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National Debt

What If The US Government Paid Off Its Entire Debt?

EDITOR’S NOTE:  I publish this article to illustrate some of the BS that is floating around out there…

From NPR Planet Money:

Planet Money has obtained a secret government report outlining what once looked like a potential crisis: The possibility that the U.S. government might pay off its entire debt.

It sounds ridiculous today. But not so long ago, the prospect of a debt-free U.S. was seen as a real possibility with the potential to upset the global financial system.

We recently obtained the report through a Freedom of Information Act Request. You can read the whole thing here. (It’s a PDF.)

The report is called “Life After Debt”. It was written in the year 2000, when the U.S. was running a budget surplus, taking in more than it was spending every year. Economists were projecting that the entire national debt could be paid off by 2012.

Source: CBO and OMB (Debt held by the public)

Credit: Alyson Hurt and Jess Jiang / NPR

This was seen in many ways as good thing. But it also posed risks. If the U.S. paid off its debt there would be no more U.S. Treasury bonds in the world.

“It was a huge issue … for not just the U.S. economy, but the global economy,” says Diane Lim Rogers, an economist in the Clinton administration.

The U.S. borrows money by selling bonds. So the end of debt would mean the end of Treasury bonds.

But the U.S. has been issuing bonds for so long, and the bonds are seen as so safe, that much of the world has come to depend on them. The U.S. Treasury bond is a pillar of the global economy.

Banks buy hundreds of billions of dollars’ worth, because they’re a safe place to park money.

Mortgage rates are tied to the interest rate on U.S. treasury bonds.

The Federal Reserve — our central bank — buys and sells Treasury bonds all the time, in an effort to keep the economy on track.

If Treasury bonds disappeared, would the world unravel? Would it adjust somehow?

Read the rest at NPR Planet Money.

Tea Party Lawmakers Are the Only Honest Brokers in Washington

From Big Government:

While President Obama, Senate Democrats and inside the beltway Republicans remain addicted to spending more money they do not have, a brave bloc of Congressional Members have stood up and said, “no”.

These 22 brave members of Congress bucked their party leadership and voted against Speaker Boehner’s debt ceiling bill. These lawmakers understand full well that they were elected to represent the American People and to reject the Washington D.C. wheeling and dealing that got us in this mess in the first place.

According Politico the members, who voted no on the Boehner bill were:

 

Justin Amash (Mich.)
Michele Bachmann (Minn.)
Chip Cravaack (Minn.)
Jason Chaffetz (Utah)
Scott Desjarlais (Tenn.)
Tom Graves (Ga.)
Tim Huelskamp (Kans.)
Steve King (Iowa)
Tim Johnson (Ill.)
Tom McClintock (Calif.)
Mick Mulvaney (S.C.)
Ron Paul (Texas)
Connie Mack (Fla.)
Jim Jordan (Ohio)
Tim Scott (S.C.)
Paul Broun (Ga.)
Tom Latham (Iowa)
Jeff Duncan (S.C.)
Trey Gowdy (S.C.)
Steve Southerland (Fla.)
Joe Walsh (Ill.)
Joe Wilson (S.C.)

These members understand that giving this President another blank check for 2 trillion dollars will not solve our problems or put the nation back on track to fiscal responsibility. Both plans coming out of the House and Senate are full of accounting gimmicks and sleight of hand tactics that have been made famous by inside the beltway politicians in both parties over the years.

Many Americans know that it is hard to find lawmakers who will go to Washington D.C. and stand on the convictions that got them elected, let alone 22 of them and even in the wake of being called extremists and hostage takers for defending their convictions and what is right.

These lawmakers only ask that Speaker Boehner insist on some level of accountable in the form of a balance budget amendment, which the President, Senate Majority Leader along with Senate Democrats have vowed to veto an debt ceiling agreement that contains a balanced budget amendment because in the end they will be held accountable and forced to use real fiscal numbers in doling out  federal government spending.

While the President and the band of Washington Insiders have tried to use fear mongering and scare tactics to silence all opposition to competing bad bills, it is nice to know that our House still does have 22 members, who have put the best interest of the nation over that of their party. These brave Men and Women should be viewed as heroes for standing against the tide of politics as usual in Washington D.C.

Obama to Banks: We’re Not Defaulting

From Fox Business:

While officials from the Obama Administration raised their rhetoric over the weekend about the possibility of a debt default if the debt ceiling isn’t raised, they privately have been telling top executives at major U.S. banks that such an event won’t happen, FOX Business has learned.

