The Debt Ceiling

iVillage Member
Registered: 07-30-2004
The Debt Ceiling
11
Wed, 10-09-2013 - 12:35pm

      The basic budgetary equation for any economic entity – individual, business or government – is income minus spending equals savings or borrowing.   If income is more than spending then income minus spending equals savings or we can say there is a surplus, if income is less than spending then income minus spending equals borrowing or we can say there is a deficit.  So, any process of determining income and spending also determines the level of savings or borrowing and in other words the level of surplus or deficit.  The level of surplus or deficit is the amount of decrease in the total debt, in the case of a surplus or amount of increase in the total debt, in the case of a deficit. 

      In the US government the congress votes on government income (mainly taxes) and government spending.  By doing so the congress also determines the amount of surplus or deficit.  That is by voting on government income and spending the congress has already voted on amount by which government debt will decrease or increase before any vote on the debt ceiling.  If the increase in the debt ceiling is high enough to cover any increase in the debt that has already been voted on by congress then there is no problem.  But, if the increase in the debt ceiling is not high enough to cover the already determined increase in the debt then there is a problem.

      If that is the case that is if the increase in the debt ceiling is not high enough to cover the increase in the debt that the congress has already voted on by voting on the level of income and the level of spending then something has to give.  Either the level of income would have to be increased above what congress has already voted on or the level of spending would have to be decreased below what congress has already voted on.  What this means is that by not voting for a large enough increase in the debt limit to fund the already voted on difference between spending and income (mainly taxes) congress is fighting against itself.

      The dilemma, at least for this year, is that the congress has already determined – voted on – a fairly detailed budget in regard to government income and government spending and therefore, by doing so, has already determined the increase in the debt.  If the increase in the debt limit is not enough to cover the increase in the debt that has already been determined by the congress by voting on taxes and spending, then the congress would have to go back to either raise taxes or lower spending or do a combination of the two.  But if there is only a matter of days before the debt limit is to be passed, the congress would not have enough time to renegotiate the level of taxes and spending in the detail that has already been done.  What this means is that the congress has already negotiate taxes and spending with different sides making concessions, but then congress would have to redo this within a very short time.  This does not make sense to me.

      Another possibility would be for the congress to only vote once on the debt increase, by voting for the level of taxes and spending and not have a separate debt limit vote.  Also the congress could vote on the level of deficit or surplus they want and the amount of income (mainly taxes) and the level of spending would then be determined by this voted on deficit or surplus and income.  A third possibility would be for the congress to vote on the level of deficit or surplus and the level of spending, with the level of income (taxes) being determined by the outcome of those votes.  Additionally congress could vote on the debt limit before the regular budgetary process and then determine the level of taxes and spending that would fit that debt limit.  All of these would avoid the last minute problems we see happening now.

       Tom,

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iVillage Member
Registered: 08-25-2013
Wed, 10-09-2013 - 3:32pm

To put this in simple terms: The government has spent more money than it has. It either has to decide to cut spending or take more from the tax paying citizens to meet it's obligations.

Lesson to us all: Keep living on credit and when Peter has run out of money and Paul is no longer getting paid, both Peter and Paul will be in trouble.

iVillage Member
Registered: 08-25-2013
Wed, 10-09-2013 - 3:32pm

To put this in simple terms: The government has spent more money than it has. It either has to decide to cut spending or take more from the tax paying citizens to meet it's obligations.

Lesson to us all: Keep living on credit and when Peter has run out of money and Paul is no longer getting paid, both Peter and Paul will be in trouble.

iVillage Member
Registered: 07-30-2004
Thu, 10-10-2013 - 9:39am

      No, Alviejo you are wrong.

      Tom,

iVillage Member
Registered: 03-03-2009
Thu, 10-10-2013 - 10:02am

To Alviejo1o

******shaking head in disagreement******  The terms are indeed "simple".  

If the economy either takes a swandive or is lukewarm at generating jobs; and measures to "cut spending" are implemented, a spiral downwards can develop.  It happened during the Great Depression. To see how austerity measures play out today, look at Greece.  Moreover, when a significant portion of the populace is without work or struggling financially, revolutions can take place and rarely are they as assured of a good outcome as that of 1776.  Do remember that the Civil War was largely about economics.  Granted, these are extreme examples.  But oversimplification tends to ignore costly and valuable lessons from history. 

BTW, this isn't a function of Democratic economic policy.  TARP was instituted by a Republican president, with his appointed Secretary of the Treasury, Henry Paulson.  Billionaire Warren Buffett, who presumbably knows a thing or two about markets, money, and economics had something to say about how crucial actions were needed when banks suffered a crisis of capital and confidence....IOW, when credit is jeopardized.   http://www.cnbc.com/id/101083360

Sooooo.....................IMHO, the wrong conclusion has been drawn based on an incomplete assumption of facts.

Jabberwocka

iVillage Member
Registered: 08-25-2013
Thu, 10-10-2013 - 11:32am

Responsible individuals and organizations have budgets. They stay within those budgets to avoid difficult situations such as needing more credit in order to continue paying off debt but not having the luxury of getting more credit. There is absolutely no reason why our government can't operate within a budget.

