have seen this coming.

It’s not that bad. When the government runs a deficit, there is a periodic show and dance about raising the debt limit. In the eleventh hour, the proper bill gets passed. (And in the 10th hour, the Treasury Dept makes contingency plans in the event of missed deadlines. Remember Newt Gingrich’s shutdown of the government? Same deal.)

Yes something needs to be done. No the debts won’t be “called”, though I can’t rule out a currency crisis within the next 0-6 years. The US’s private savings rate is mostly unrelated to the irresponsible fiscal policies of ther current regime.

Economics Lesson
What are the effects in the here and now of chronic budget deficits, as opposed to countercyclic ones?

When government spending exceeds revenues, the Treasury issues bonds: that is, they borrow money. (I’m going to make a technical assumption of “full employment” here so as to ignore the business cycle.) Roughly, these borrowed funds displace either private investment (investors buy a bond from Uncle Sam rather than from GM) or domestic manufacturing.[sup]1[/sup]

That last one requires a little elaboration. Here’s how it works. If domestic investment (purchases of factories, home, buildings, cars etc) exceeds domestic savings the gap can be made up purchases of domestic assets by foreigners. For example, the Chinese central bank can buy treasury or mortgage bonds or Dubai Ports International can buy the odd terminal. The alternative would be higher interest rates and squeezed investment.

To buy US assets, you need to buy US dollars. When foreigners buy a superabundance of dollars to get these assets, they have to be selling us something in exchange. That would be manufactured products[sup]1[/sup]: the twin of the savings-investment gap referenced above is the trade deficit: the excess of imports over exports. If they buy our bonds (on net), they will be selling us their goods (again, on net).

So again, when the Feds issue a $1000 dollar bond during economic expansion, it displaces some combination of investment or goods and services in the sector exposed to foreign trade. (The sheltered sector expands accordingly).

A different pathway can occur during a recession, but this post is long enough as it is.

[sup]1[/sup]Actually, it isn’t necessarily manufacturing. What I really mean is “goods and services exposed to foreign competition”: this includes tourism, for example, but typically not haircuts or auto repair.

I don’t think that post is NEAR long enough, MfM, though it’s a start.

I agree with you that, barring something unexpected, some form of currency crisis is on the horizon. With constant deficit financing appearing to be actual federal policy at this point what other option is there? Sooner or later the actual treasury bills out there will be redeemed with inflated dollars (worth much less than when purchased) as the only means of paying off the current debt levels. Will we get out of debt? Sure. Will our paychecks be worth much less? Sure. Feh.

And it’s not like it’s difficult to see this coming. For God’s sake it’s stuff taught in high school level economics!

What can the average citizen do? How about these items for starters:

  1. Make sure your mortgage payment is as low as possible. Don’t splurge on that big house unless you’ve got a locked-in rate.
  2. Hell, reduce ALL of your debt if you can. Especially flexible rate debt.
  3. Stay out of T-Bills. And invest overseas if you can.
  4. I dunno, move? Study up on your Spanish or Portuguese and head south? World of opportunity down there.

Hell, I’m just feeling pessimistic. But neither side seems to want it bad enough to live with the electoral pain required to straighten out the mess.

Seriously, the best thing you can work towards, given the current realities is for divided government. Congress in one party, the White House in the other. That was the recipe in the 1990s when we were actually making progress. We should give that another go.