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lawrocket

US "Default" is Inevitable

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Seriously. I'm seeing all this talk about how bad default will be for the US and for America and even for the world economy. My thinking is that US "Default" is inevitable.

We're staring $16 trillion to $17 trillion of debt right now. As we speak, that's what we have. But this number is really the tip of the iceberg, because below the surface are unfunded liabilities that vastly exceed this massive sum. The big ones are: (1) Federal pension liabilitied; (2) Medicare; (3) Social Security; and (4) debt servicing.

Back in 2012, the Medicare trustees estimated that the present cash value of the underfunding of Medicare was a mere $42.8 trillion over the next few decades. That's "underfunding." Combining all the projections (yes, projections) it seems under current laws that underfunding of Medicare, SS and pensions will be anywhere between $80 trill:)
With my thinking, I cannot see a way that default can be prevented. Will there be that much money to loan to pay the bills? The ONLY way an eventual default can be prevented is to eliminate or reduce the entitlements. Which I don't see as happening until nobody will loan money, anymore.

So in my mind, the question is whether we would cut the spending now or do it later. Do we default in 10 years? Or do we start slashing to eliminate those payments that we would default on?


My wife is hotter than your wife.

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lawrocket


We're staring $16 trillion to $17 trillion of debt right now. As we speak, that's what we have. But this number is really the tip of the iceberg, because below the surface are unfunded liabilities that vastly exceed this massive sum. The big ones are: (1) Federal pension liabilitied; (2) Medicare; (3) Social Security; and (4) debt servicing.



And most of these our internal budgeting problems. The SS liability, for example, presumes we will make 100% payments. But we don't have to. As soon as it starts dragging on the budget each year (which will be any year now), then we'll finally get serious about it. Before, it was subsidizing our spending. Medicare is a harder one - but again it's an internal problem - how much we give ourselves. Same with pensions.

Debt servicing, otoh, is not optional. And if we threaten these external bond holders with a default, real or probable, then they become less interested in funding our debt at 2% levels and suddenly servicing our debt gets very expensive. If the GOP force the default now, our borrowing costs go up dramatically and all our problems get harder.

So no, I'm not onboard with this thesis that we might as well fuck it up now.

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Gravitymaster

Do you know if allowing the US to default is an impeachable offense?



It certainly should be for the entire cause of the issue - the insane Teabaggers that are in the process of trashing the US government's credit. Childish temper tantrums should defintely be cause for removal from office.

To the useless morons who support the baggers- how is it that deciding to NOT pay the bills already rung up (mostly by Rescumlican Administrations, or the result of their horrible fiscal policies) is acceptable in any way?

The money has been borrowed and spent. The baggers and their supporters seem to think that playing poliitcs with financial obligations is completely reasonable.

Here is a clue, morons - It is NOT ACCEPTABLE to try to ruin the credit of the USA by refusing to pay our debts. Not now, not EVER!!

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You are right regarding long term. But in the short term the US doesn't have to raise the debt ceiling in order to not default on the debt. The US Gov brings in enough revenue to pay the current interest on the debt. All they have to do is cut spending elsewhere.

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I agree that debt servicing is not an option. To default on that will do nothing but cause an increase in the interest rate for debt we have and preclude borrowing by the Treasury (which will, of course, mean that the budget would have to be balanced every year).

But under the contemporary version of "default" it means "the government not paying what it expected it would be paying."


My wife is hotter than your wife.

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Quote

Debt servicing, otoh, is not optional. And if we threaten these external bond holders with a default, real or probable, then they become less interested in funding our debt at 2% levels and suddenly servicing our debt gets very expensive. If the GOP force the default now, our borrowing costs go up dramatically and all our problems get harder.



Sooner or later this will happen. The more debt we have the worse it will be, although considering the current level more won't make much of any difference. Once foreign bond holders finally realize the US will never pay back the debt it's all down hill from there. China is already beginning to back away from US debt.

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The Constitution requires that the debt be paid
The cost of servicing the debt is under 10% of federal revenues received each month

Default means Obama ignores the law

Again
"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

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Stumpy

Sure - so you would have no problem with an XO authorising a debt ceiling hike.



Why Hike the debt ceiling.

Deny funding to non essential parts of government.
I'm not usually into the whole 3-way thing, but you got me a little excited with that. - Skymama
BTR #1 / OTB^5 Official #2 / Hellfish #408 / VSCR #108/Tortuga/Orfun

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Stumpy

Sure - so you would have no problem with an XO authorising a debt ceiling hike.



