# OK, now this is out of hand: debt limit raised again today. **URL:** \ **Category:** The BBQ Pit\ **Created:** [March 21, 2006, 3:18am UTC](https://boards.straightdope.com/t/ok-now-this-is-out-of-hand-debt-limit-raised-again-today/349243 "2006-03-21T03:18:08Z")\ **Posts on this page:** 6\ **Page:** 9
**Author:** ![UncleBeer](https://avatars.discourse-cdn.com/v4/letter/u/977dab/32.png) [@UncleBeer](https://boards.straightdope.com/u/UncleBeer)\ **Post date:** [March 23, 2006, 10:58pm UTC](https://boards.straightdope.com/t/ok-now-this-is-out-of-hand-debt-limit-raised-again-today/349243/161 "2006-03-23T22:58:31Z")
> [@Taran](#): > > Why put it in the capital market, though? I can see as how suddenly growing NASDAQ by 10% would have unpredictable side effects, but if SS didn’t do anything with the money, and just sat on it, then no one would be disrupted, would they? Or would taking 1.7 trillion out of the economy have its own ugly consequences? It would almost certainly have ugly consequences if that much cash was removed from circulation by having the SSA just throw it in a box somewhere. The Fed carefully regulates money supply trying to achieve (most of the time) a very gradual expansion. Having the SSA sitting on all that cash would make it very difficult to manage gradual expansion. At least without lowering interest rates to near zero. And purchasing stock with it, well, the government would end up with controlling interest in dozens and dozens of companies. Even if the specter of the government controlling a large portion of the means of production wasn’t frightening enough, the opportunities stock investing would present for corruption and fraud make that scheme almost too horrifying to consider. Plus, when the government would have to start selling that stock meet future SS payments as disbursements becomes larger than revenues, it could wreak havoc in the stock markets, too. ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [March 24, 2006, 7:28am UTC](https://boards.straightdope.com/t/ok-now-this-is-out-of-hand-debt-limit-raised-again-today/349243/162 "2006-03-24T07:28:19Z")
**Unclebeer** : Respectfully. You might consider emulating the tone of **Taran** ’s posts. “Wait that doesn’t sound right?!?!” is one thing. Stating opinions in a strong manner (intragovernmental debt: what a scam!) on a subject where you have a little knowledge is problematic and unworthy of this board. Let’s set social security aside for a moment. What about the FDIC, the organization that has prevented bank runs since 1933? They should have some sort of reserves right? Safe ones, since they will need them when times are tough, right? What about the Federal Reserve? What’s wrong with them holding Treasury Bonds? Heck, what’s wrong with _any_ governmental agency holding federal bonds? You are correct that they are both an asset and liability to different parts of the government: the end result is a wash. One imperfect analogy might be a firm (or household) that holds both debt and bank deposits. Why would they choose to owe money and save money at the same time? (A: Liquidity and convenience.) * * * Now there’s a separate argument that says that running a surplus in the social security accounts and a deficit in the rest of the federal government is a scam, since it essentially substitutes a regressive social security tax (which is flat until about $90,000) for the progressive income tax. Money is fungible and it doesn’t sound right for social security taxes to be covering the Iraq War (or the EPA, take your pick). I have some sympathy for this line of thinking, though at the end my pragmatism overrides it. ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [March 24, 2006, 7:58am UTC](https://boards.straightdope.com/t/ok-now-this-is-out-of-hand-debt-limit-raised-again-today/349243/163 "2006-03-24T07:58:15Z")
> [@m4m](#): > > The magic came back around 1995. To lay give Clinton full credit for this is a little silly, BUT it can be said that his anti-deficit policies were pro-growth: expanded national savings assisted the investment boom associated with the return of fast productivity growth. > [@Unclebeer](#): > > So you’re telling us the opposite of what I claimed (that the short-term prosperity of the era was fueled by the stock bubble), right? You seem to be implying that the stock bubble was fed by the relative prosperity. Have I got that right? Er, no. I provided no reason for the stock market bubble. My background opinion is that the layman overweights the stock market’s effect on the overall economy, mostly due to its nonstop coverage by the media. I’m **not** saying that the stock market doesn’t matter – it’s one of 20 factors that can predict a financial crisis, right? I am saying that, for example, another asset market --the housing market-- is more relevant. When I said, “Investment[sup]1[/sup] boom”, I was referring to expanded purchases of capital equipment in general (and in the 1990s, telecommunication and computer equipment in particular). Not the Dow Jones. > [@Unclebeer](#): > > If