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Bypass the Debt Limit
Source: Yahoo Finance

Category: Currency, Politics, Video

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

25 Responses to “How to Bypass the Debt Limit”

  1. theexpertisin says:

    I admit to being worried about the $19 trillion dollar and growing national debt. Apparently, there is no panic among many moderate and progressive politicians on this issue. Is the debt a bad thing? Does it matter? How much debt is too much for the US?

    Are my worries unfounded?

    • RW says:

      “Are my worries unfounded?”

      Yes.

      Big numbers in isolation are scary but economically meaningless even in the context of household or corporate accounting much less in the context of national accounting; e.g., total debt implies a necessary comparison to total assets and 13 trillion is, very roughly, somewhere in the neighborhood of 10% of USA assets, a debt/asset ratio that frankly wouldn’t bother anyone.

      • Bridget says:

        10% of USA assets as in, 10% of the assets of the US government, or 10% of the assets of the American people? Because you’re gonna have a pretty big fight on your hands if you’re counting on grabbing the latter to pay off the debts that are being racked up.

      • RW says:

        The US Government but, legally, that also means the people of the United States so the difference is only significant to those who believe there is a difference.

        If we’re talking the entire economy of the USA, private and public, 19 trillion in debt is probably significantly less than 1% of total assets; i.e., a debt/asset ratio equivalent to pocket change.

        Debt matters but so does context.

      • Bridget says:

        To be sure we’re clear about the context…..are you including the personal assets of the American people (my home, for example) in the USA assets, because I think you’ll find that there is a big difference, legal and otherwise, between the assets of the US government and the assets of the American people. And good luck with grabbing people’s homes and businesses and bank accounts to pay off the debts being incurred by our government. Even Cyrpress has to mostly steal OPM.

      • mileage says:

        The debt is owned by the people of the United States so it;s fair to say the assets of the people is collateral on the debt. However, I think the bigger point here is that the ratio of debt to assets is very small, meaning that the debt is very manageable seen in the context of total assets. So no confiscation on the horizon.

    • Keith R says:

      Expert,

      It is a very reasonable question, but I don’t know of anyone that truly has an answer. There has been some academic research done on the topic but it is inconclusive exactly how much debt is “deep water”. Some of the research was centered on the debt level as compared with GDP, but I believe that many people believe that the topic is more complex. Some of the complexity might center around questions:
      -How much debt is held by citizens versus residents of other countries?
      -How difficult are the interest payments?
      -Is the trajectory of the debt up or down?
      -How does the balance of payments look?
      -Is the debt in local currency or the currency of another country?

      There are an endless amount of pundits on this topic. However there is one fellow that I believe is especially good, and his name is Michael Pettis. Though his blog is mostly about China, he is also an expert on sovereign debt. If you read his work then over time you can develop an opinion.

      RW,

      Your reply seems to indicate that a proper comparison would be between US Gov’t debt and total US assets. Is this true? I do not believe that this is a commonly used metric? The government can’t confiscate, say, all North and South Carolina real estate to pay off (some of) its debts. Or do I misunderstand your point? BTW, where do you think the debt becomes a concern?

      • RW says:

        Keith R, I meant government assets and government debt (see my reply to Bridget); these numbers are gross approximations however (see below).

        My main point was: (a) tossing around a big number in the absence of context is meaningless, a scare tactic at best, and (b) citing total debt is intrinsically a balance sheet perspective which requires a total asset number on the other side of the ledger (making the total debt number decidedly non-scary in this case).

        But a balance sheet perspective rarely makes sense in terms of national accounting and it is almost impossible to get exact numbers in those terms because most agencies do not use that approach*; e.g. John Rutledge made an attempt at total US assets but there are lots of problems with this (he and his commenters note many of them) and his total is probably low by a couple orders of magnitude at least.

        Most agencies use a budget and/or flow of funds perspective and in those terms the 19 trillion figure is still not necessarily meaningful even when related to GNP — the Rogoff/Reinhart debacle demonstrated this if nothing else — what matters is what it takes to service that debt w/o causing larger macroeconomic problems (with the understanding that it is nonsense to argue that insolvency is a potential problem since the sovereign issuer of both the debt and the currency it is denominated in cannot become insolvent by definition).