Law allows the Congress to adjust this
Your point
"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

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beowulf

***Sure - so you would have no problem with an XO authorising a debt ceiling hike.



There is no need to change the debt ceiling to pay the interest payments on the current debt.

Correct.

Cut funding to the non essential government programs, slash them even deeper for a while until we can get the outrageous "Un-Patriotic" debt under control and on a reduction path.

Quit stealing from our kids treasury.:|
I'm not usually into the whole 3-way thing, but you got me a little excited with that. - Skymama
BTR #1 / OTB^5 Official #2 / Hellfish #408 / VSCR #108/Tortuga/Orfun

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beowulf

***Sure - so you would have no problem with an XO authorising a debt ceiling hike.



There is no need to change the debt ceiling to pay the interest payments on the current debt.

Yes

This manufactured crisis (by both parties) is to give them (congress critters) more money

They cant have the people see a smaller government helps more than hurts

This is why we do not hear about the sequester anymore
No gloom or doom came from that other than what the Pres tried to create

Much like the shit that is being pulled today
"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

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The point is - extremely hard, potentially impossible to do SOLELY by that road.

Good summary here. As you said in another post - "it's more complicated than that"

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/10/07/if-we-hit-the-debt-ceiling-can-obama-choose-which-bills-to-pay-2/

I agree with you in that spending needs to be cut, but it needs to be cut everywhere including defence etc. Taxes also need to be raised in some places.
Never try to eat more than you can lift

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Yeah, the math isn't hard to do. Default is inevitable. SS, Medicare and Medicaid are unsustainable. The US gov can get by for now. But continuing on this path leads only to default in one way or another. Either by out right non payment or "printing" money like crazy. Either way it's default, printing money just devalues it to the point where it's pretty much worthless and no wants it anymore.

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regulator

Oh please...not another 'for the children' ploy.

Get a new line.



Hey - I was the "For the Children" line thrower outer this time - back off or Andy will yell and cuss at you.:D
I'm not usually into the whole 3-way thing, but you got me a little excited with that. - Skymama
BTR #1 / OTB^5 Official #2 / Hellfish #408 / VSCR #108/Tortuga/Orfun

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regulator

Oh please...not another 'for the children' ploy.

Get a new line.



I didn't bring it up, but it is true. Someone will have to pay it and this generation doesn't want to. They just want to continue borrowing money till they can't anymore.

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>Yeah, the math isn't hard to do. Default is inevitable.

That's what I'm saying - it's not. You could zero out the military and Medicare budgets and avoid default forever. Is that a good idea? Probably not. But it's not inevitable.

(Also GOP take note - if this does come to pass, the treasury department will decide who to pay. Is it a good idea to give Obama final and total control over what programs stay and what programs get cut? Decide now.)

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Washington (CNN) -- Disarray in the Republican-led House wreaked havoc Tuesday on efforts to forge a compromise to end the partial government shutdown and avoid a possible U.S. default this week, with GOP leaders seemingly unable to come up with any plan acceptable to their members.
On a day of political drama and confusion, House Republicans first proposed their own version of a Senate plan to temporarily end the political stalemate paralyzing Congress, then haggled among themselves over the details before finally agreeing to vote on it Tuesday night.

But shortly after announcing the planned vote, the House committee that sets the rules for such procedures postponed its hearing, putting in doubt the possibility that the full chamber would consider the measure on Tuesday night.
Failure by Congress to raise the nation's borrowing limit could trigger the first-ever U.S. default as soon as Thursday.
President Barack Obama called for House Republicans to "do what's right" by reopening government and ensuring the United States can pay its bills, telling CNN affiliate WABC that "we don't have a lot of time" to avoid a possible default.

If the House proposal eventually passes, it would then go to the Democratic-led Senate for consideration with pressure mounting for a final agreement before financial markets react to the possibility of a first-ever U.S. default.

One Wall Street credit rating firm, Fitch, on Tuesday warned of a possible downgrade of gold-plated U.S. bonds, citing risk of default from "political brinkmanship."

According to multiple sources, the House plan will call for funding the government through December 15 to end the partial shutdown that entered its third week. It also would increase the federal debt ceiling until February 7.
In addition, the House GOP version will include a provision demanded by tea party conservatives that would prohibit federal subsidies for the President, officials in his administration, members of Congress and their respective staff in buying health insurance under Obama's signature health care reforms.