In a series of phone calls, administration officials have told bankers that the administration will not allow a default to happen even if the debt cap isn’t raised by the August 2 date Treasury Secretary Tim Geithner says the government will run out of money to pay all its bills, including obligations to bond holders. Geithner made the rounds on the Sunday talk shows saying a default is imminent if the debt ceiling isn’t raised, and President Obama issued a similar warning during a Friday press conference after budget negotiations with House Republicans broke down.

While the negotiations to craft a budget remain at an impasse, Republicans and Democrats on Monday began crafting their own plans to cut spending that could lead to an agreement to raise the debt ceiling. It’s unclear if a broad agreement can be reached any time soon, but even if a deal is struck, a complicating issue for lawmakers and the administration is the possibility of a downgrade to the US debt rating, which would cut the triple-A rating on the nation’s debt to a lower level.

Major ratings firms — namely Standard & Poor’s and Moody’s — have said even if the country raises the debt ceiling and doesn’t default, there’s a strong likelihood that the triple-A bond rating will be cut to double-A unless a budget can be crafted that results in $4 trillion in savings, the result of the massive debt load the country has accumulated in recent years. The nation’s outstanding debt is more than $14 trillion.

A senior banking official told FOX Business that administration officials have provided guidance to them that even though a default is off the table, a downgrade “is a real possibility for no other reason than S&P and Moody’s have to cover (themselves) since they’ve been speaking out on the debt cap so much.”

This guidance is a big reason why Wall Street has largely dismissed the possibility of default, and though the markets have been jittery amid the talk of default, they haven’t imploded as would be the case, many economists fear, if the nation missed a payment on its debt.

The banking official said the administration understands that if there were to be a default, it would likely spark another financial crisis.

“They also know they can pay the debt with cash on hand,” this official told FOX Business. The Treasury collects around $2 trillion in tax revenues, and is scheduled to pay out $200 billion in interest to bond holders. In order to meet its obligations to contractors, social security recipients and others, the administration would have to raise another $1 trillion either through cuts, higher tax revenues, the issuance of debt or a combination of all three.

Congressional Republicans believe that the Administration is raising the possibility of a default as a way to ramp up pressure on Republicans to agree to a budget deal that includes tax increases, which they oppose.

A Treasury spokesman said that “when we exhaust our borrowing authority, as we will on August 2nd, there is no way to guarantee that we will be able to pay all of our bills. Any suggestion to the contrary is simply false.”

Even without a default, banks expect some market turbulence if the triple-A sovereign-debt rating is cut, sources tell FOX Business. While bank officials do not believe there will be a “catastrophic” effect to a downgrade, that’s not to say there won’t be negative ripple effects, notably to bond deals and derivatives priced off triple-A-rated  Treasurys.

Will Congress ‘Cut, Cap, and Balance’?

From National Review:

House Republicans have united around a proposal to tie sizeable spending cuts and major budget reforms to any increase to the debt ceiling. The plan, known as “Cut, Cap, and Balance,” originated in the Republican Study Committee, and has gradually made its way to the forefront of the GOP’s intraparty discussions on the debt limit. At a closed-door conference meeting Friday morning, Republican leaders resolved to vote on — and pass — the plan next week on the House floor. Its chances for success in the Senate are close to nil, but Republicans intend to present it as the type of plan that can pass the House, and also as a serious proposal that House Republicans have put forward in the absence of Democratic leadership.

“All year long, we’ve led on the big issues that are facing the country,” said House Speaker John Boehner (R., Ohio) at a press conference Friday, citing the House-passed Paul Ryan budget as a key example. “We’re in the fourth quarter here. Time and again Republicans have offered serious proposals to cut spending and address these issues, and I think it’s time for the Democrats to get serious as well.”

Under the “Cut, Cap, and Balance” legislation, Congress would raise the debt ceiling by $2.5 trillion (the amount requested by President Obama to get him through the 2012 election). However, that increase would go into effect only if both houses of Congress pass — with two-thirds majorities — a balanced-budget amendment (BBA) to the Constitution and send it to the states for ratification. In addition, the plan calls for significant spending cuts to next year’s budget — about $111 billion — and firm caps on federal spending at 18.5 percent of GDP by the end of the decade. According to White House data, given current trends, spending will exceed 25 percent of GDP this year and will hover around 22.5 percent for the next five years. (The legislation will make no immediate changes to Medicare, Medicaid, or Social Security.)

