National debt limit

[Pansori]

I just finished reading this article that talked about raising the ceiling for the nation's debt limit. I am completely clueless when it comes to politics, but I am real curious about this. Can someone please explain to me how raising or not raising the debt ceiling would affect the average American? Will it be more beneficial to raise the ceiling or keep it as it is? Thanks!

[KTP]

Will it be more beneficial to raise the ceiling or keep it as it is? Thanks!

Depends if you want to live in the USA as it is now or a Somalian version of the USA (if they didn't raise the ceiling).

[snafu]

Pansori, you've asked a very difficult question that involves so much more than just politics. Bringing it down to a family level, what happens when an extended family has borrowed more money than they can possibly pay back in their lifetime?

The acknowledged debt is in excess of $14.3 Trillion. The sum is considered by some economists to exceed the Gross Domestic Product [GDP] which is the value of all goods and services. The national debt spiraled with two wars [Iraq & Afghanistan] and a new intervention in Libya. It is so large that the international community believe it has endangered the prosperity and economic stability of the United States.

For the 1st time, American debt is considered 'negative.' That means it is more difficult for the USA government to sell it's Bonds to other countries. It is selling Bonds to itself. At present China holds the highest amount of American debt and they could ask for higher interest or decline to buy more American debt. They could informally ask for all sorts of 'concessions' like military equipment, supplies, training, natural resources, co operation in outer space and things I can't even imagine.

This horrendous debt likewise gives extra power to oil producing countries who can ask for 'the moon.' The rest of the world watches and is becoming more concerned with each click of the debt clock. We see the printing of more and more US dollars for quantitative easing [QE] and wonder how far the market will fall and how much and how hard it will slam every other nation. [We had a taste of this 2008-10].

For the individual taxpayer, it will likely mean a large reduction in services, an even larger charge for each and ever service the government continues to deliver. You are likely aware that the Dollar has slipped in value against other international currencies. That results in imported goods and services costing more. Chinese merchandise that was so cheap a few years ago will become more and more expensive while the quality gets poorer.

In the past, government debt has been reduced by a combination of higher productivity, higher interest rates and higher taxes.

[kork13]

Depends if you want to live in the USA as it is now or a Somalian version of the USA (if they didn't raise the ceiling).

Realistically, however........

The most real impact would be the very real possibility of America's credit rating being downgraded, because the US would be (legally) unable to continue making payments on its debt obligations. In a world where US Treasuries are as good as gold, having them become "risky" in the world view would lead to higher interest rates from the ground up, which would create ripples in the debt market, the stock markets would likely go nuts (think swings), and potentially, there could be the possibility of a another shutdown scenario playing out (though it would take a few more weeks).

[KTP]

Realistically, however........

The most real impact would be the very real possibility of America's credit rating being downgraded, because the US would be (legally) unable to continue making payments on its debt obligations. In a world where US Treasuries are as good as gold, having them become "risky" in the world view would lead to higher interest rates from the ground up, which would create ripples in the debt market, the stock markets would likely go nuts (think swings), and potentially, there could be the possibility of a another shutdown scenario playing out (though it would take a few more weeks).

Not raising the debt ceiling is really unthinkbable. As soon as US bonds are considered as risky and in a serious chance of default, borrowing costs would skyrocket. We are not a small country like Greece...there really isn't anyone to step in and bail us out. Even though a lot of the bonds are owned by other countries (ie, China), a large amount are owned in 401K plans, pensions, etc.

[disneysteve]

At present China holds the highest amount of American debt

This isn't properly stated. China is the largest foreign holder of US debt. Overall, only 31% of US debt is foreign-owned.

As for debt as a percentage of GDP, TIME has a nice graphic about that this week. Listed in order of default risk from lowest to highest. Number in parentheses is the % foreign-owned.

US 99% (31%)
France 97% (59%)
UK 89% (30%)
Germany 81% (60%)
Japan 204% (7%)
Spain 78% (39%)
Italy 133% (46%)
Portugal 99% (80%)
Ireland 113% (83%)
Greece 137% (75%)

[Snodog]

Not raising the debt ceiling would be suicide for the country. We may be able to get by a little while but things would quickly deteriorate.

The whole debt problem is way overhyped by politicians and the media when the real focus should be on jobs.

Japan currently has more than twice our debt and Great Britian had 2.5 times our national debt a couple of times since the 1800's. Both times Great Britan brought their debt down over time and without any serious inflation.

The reason why countries like Greece are in such trouble is because they are tied to the Euro. Greece is more like a US state. A government that issues its own non-convertable fiat currency can always pay its debts.

[Snodog]

This isn't properly stated. China is the largest foreign holder of US debt. Overall, only 31% of US debt is foreign-owned.

As for debt as a percentage of GDP, TIME has a nice graphic about that this week. Listed in order of default risk from lowest to highest. Number in parentheses is the % foreign-owned.

US 99% (31%)
France 97% (59%)
UK 89% (30%)
Germany 81% (60%)
Japan 204% (7%)
Spain 78% (39%)
Italy 133% (46%)
Portugal 99% (80%)
Ireland 113% (83%)
Greece 137% (75%)

Good info Steve. Currently China owns a little less than 6% of our debt.

