US Financial Situation 2011

[Roflkopt3r]

I guess most will already have heard of it: http://money.cnn.com/2011/02/21/news/economy/government_shutdown/index.htm

As the budget conflict couldn't be settled between Democrats and Republicans (who, to my knowledge, have the majority at parliaments, opposing Obama as their president), today the US government will run out of money, because they won't be allowed to take any new credits.

This would mean: All governmental officials, with the exeption of the parliament, would be sent into unpaid vacation. This includes public institutes like libraries, street cleaning, zoos, festivals and a lot of other stuff, overall affecting 800.000 workers.
The effect on economy would grow drastically, Washington as a city really depends on state money for example. This could, very realistically, kick the USA back into recession or worse.

At the same time, US households lost 23% of their wealth in only two years (http://money.cnn.com/2011/03/24/pf/financial_crisis_outcome/index.htm). Probably having a huge effect on US economy, too, as it's really dependend on private consumption.

By the way: The USA are quite "okay" with debts per GDP, but extremely bad when measured in debts per annual income - around the level of the worst EU bankrupt states. I suspect that this could be the time that the US will face huge trouble in getting more credits soon, and this could actually lead quite close to a real national bankruptcy.

Edit 18.04.2011: Added "Standard and Poor's potentially lowering U.S. rating" (http://mangahelpers.com/forum/showthread.php?p=2399550#post2399550) and changed thread title accordingly.

[segua]

You know how when you borrow too much money and can't borrow anymore? Yea, that's what's happening now for the U.S.A. And what's worse, the creditors might come a calling. But I guess we'll see if the U.S.A. will be bailed out.

[Gintara]

This is not looking good. -_-

I learned about the bureaucracy shutting down if the budget doesn't get passed last year in my government class. To think that it would actually happen so soon. Now that I think about it, I guess it would be obvious due to the GOP's majority in the House.

With all the other states having trouble with the state budgets and now the federal government, I hope it won't be that long until they pass a budget. The prices here are already getting out of hand ($4 per gallon gas prices D: ) and since the US economy influences the world economy, every country will be affected.

If i recall, the US has always been in debt; that's how it keeps everything running.

Anyone remember the last time this happened? I can't remember.

[k-dom]

you know that the average price is Europe is 1.5€ per liter don't you :-)
I let you do the convertion, why is US the only country in the world still using imperial units !!!
Anyway US is still extremely cheap wrt fuel
As for the government issue, it's really a political matter. I've heard it already happened under Clinton presidency

[Gintara]

That's what I thought so too. And I don't mind doing the conversion; I can tell it's a high price already. @_@

[Roflkopt3r]

You know how when you borrow too much money and can't borrow anymore? Yea, that's what's happening now for the U.S.A. And what's worse, the creditors might come a calling. But I guess we'll see if the U.S.A. will be bailed out.

It's not that far yet. So far it's only that the government is not allowed to make any new debts, because their sovereign - the people, represented by the parliament (well, at least this is the theory ;)) did not allow them, but they would still get new money if they were allowed to.

If it should really come so far that nobody would want to buy US state bonds anymore, then it would be really lights out - national bankrupcy would necessarily follow.

[Imperium]

Congresswoman Donna Edwards (http://www.youtube.com/watch?v=QyfSWO-wfUk&feature=player_embedded), nice lyrics. And quite appropriate.

[M3J]

If i recall, the US has always been in debt; that's how it keeps everything running.

Anyone remember the last time this happened? I can't remember.
According to my school history books, US didn't start paying more than what it could afford until World War I or II. That's when we started being in debt, but textbooks can be biased as well and not as detailed.


you know that the average price is Europe is 1.5€ per liter don't you :-)
I let you do the convertion, why is US the only country in the world still using imperial units !!!
Anyway US is still extremely cheap wrt fuel
As for the government issue, it's really a political matter. I've heard it already happened under Clinton presidency

Four liters in a gallon, and we use gallon here, so that'd be six euros per gallon. We're basically paying a dollar per liter according to Gintara's claim of $4 gas price thingie.


So, the government screwed up by fighting and not agreeing with each other. GOOD GOING, YOU IDIOTS! What I read anyway. But, rather than opposing everything, they need to come up with a compromise or something. Looks like higher governmental authorities are safer than most. :\

Start exporting more than importing would be a good way. From what I heard, so many businesses decided to go out of country due to Obama charging higher tax, which results in US employees being laid off due to this. GOOD GOING, SO-CALLED PATRIOTIC BUSINESSES AND OBAMA!

[kkck]

Debt takes many forms, in that sense it has always been around in some way or another. Debt in itself is not a bad thing though. The truth is that it would be outright impossible for a government to function without the capacity to fall into debt. In mere months or less it would lack any form of liquidity. The issue with debt is when you really go crazy with it as you do eventually have to pay every cent. I would think USA did go overboard with the trillion dollar bailout out for that matter. At some point there will really be no alternative but to cut expenses as debt has to be paid. Unfortunately expenses will invariably have to be cut from education and social services. Taxes are also bound be required to increase however that would indeed not be an incentive for investment which the US economy definitely needs. I guess it deepends on what the economy looks like a few years from now I don't think the issue I describe will come up in the next elections). I guess stopping the wars as a whole would actually be the best way to go but in turn it is the least likely thing to happen. I bet this is also likely to be a political tool a few years from now. Whichever party which proposes and ending to the war as to avoid the expense cuts for the things I mentioned before is likely to get a huge advantage. Wonder which one will wise up to the idea.