In particular, House Republicans have been increasingly vocal about their desire for a BBA in the past several days, including in a slew of op-eds from party leaders and a number of press conferences on Capitol Hill. The House had planned to vote on a BBA next week, but that has been postponed to allow for the consideration of “Cut, Cap, and Balance,” and to give party leaders more time to try to pin down the 50-plus Democratic votes they’ll need to pass a BBA.

Rep. Steve Womack (R., Ark.) tells National Review Online that Friday’s meeting “served to galvanize” the GOP caucus. “We’ve had a few internal conflicts among ourselves this year with the [continuing resolution] and other issues,” he said. “But I’m going to be very surprised if I don’t see a significant majority of the people sitting in that room get behind this plan.”

Proponents believe the plan is strong enough to convince some, if not all, Republicans who have said they won’t support a debt increase under any circumstances to sign on. Raising the debt ceiling, says Rep. Jeff Flake (R., Ariz.), a prominent fiscal hawk, would be “a bitter pill for us to swallow.” “Cut, Cap, and Balance,” he argues, is the best available option. “First of all, it’s good policy, it does the right thing,” he says. “And secondly, on the politics side, we’re back on offense. It puts it squarely in the president’s court, he can follow or not.”

Read the rest at National Review.

Obama’s Threat to Cut Off Social Security Payments Is a Lie

From Moonbattery:

It’s not easy for a Marxist saboteur to constantly hit new lows, but Obama manages — most recently by trying to terrify seniors with the suggestion that Social Security payments won’t go out unless Republicans agree to raise the debt ceiling effectively to infinity, ensuring total economic collapse not far down the road. Here‘s what his Fabian communist accomplices in the “mainstream” media won’t tell you:

If Washington receives about $200 billion in monthly revenues and sends out roughly $50 billion worth of Social Security checks and the same amount of Medicare payments, why is Obama claiming the checks may not go out?

Isn’t $200 billion minus $100 billion still $100 billion?

Because Obama is playing the demogogue, that’s why. Pure and simple. He is trying to scare seniors into making panicked calls to their congressmen begging them to do whatever Obama and the Democrats want in order to keep the checks coming.

This is demogoguery of the worst sort because Obama has to know that what he is saying is false. When you and I say something we know to be false, it’s called a “lie.”

Likewise, any so-called journalists who let this lie pass are also liars.

The willingness of a power-drunk lowlife like Obama to use the threat of withholding Social Security as a weapon demonstrates why the federal government is the last entity a sane person would trust to hold his retirement funds.

No, the President Can’t Violate the Debt Ceiling

From The Heritage Foundation:

For some partisans—especially those who believe in the “living Constitution”—the Constitution sanctions all they favor and forbids all they oppose.  So it is with the debate over the debt limit.

All of a sudden, politicians who have never cared much for constitutional fidelity are citing a little-known section of the Fourteenth Amendment as grounds for President Obama to evade the congressionally-imposed debt ceiling.  Their goal is to punt on spending reductions that would be part of any debt-ceiling deal and are essential to putting the budget in order.

No surprise, their legal arguments are as fast and loose as their irresponsible spending plans.

The Fourteenth Amendment prohibits legislation that repudiates the Nation’s debt. Section four states: “The validity of the public debt of the United States, authorized by law . . . shall not be questioned.”  The Supreme Court held that this means “the government is not at liberty to alter or repudiate its obligations.”

But it does not follow that the debt ceiling is unconstitutional.  The Fourteenth Amendment does not specify any particular manner by the obligation to honor the Nation’s debt may be met.  Congress may, for example, raise taxes, cut spending, redirect appropriated funds, or reduce other payments that are not necessary to satisfy “public debt.”  There is no constitutional requirement that it borrow.

Read the rest at The Heritage Foundation.

Continual Keynesian Collapse

From The Heritage Foundation:

The Keynesian policy of trying to increase total i.e. “aggregate” demand – either by having government spend, or by cutting taxes just to leave more money in people’s pockets in hopes that they’ll spend – to revive the economy, never works. The latest installment of Keynesian failure is the payroll tax cut.

Predictably, like its predecessors, this “stimulus,” which aimed at putting money in people’s pockets, failed. The economy was unmoved, and indeed appears now to be slowing again, as today’s bleak jobs report underscores.