so, it seems a little far-fetched to me. Mainly because I can’t seem to point to anything that Clinton advocated which could be termed “anti-deficit.” Clinton increased taxes on upper income households. Higher tax revenue reduces the federal deficit. Clinton held the line on spending. When the economy grows in real terms, and the federal government’s spending increases stick to inflation, the _share_ of federal spending (as a fraction of total goods and services produced) declines. Meanwhile, in the absence of changes in tax rates, revenue will grow in nominal terms. The result is first declining deficits, then growing surpluses. So does Clinton deserve all the credit for the lower budget deficit? Well, no, not entirely. He _did_ have advisors like Rubin who were deficit hawks (and fiscal expansionists like Reich, who lost the policy battle). But after 1994, the Republican Congress, the Democrats and Clinton entered into a benign form of gridlock. There were Democrats who wanted higher spending, Gingrich Republicans who floated huge tax cut plans, and Clinton who wanted… well I always thought of him as a goo-goo: a good-government type. In the end nobody got their first choice, so we had to settle for terrific fiscal policy[sup]2[/sup], at least until Jan 2001. * * * [sup]1[/sup]If you’re interested, Wikipedia defines investment [here](http://en.wikipedia.org/wiki/Investment). I was using economic terminology, as opposed to finance terminology. [sup]2[/sup]Aided by certain political innovations such as “Pay-Go” rules, the “Lockbox” and 10 year mandatory budget projections, all of which have been retired. ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [March 24, 2006, 8:07am UTC](https://boards.straightdope.com/t/ok-now-this-is-out-of-hand-debt-limit-raised-again-today/349243/164 "2006-03-24T08:07:07Z")
Brad DeLong offers one breakout of 1990s deficit policies [here](http://delong.typepad.com/sdj/2006/02/time_for_the_wa.html) > [@](#): > > The best way to do the math is to start out with the fact that the federal budget was in deficit of 4.7% of GDP in 1992, and projected (as of April 1993) to rise to a deficit of 5.5% of GDP by 2000. Instead, it swung to a surplus of 2.4% in 2000–a swing of 7.9 percentage points. Of this: > > 1. Approximately 2.0% is due to a booming economy. > 2. An extra 1.0% to the high value of capital gains taxes paid in 2000 because of the high value of the stock market. > 3. 3.0% to the effects of the Clinton-Mitchell-Foley 1993 deficit-reduction package. > 4. 1.8% to the effects of the 1990 Bush-Mitchell-Foley deficit reduction package (overwhelmingly the effects of the 1990 discretionary spending caps on defense spending). > > Some proportion of the booming economy was the result of good fiscal policy: deficit reduction allowed the Federal Reserve to keep interest rates lower than otherwise, and enabled businesses to more easily undertake the high-tech investments that produced so much American productivity growth in the 1990s. ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [March 24, 2006, 8:37am UTC](https://boards.straightdope.com/t/ok-now-this-is-out-of-hand-debt-limit-raised-again-today/349243/165 "2006-03-24T08:37:33Z")
> [@BobLibDem](#): > > Not to worry, ladies and gentlemen. [Bill Frist](http://www.hillnews.com/thehill/export/TheHill/News/Frontpage/032206/news5.html) has it all figured out: it’s all the Democrats’ fault: Newsflash to Frist: When you control all 3 branches of government, blaming the Democrats for your own policy decisions gets a little old. He’s not alone though. During the gaggle in Memphis, Republican activists couldn’t stop themselves from complaining about “Washington” – without irony, never mind shame. ---
**Author:** ![UncleBeer](https://avatars.discourse-cdn.com/v4/letter/u/977dab/32.png) [@UncleBeer](https://boards.straightdope.com/u/UncleBeer)\ **Post date:** [March 24, 2006, 2:57pm UTC](https://boards.straightdope.com/t/ok-now-this-is-out-of-hand-debt-limit-raised-again-today/349243/166 "2006-03-24T14:57:51Z")
> [@Measure for Measure](#): > > **Unclebeer** : Respectfully. You might consider emulating the tone of **Taran** ’s posts. “Wait that doesn’t sound right?!?!” is one thing. Stating opinions in a strong manner (intragovernmental debt: what a scam!) on a subject where you have a little knowledge is problematic and unworthy of this board. Frankly, thoug neophyte I be, I believe the research and reading I **have** is solid. I explained quite clearly and quite accurately the practical definition of “intragovernmental debt.” That is unconstestable. As for the “What a scam” comment, well, that’s obviously only an opinion (it can’t possibly masquerade as fact, so who cares?) of a financial process whereby anyone loans themselves money and calls both the debt and the proceeds an asset. If a publicly traded corporation tried it, the controller would be explaining those practices to the SEC - under oath. If an accounting practice is permitted only to the government and proscribed to everyone