Republicans dropped demands to include two other provisions related to Obamacare. One would have delayed a tax on medical devices proponents say is needed to help pay for the Affordable Care Act and the other would have tightened income verification of those seeking subsidies to purchase health insurance.

The House proposal also would forbid the Treasury from taking what it calls extraordinary measures to prevent the government from defaulting as cash runs low, in effect requiring hard deadlines to extend the federal debt ceiling.
Earlier, sources said House Speaker John Boehner was "struggling" to come up with enough votes to pass the GOP counter-proposal to the Senate plan.

After a two-hour caucus meeting that lasted far longer than scheduled, Boehner told reporters there was no final decision on what the GOP-led House would do.

In a possible signal that he would proceed on a plan opposed by the GOP tea party conservative wing, Boehner said "the idea of default is wrong and we shouldn't get anywhere close to it."

Hours later, GOP sources confirmed that the revised Republican plan would be put to a vote.
House Democrats criticized the plan as a reckless attempt to torpedo any chance at compromise.
Dems standing firm
Minority Leader Nancy Pelosi, following a meeting between Obama and House Democratic leaders, signaled her caucus still wanted "clean" proposals to fund the government and raise the debt ceiling.

"The bill that they're talking about right now is a bill to default. It's a decision to default. Once they get over that, then we'll see what they send to the floor," she said of Republicans, adding that she remained optimistic Congress would find a path to resolve the matter.

Two senior House GOP sources told CNN's Deirdre Walsh that the House GOP counter-proposal would pass in a way that allows the Democratic-led Senate to strip provisions with a simple majority.
Walsh and CNN Chief Congressional Correspondent Dana Bash explained that would make it harder for tea party conservatives such as GOP Sen. Ted Cruz of Texas to delay or derail the agreement.

The significance of having the House go first became clear later Tuesday when sources in both parties told CNN that senators working on the agreement put their work on hold temporarily as Reid and McConnell waited to see how the House proceeds.

Senate leaders from both parties said they were closing in on a deal to temporarily fund the government through January 15 and raise the federal borrowing limit to February 7.
Economists warn that failure to raise the debt limit by Thursday could spike interest rates with possible catastrophic impact at home and abroad.

Senate Majority Leader Harry Reid and other Democrats immediately slammed the House GOP leadership for what they called a reckless brinksmanship maneuver.

"Extremist Republicans in the House of Representatives are attempting to torpedo the Senate's bipartisan progress with a bill that can't pass the Senate," Reid said on the Senate floor.
He earlier said he was "confident we will be able to reach a comprehensive agreement this week," reiterating the optimism he expressed Monday night that raised hopes among investors, world leaders and regular Americans that the shutdown stalemate was nearing an end.

The White House also rejected the Republican effort.

If there's a deal, what next?

The halting pace of negotiations began Monday, when the White House canceled a planned meeting with congressional leaders in what was perceived as a move to Reid and his Republican counterpart, Sen. Mitch McConnell, with room to negotiate.

Sen. Bob Corker, R-Tennessee, said it was time to get a deal done after lengthy delays he blamed on the unrealistic goal set by GOP conservatives of gutting Obamacare.

"The fact is we've got to figure out a way to move ahead," he told CNN's "New Day" on Tuesday. "In fairness, on our side of the aisle, we've wasted two months, focused on something that was never going to happen."

However, the House GOP decision to offer a counter-proposal promised further delay toward final congressional action on an agreement.

Meanwhile, Cruz had a dinner meeting on Monday night with House conservatives to discuss the the emerging Senate deal and how to react, according to a source familiar with the gathering at a Capitol Hill restaurant.

The congressional negotiations are being closely watched by other nations, which would also feel the impact should the United States run out of money to pay some of its bills.
Jon Cunliffe, who will become the deputy governor of the Bank of England, told British lawmakers over the weekend that banks should begin planning for contingencies.
The partial shutdown has proved costly. Hundreds of thousands of federal employees are either idle at home or not being paid while working.
And officials warn that tough choices are ahead about which bills to pay and which to let slide, should the shutdown and debt ceiling debate drag on.

Belcher: 'Elections actually do have consequences' Sen. Klobuchar: 'We're very, very close' Will Senate deal pass?
So far, the standoff has cost the economy about $20 billion in gross domestic product, CNN's Christine Romans reported Tuesday on "New Day," citing Mark Zandi of Moody's Analytics. GDP is a measure of the goods and services produced by an economy.

http://www.cnn.com/2013/10/15/politics/shutdown-showdown/index.html?hpt=hp_t1

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