This wasn’t the first time Keynesian stimulus failed to stimulate. Let’s recall that Keynesianism failed to revive the economy from the Great Depression, during which government spending increased throughout the 30s, yet unemployment remained in double-digits; it failed in 2001 when President Bush attempted to stimulate the economy out of recession by putting money in people’s pockets through a series of tax rebates; it failed under President Bush a second time in 2008, when government spent hundreds of billions of dollars; then it failed in 2009 under President Obama, after we spent the largest sum of money in the name of Keynesianism – some $800 billion – in order to revive the economy.  The one thing you can say for Keynesian stimulus is that it is bi-partisan – it fails for Republicans as effectively as it does for Democrats.

Read the rest at The Heritage Foundation.

Moody’s Points to the Real Debt Judgment Day

From National Review:

May 21, 2011, was supposed to be Judgment Day according to Harold Camping. It was, in a sense. As the day came and went, the world judged that Camping’s 15 minutes of fame were up. Treasury Secretary Tim Geithner may yet learn something from Camping.

Geithner has been a whirlwind of worry about the nation defaulting in the event Congress fails to raise the debt ceiling. It is interesting, therefore, that the market for U.S. debt—where the default would occur—remains sanguine about the debt ceiling debate and dismissive of Geithner’s flailings. Notice how the bellwether 10-year Treasury bond rate has recently plunged to or below 3 percent—hardly a harbinger of trouble.

The markets know, as does Geithner (his protests notwithstanding), that there is no way the Treasury will default on the federal debt. No matter what happens with the debt ceiling, interest will be paid out of ample tax revenues. Geithner knows it. The markets know it. So they are unconcerned.

Debt markets also know the United States cannot keep on racking up trillion-dollar budget deficits. The long-run fiscal picture has long been disastrous, but President Obama’s policies have now nailed that long-run picture to a near-term frame, and it hangs outside the Treasury Secretary’s door, greeting him and his bond sellers every morning.

And it’s not as though the credit markets are unusually insensitive to such matters. On the contrary, with Europe imploding under the debt pressures from Greece, Portugal, Ireland, Italy, and maybe even Spain, the question of sovereign debt is first and foremost.

The markets are watching not whether the debt ceiling increases but whether Congress and the President let the moment pass without taking strong action to reduce spending now and in the future. This point was hammered home in a statement by Moody’s, a credit-rating agency, on the outlook for the rating of U.S. debt: A credible agreement on substantial debt reduction would support a continued stable outlook; lack of such an agreement could prompt Moody’s to change its outlook to negative on the AAA rating.

It can’t get much plainer than that. Make real progress or there will be a price to pay.

Read the rest at National Review.

The End of the Dollar?

From The Weekly Standard:

The fuss about a possible default if our warring politicians fail to agree on an increase in the debt ceiling is good fun for reporters: the president removed himself from the negotiations in favor of a visit to the Palace and says he won’t agree to cut spending unless the Republicans agree to raise taxes on the rich, variously defined as families earning more than $250,000 per year and “millionaires and billionaires.” Some Republicans say they don’t fear default because keeping the ceiling on spending will reassure financial markets and prevent a downgrade of U.S. Treasuries even if there is a brief and well managed default. And all parties to the dispute are enjoying the sense of importance that comes with being key players in the “crisis”—politicians relish the spotlight. And all know that the crisis will be resolved by a last-minute deal that allows everyone to claim victory but postpones meaningful decisions until after the 2012 elections. All the negotiators, but not all investors. The gross value of contracts insuring against a U.S. default, although still small relative to the size of the Treasury debt market, has doubled from a year ago.

Read the rest at The Weekly Standard.

Who Owns Our Debt?

From National Review:

We talk a lot about debt these days, so I thought it would be useful to make a chart breaking down U.S. debt held by the public, which amounts to $9.6 trillion in 2011. In 2000, foreign investors held roughly half as much debt as domestic investors; by the end of 2010, foreign investors were the largest category of debt holders, today holding nearly half of our public held debt. Contrary to what many people believe, the Chinese own roughly 25 percent of that — $1.1 trillion, or roughly 11 percent of our publicly held debt.

Then, of course, there’s the intragovernmental debt — $4.6 trillion that the federal government owes to other accounts such as the Social Security and Medicare trust funds . . .

God Bless America

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