        *Until 1994 or so the Fed would generate a report on the US balance sheet in addition to their own balance sheet but discontinued the practice. Since then I have no idea where one would even get most of the numbers much less combine them appropriately.

    • DeDude says:

      The issue is not so much whether you should worry but whether you should worry more about the “solution” than the problem, and if there are other much more worrisome issues that should be fixed first.

      The debt is simply an issue of having severely failed to tax as much as we spend since Reagan got into power (only with a minor break in that pattern at the end of Clinton). I believe that those people who have benefitted from this lack of appropriate taxes in the past 3 decades should be forced to pay up the debt before they die. Why should the debt be fixed by increasing taxes (on everybody including those who didn’t pay the bills int he past 3 decades) rather than reducing spending (and its benefits). Because the increased taxes (retaining current services, education, infrastructure etc.) will put a lot more of the pain where it belong (i.e. on people in the late “high income” part of their working life). Most of the spending cuts discussed will decidedly hurt people who never had a chance to vote against Ronald Reagan the Reckless.

      However, right now this failure to tax and pay the bill has to wait because of another much more serious problem – unemployment. For every 10 million people who want full time employment but cannot get it we lose approximately 1 billion in GDP per year. That is a huge economic as well as humanitarian loss. It also is a huge part of the reason we have a large budget deficit. If those 10 million people were allowed to become taxpayers rather than benefit collectors our national budget would be back in primary balance (so we would be able to reduce the debt without draconian increases in taxes).

  2. ilsm says:

    Just tell suppliers and servicers, as well as farm subsidy recipients, to ‘hold their invoices’ until the US government gets some cash.

    The fed can “buy” supplier invoices (financialized) like it buys MBS’s to sell later when it wants to clear up its ‘balance sheet’.

    I am sure they could turn ‘claims for subsides’ from rich farmers into financial instruments.

  3. VennData says:

    All Boehner has to do is let a vote come up. He won’t it’s really so simple.

  4. rd says:

    Some very bad news here:

    http://www.businessweek.com/articles/2013-10-04/five-reasons-republicans-think-theyre-winning-the-shutdown#r=read

    The same people who thought they were going to win the Presidential election think they are winning the shutdown and debt ceiling debate. They appear to think that Obama is getting nervous and will fold before the bus goes over the cliff. Apparently one of the things that gives them hope is that the markets haven’t realized yet how crazy they actually are and so the markets haven’t panicked yet. I assume that might start later next week.

  5. Livermore Shimervore says:

    Brilliant. With a provision that those voting for a shut down or debt ceiling debacle pay the significantly higher costs from their district’s share of discretionary spending. I can think of no better an example of putting your money where your mouth is….If you want to incurr more debt by pushing for a shut down or threaten our creditors with punting on obgligations then your districts should pay up for such tactics. Its highly ironic that those who whinge about run away spending walk from their direct contribution to it.

  6. rd says:

    An interesting memo here from a Democratic pollster looking at focus group results from discussions with GOP voters:

    http://www.democracycorps.com/attachments/article/954/dcor%20rpp%20fg%20memo%20100313%20final.pdf

    • milkman says:

      wow….Roger Ailes and Limbaugh should be proud of the rotting carcass in America that pays their bills…..

  7. mllange says:

    Issue super-high coupon debt and watch the bond market take out the interest rate. Unless the Fed buys all new Treasury debt issuance, the ability to pay even interest alone will immediately shut down additional debt. Eventually we come back to the fact that on & off book obligations are beyond our means to pay back without significant cuts and policy change.

    • willid3 says:

      depends on your time frame. if you have say 70 trillions dollars in debt (over say 57 years) and your current GDP per year in some around 14-15 trillion a year). that comes out to what ? some thing like 798 trillion or more in that same time scale. now if we apply the same rules we seem to want to apply to the government. we find that all businesses are bankrupt. none of them will ever be viable.