While it definitely won't be a fun thing to do, our government needs to make some tough decisions, buckle down and get the debt paid off so this problem won't continue to happen again and again.

iVillage Member
Registered: 07-30-2004
Thu, 10-10-2013 - 12:26pm

      Jabberwocka, if I understand you correctly I tend to agree with you in regard to the cutting of government spending having negative results when the economy is below full capacity.  Thank you for commenting.

      Tom,

iVillage Member
Registered: 07-30-2004
Thu, 10-10-2013 - 1:28pm

      Alviejo, earlier I was abrupt in my answer to you and I apologue.  By your statement that “The government has spent more money than it has” I am guessing that you mean that spending is greater than income (taxes) for the year.  In that case there are not just two things the government can do, there are three.  The government can reduce spending or increase income (taxes) or borrow.  There is nothing automatically wrong with borrowing.  My point was that in determining spending and taxes the congress has already determined the amount of new borrowing.  To me it is redundant and problematic to vote on the debt ceiling after spending and taxes have already been negotiated.

      Tom,

iVillage Member
Registered: 06-25-2008
Fri, 10-11-2013 - 1:25pm

Tom, I agree with you that there is nothing wrong with borrowing. However, borrowing money you can never repay is completely wrong. All over this country people are in trouble for borrowing money they can never repay and our own government is a first class example leading the way. Something is going have give way either one way or another with this mess. It can't go on and on.

That being said, there is no way in heck that either party is going to allow that debt ceiling to not be raised and everyone knows it. To not raise it is political suicide for everyone. At some point,  someone, most likely Boehner in my opinion, is going to blink because there is no other choice.

Brenda

iVillage Member
Registered: 07-30-2004
Sat, 10-12-2013 - 10:50am

      Brenda, thank you for commenting.  First, what I said is that “There is nothing automatically wrong with borrowing.”  In some cases borrowing can be harmful and in others borrowing can be helpful.  What is important to realize is that the federal government has been in debt every year since 1789, with the exception of a very short time in the 1830s.  I do not expect the federal government to ever pay off all of its debt and I did not feel there is anything wrong with that.  By the end of World War II federal government debt held by the public was over 100% of GDP, but by the 1970s it had fallen to about 35% of GDP.  This happened despite the fact that in almost every year during that period the federal government ran a deficit.  The reason the debt as a share of GDP fell was not because the debt was reduced, but because GDP increased.  So, in order to keep the federal government debt held by the public as a percentage of GDP from rising all that is needed is for the federal government debt held by the public to not increase faster than the GDP.  This has been done in the past and I see no reason why it cannot be done in the future. 

      I was born in 1947, for as long as I remember people have predicted dire consequences because of the size of the federal debt.  From my reading I have learned that even before I was born there had been people saying the same things.  None of these dire consequences have ever come true.  Even now, as far as I can see, the size of the federal debt is not harmful to the economy.  In fact I feel it is possible that the economy would be doing better if the federal government had borrowed more during the last recession and during the time immediately following the end of that recession.  I believe that once the economy returns to full capacity (I believe it will because it always did even when things were worse than they are now) and with some spending cuts and tax increases, we will again reach a point where the growth in the federal debt held by the public is not greater than the growth in GDP.

      Tom,

iVillage Member
Registered: 03-08-2011
Thu, 10-17-2013 - 6:01pm

 

794. Debt ceiling crisis and October plot (10/16/2013)

While I am worrying about my wife’s travel to China (from 10/14 to 10/23), I think the Feds and Chinese secret police would frame a case on her, I suddenly realize another event, the debt ceiling deadline, is related to it.

As I have always found, the Feds used to create big event to distract if the framing case on me would break out. Since it is a framing case, there will be a lot of unreasonable search and arrest, murder to silence the witness. So they need large case to transfer public’s attention. The case could be natural disaster, epidemic, terror attack and war.

The recent one for September plot was Syria war crisis. War on Syria was almost happened in September in excuse of “Chemical weapon war crime”. The crisis was avoided after Syria offered to abandon the chemical weapon. Another traditional excuse for war on Iran is also diminished when new regime of Iran offered concession on its nuclear ambition. Now it’s difficult for the Feds to use war to distract.

They find another one – economic crisis. That’s the deadline of debt ceiling on 10/17 which is coincident to my wife’s trip. If the US debt go default, it surely will cause a hurricane in US economy and in world’s as well. It can play a well substitution of war. With “social security check can’t be issued”, “welfare postponed”, the impact to American society would be bigger than war. That’s why media beat the drum on this crisis – to make it big if the elimination of Kat Sung case goes through.

Two main actors of this show – Obama and House Republicans, make it look like a real political argument. They don’t care if the US will fall into a financial cliff because they don’t work for the American people but for the Feds. That’s the truth of US politics. Politicians are not elected by people but are selected by the Feds because the Feds control voting system and they make the election result reasonable by fake poll because they also control the media.

Republicans are controlled by the Feds. The typical story was the passing through of Obama care in Supreme Court. Chief Justice John Roberts is a conservative stronghold. Under pressure of the Feds, he had to vote against his will. (See #726, 746, 756.) That event also relates to my case.

The debt ceiling argument will be maintained as a procedure of my case. The recent elimination plot likely is a shopping center shooting death which justified by Kenya shopping mall shooting, I think.

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