else, there’s nothing left to call it but a scam. You might also consider, when reflecting on my remark, the forum in which it was placed. And if my answers to Taran are incorrect, you can always offer your own. > [@](#): > > What about the FDIC, the organization that has prevented bank runs since 1933? They should have some sort of reserves right? Safe ones, since they will need them when times are tough, right? And what about FSLIC? The reserves there weren’t nearly so secure as most people thought. Lotsa folks, particularly the taxpayers got royally boned on that one. FDIC though? I’ve always been under the impression that organization was initially capitalized by tax dollars - a straight-forward transfer of _cash_ from the U.S. Treasury and the Federal Reserve to the insurance fund. Funds to continue operations and insurance were then collected from the member banks - not thru sale of bonds. I’m not sure what your point is. If its supposed to be an example of intragovernmental debt that isn’t a “scam,” it doesn’t seem to me that it’s intragovernmental debt at all. At least not any more and probably never. The intial transfer was handled correctly - debit here & credit there. There aren’t two government bodies treating that insurance fund as an asset now and I don’t think there ever was. And the FDIC has prevented bank runs mostly through its continuous reform of that industry and by requiring strong financial stability ot its member and prospective member banks. > [@](#): > > What about the Federal Reserve? What’s wrong with them holding Treasury Bonds? Nothing at all. The Federal Reserve is tasked by its charter to manage the money supply and the sale & redemption of bonds is a legitimate means of doing so. The SSA has a wholly different function - as does the general fund. > [@](#): > > Heck, what’s wrong with _any_ governmental agency holding federal bonds? You are correct that they are both an asset and liability to different parts of the government: the end result is a wash. I’m not sure I’ve claimed there’s anything wrong with government agencies holding bonds. I’m not sure I’ve said that there is anything wrong with it at all. My cry about a “scam” is that the government - as a whole - is treating both ends of the bond sale as an asset; the bond is an asset to the SSA, and the cash transferred to the general fund is also an asset. The fact that the bonds are a liability against future revenue seems to be totally ignored. Cash gained thru the sale of such is simply pissed down the same ratholes as the rest of the tax revenues when it (or a portion of it at least) should be conserved to meet outstanding liabilities - the bonds. > [@](#): > > My background opinion is that the layman overweights the stock market’s effect on the overall economy, mostly due to its nonstop coverage by the media. Maybe. But during the tech boom lots and lots of folks gauged their wealth and regulated (or didn’t regulate) their market behavior thru stock values - values which turned out to be wildly inflated. > [@](#): > > When I said, “Investment boom”, I was referring to expanded purchases of capital equipment in general (and in the 1990s, telecommunication and computer equipment in particular). Not the Dow Jones. That helps make your statements more clear - and quite different from what I initially though. Thank you. > [@](#): > > Brad DeLong offers one breakout of 1990s deficit policies here Nifty. So Mr. DeLong is saying that of that 7.9% swing, only 3% is directly attributable to Mr. Clinton’s policies. Mr. DeLong also tells us that at least a portion of the booming economy number is attributable to sound economic policy. He’s also got a tenth of a percent unaccounted for. Dunno where that went. And I’m not sure I agree with his using projected numbers instead of actual ones. That is, I think he should find a swing of 7.1% by using the real 1993 number rather than 7.9% by using the projected 1993 number. Where he derives those percentages is also unknown. That point, and several others which strike me as significant, are made in the responses below Mr. DeLong’s article. One more point - Mr. DeLong also gives substantial credit to the stock market boom for the Clinton budget surpluses - fact which you only very grudgingly acknowledge might have had some effect. Didn’t the Clinton surpluses also contain the SSA trust fund dollars? Those, as revenue neutral (if they are such) should be removed from any consideration of budget surpluses. Not that every other administration doesn’t include them, too. I just think that money, since it (or a portion of it) should be conserved to meet future liabilities should be removed entirely from consideration. Or at least the portion of it which is principal. And finally, I’d also say that some of us, like me, believe goverment should simply reign in spending even more, rather than increase taxes, to achieve fiscal responsibility. [Previous page](https://boards.straightdope.com/t/ok-now-this-is-out-of-hand-debt-limit-raised-again-today/349243.md?page=8)