  8. sailorman says:

    I doubt the proposed bond sale would work: Article 1 section 8 of the constitution states that it is congress that controls debt sales, so there would certainly be court challenges and perhaps impeachment if Obama went that route. I doubt many people would buy these bonds given the risk that they may have no value.

    Obama is mandated to obey all laws and that includes the budget that directs him to spend specific amounts of money. Congress has blocked funding of the budget by refusing to raise taxes and now is blocking the ability of the government to sell bonds to fund the budget.

    This places Obama in the position of deciding what part of the constitution he is willing to violate. He either doesn’t spend the money in the budget, or he directs the treasury to sell bonds. The 14th amendment section 4 says: “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”

    If congress refuses to raise the debt limit, then Social Security payments will probably stop, since the outstanding debt must be paid first; That will give millions of people standing to challenge the constitutionality of the debt limit. We live in interesting times!

    • How do you reconcile that Congress has already mandated the budget and what programs get how much money with the debt ceiling? These two issues are clearly in direct conflict. How does a reasonable Executive branch resolve that conflict?

      • sailorman says:

        It certainly seems that this is a situation the framers hadn’t considered. That would leave it to the Supreme Court to decide. Now we have no budget, so Obama is off the hook as long as the government remains shut. I am not sure if anyone has standing to bring this to the courts. Do you have any thoughts on this?

      • requiem says:

        Sell off assets to raise cash? I’m sure Disney would be willing to kick in a few bucks for Yosemite, maybe put in a theme park?

        I do have a related question; it seems that (for example) FDA is not permitted to accept user fees for FY2014. I’m curious as to whether this is a result of the budget issues or simply theater to increase pressure. I would think that federal agencies should be able to receive payments and continue to use such funds to operate so long as that does not incur further debt.

        (For the sake of argument, I’m leaving aside the question of whether such payments or asset sales would even come close to supplying sufficient funds.)

      • willid3 says:

        where does it mandate that debt repayment first? and isnt social security etc already debt?

      • sailorman says:

        The 14th amendment forces the government to pay the debt first.

        Social Security is debt in the broad sense of the word, as is any other money owed for services or pensions. If the Supreme Court hears the case, would they be conservative and adhere to the original meaning? ( The debt incurred by financing the militia during the civil war). If they adopt a broad interpretation, they very well might conclude that the president can sell bonds to pay the debt incurred by the money spent on the budget.

        At the moment, I don’t think anyone has standing to bring the case to the court. As soon as we default, millions of people will have standing. Since there is no precedent, I am guessing Obama won’t raise the debt unilaterally; if he did, who would buy it without any gaurentee it will be repaid? He would certainly be impeached.
        We live in interesting times.

  9. RW says:

    Looking for ways to bypass the (ridiculous) debt ceiling is an interesting exercise but I am increasingly convinced Obama is having none of it.

  10. slowkarma says:

    I don’t think we should try to find a way around the debt limit. In fact, I think it’s important that we don’t. If we start finding ways around laws, we’ll evolve to a system where the president more or less rules by fiat, and lws can be safely ignored. Obama, more than any other president I can recall, already does this, showing disdain for what he believes are stupid or unreasonable laws. For example, we not have at least a couple of states in which marijuana is legal under state law, though it’s still illegal under federal law — and Obama has simply ordered that the laws, which are very clear, not be enforced, because (apparently) he doesn’t like them. But should that really be the question? Shouldn’t he enforce all federal laws? I think he should, and I think there are important reasons, both philosophical and practical, that this should be done.

    The debt limit is a political game of chicken, and we should let the game be played out. If the Republicans take us over the cliff, and the results are calamitous (which I doubt they would be), then the Republicans will pay. I think it’s important that they pay — and that the fact that they are paying for their stupidity is clear and obvious; I think the American public should be allowed to register the fact that Republicans can’t be trusted to govern. If somebody finds a way to sneak around the debt limit, then we’ll be in the same old murky soup that we are now in, when nobody takes responsibility for anything.

    Addendum: I think the marijuana laws are stupid and the federal laws should be changed; I think the debt limit law is stupid and should be done away with. But I think those things should be done because the American public wills that they be done, ,and the public will take the jobs away from politicians who oppose these positions.