[maat55]

I just finished reading this article that talked about raising the ceiling for the nation's debt limit. I am completely clueless when it comes to politics, but I am real curious about this. Can someone please explain to me how raising or not raising the debt ceiling would affect the average American? Will it be more beneficial to raise the ceiling or keep it as it is? Thanks!

Is it beneficial for an individual to have more consumer debt? National debt is much like consumer debt, it is not backed by an asset other than taxes. Passing debt from one generation to another is immoral. The only legitimate reason to do so is for national security, which we cannot claim is the reason for 14+ trillion of debt.

It is likened to you eating out at fine restuarants on a credit card and leaving the credit card bill for your children to pay. The largest expenditures of government are social programs(SS/medicare, medicaid) and defense which is far more than necessary to provide our freedoms. We are passing a higher burnden on future americnas than we had, which again is immoral.

[maat55]

Depends if you want to live in the USA as it is now or a Somalian version of the USA (if they didn't raise the ceiling).

So, I assume that you consider living within ones means a Somolian existence? I suppose that had you not been allowed to run up more than 20k in CC debt, you would be suffering now?

[rj.phila]

This isn't properly stated. China is the largest foreign holder of US debt. Overall, only 31% of US debt is foreign-owned.

As for debt as a percentage of GDP, TIME has a nice graphic about that this week. Listed in order of default risk from lowest to highest. Number in parentheses is the % foreign-owned.

US 99% (31%)
France 97% (59%)
UK 89% (30%)
Germany 81% (60%)
Japan 204% (7%)
Spain 78% (39%)
Italy 133% (46%)
Portugal 99% (80%)
Ireland 113% (83%)
Greece 137% (75%)

thank you, for some well needed stat perspective.

also, remember this: when you read an article that says something like "reps SAY they are considering not voting to raise the debt ceiling", i personally read this as coded language, or a talking point. realistically, im confident that a raising of the debt ceiling will sail thru congress before august. alot of the tea party-related candidates got elected on platforms of lowering national debt, so it would be political suicide for them to say anything else, especially now, when the issue really isnt being forced yet.

[KTP]

So, I assume that you consider living within ones means a Somolian existence? I suppose that had you not been allowed to run up more than 20k in CC debt, you would be suffering now?

No you entirely missed my point. I would much rather see a balanced budget and an effort to reduce the national debt, but there has been no willingness to cut budget items that will actually make a difference (military and medicare) and no willingness to increase taxes. Without cuts and/or tax increases, the only option is to raise the debt ceiling or default on our debt obligations. My point was a default on our debt obligations would be a disastrous, rioting, blood in the streets type of event.

I also don't think it is immoral to pass down *some* debt to our children as they are also getting a lot of free stuff along with the debt. They get a huge country still left with a lot of natural resources, a vast amount of scientific discoveries, a somewhat safer world that has not been nuked to oblivion, etc. I think giving them a world with skyrocketing inflation (loaf of bread $100 kind of thing) where the US government has collasped due to a default on their debt would be a bit more immoral.

The right thing to do is a mix of democrat and republican ideas. Cut military and social programs and raise taxes such that we can make a meaningful effort at keeping the debt from rising past 100% of GDP. Slight problem is you can't get elected if you state you want to cut Medicare and you can't get elected if you state you want an across the board tax hike (taxing the rich only will not make a dent).

[GREENBACK]

The right thing to do is a mix of democrat and republican ideas. Cut military and social programs and raise taxes such that we can make a meaningful effort at keeping the debt from rising past 100% of GDP. Slight problem is you can't get elected if you state you want to cut Medicare and you can't get elected if you state you want an across the board tax hike (taxing the rich only will not make a dent).

That's what strikes me as the obvious problem. Neither side(or only a few) are willing to "cross the aisle". I think it will take drastic give and take from both parties to make a real difference. They continue to play politics with no realistic solutions coming forth. It will take big cuts and increased taxes to begin to solve the problem and it's hard to get elected or stay in office when you express those ideas.

[Scanner]

The problem also is, Greenback, that I think as much as the GOP hims and haws about raising taxes, Americans are open to it. . .if. . .IF they can accompany it with tax reform.

If the GOP wants to win, they would get a little bold with an idea like this and run against Obama using that platform - not a "Tax Cut" (ala George Bush handouts) - "Tax Reform", a policy of taxation that does not tax productivity.

Switching our country off the idea of income tax (which taxes productivity) and getting us on VAT (a consumption tax) or even a flat tax (it's dispicable that GE doesn't contribute anything to our country, as well as the poor should pay something) is something every American would embrace regardless of party affilation.

I am a registered independent, who votes both parties, philosophically closest to Blue Dog Democrats, and I approved this post.

[KTP]

Switching our country off the idea of income tax (which taxes productivity) and getting us on VAT (a consumption tax) or even a flat tax (it's dispicable that GE doesn't contribute anything to our country, as well as the poor should pay something) is something every American would embrace regardless of party affilation.

+1

You have my vote Scanner! Everyone should have skin in the game, from the very rich to the very poor. It is the only way you can convince the entire voting public that spending money has a cost. Only then will we get support for spending cuts across the board.