Anyways, disaster was just avoided as apparently an agreement was reached on the budget issue.

[xi0]

Start exporting more than importing would be a good way. From what I heard, so many businesses decided to go out of country due to Obama charging higher tax, which results in US employees being laid off due to this. GOOD GOING, SO-CALLED PATRIOTIC BUSINESSES AND OBAMA!

Businesses have been outsourcing to other countries for years now, it started when Bush was in office really. Businesses are patriotic at their convenience, it's always about the bottom line.

As someone who thinks themselves as more of an Independent, it seems like Republicans desire to shut down the government is purely for political reasons. They want to de-fund Planned Parenthood and other Women's Health resources. The Democrats have made compromises, while it seems the Republicans refuse to...or at least the Tea Party faction do.

This new budget proposed by Paul Ryan is a sham. It serves to reduce tax rates for the richest, and looks to gut the already shrinking middle class and lower class by de-funding programs. Eliminating Medicare/Medicaid, privatizing Social Security. This is an agenda hardline conservatives have had for years. It's the Democrats' stumble for not passing a budget last year for sure, though. I find it interesting that a fiscal conservative like Ryan, is the same person who voted for TARP and the bailouts of GM and Chrysler. But now all of a sudden it's time to slash spending...it's hypocrisy. Bush spent like no other Republican ever had before and they were fine with it, now it's time to switch ideology?...Having a Democrat as President has a lot to do with that IMO.

[kkck]

I don't really see that as hypocrisy. When the bailout was aproved, it was also implied the money from the bailout would have to be paid back. The US economy has yet to recover and one way or the other the money has to be paid back so one way or another expenses have to be cut from somewhere. The issue here is that there really is no scientific way to determine where to cut expenses from, for the most par it is a matter of subjectively picking from where to reduce expenses. Democrats and republicans both have their own principles and ideas so naturally the places from which expenses are cut will be influenced by both. It is possible that cutting expenses now instead of later had something political rather than technical behind it but it is still something which invariably would have to be done in the future if it is not done now. Lets face it, there is a trillion dollar bailout and it won't pay itself.

Unfortunately that will just be the tip of the iceberg. As it turns out the middle class does not have money so increasing taxes on them will not help pay for the bailout nor reducing would significantly help improve the economy. Taking measures to supposedly create incentives to invest is also seen as making the rich richer so it is politically bad. The alternative would be to charge more taxes from these guys however reducing their potential returns over their investments in an already unstable and weakened economy will invariably reduce or at least slow down overall investment. its a pickle to say the least lol.

[k-dom]

Eliminating Medicare/Medicaid, privatizing Social Security.

I thought you finally get something that start to resemble an health security system for everyone. Isn't that even why Obama lost the midterm ?
That's what quite something ununderstandable view from here. Even more since in term of debt the old system was far from ideal.
I heard some month ago that the federal bank will continue to depreciate the dollar wrt euro. It will sure decrease the debt but at other economy countries expent.

[xi0]

I don't really see that as hypocrisy. When the bailout was aproved, it was also implied the money from the bailout would have to be paid back. The US economy has yet to recover and one way or the other the money has to be paid back so one way or another expenses have to be cut from somewhere. The issue here is that there really is no scientific way to determine where to cut expenses from, for the most par it is a matter of subjectively picking from where to reduce expenses. Democrats and republicans both have their own principles and ideas so naturally the places from which expenses are cut will be influenced by both. It is possible that cutting expenses now instead of later had something political rather than technical behind it but it is still something which invariably would have to be done in the future if it is not done now. Lets face it, there is a trillion dollar bailout and it won't pay itself.

Unfortunately that will just be the tip of the iceberg. As it turns out the middle class does not have money so increasing taxes on them will not help pay for the bailout nor reducing would significantly help improve the economy. Taking measures to supposedly create incentives to invest is also seen as making the rich richer so it is politically bad. The alternative would be to charge more taxes from these guys however reducing their potential returns over their investments in an already unstable and weakened economy will invariably reduce or at least slow down overall investment. its a pickle to say the least lol.

Hypocrisy aside, the main issue that made Republicans look bad and would have made them look worse if a Shutdown had happened is the lack of compromise. Even spend-happy Democrats are all aware that cuts must be made. It just doesn't look like Republicans are/were interested in shared sacrifice, and that is the only fair way to cut spending, else you look like you're putting agenda before what's best for the current situation.
[hr]

I thought you finally get something that start to resemble an health security system for everyone. Isn't that even why Obama lost the midterm ?
That's what quite something ununderstandable view from here. Even more since in term of debt the old system was far from ideal.
I heard some month ago that the federal bank will continue to depreciate the dollar wrt euro. It will sure decrease the debt but at other economy countries expent.

Not if these States continue their lawsuits on the basis of it's "unconstitutionality". Even more so if the conservatives make good on their promise to repeal it. They don't have the votes for it now in this session, so it's irrelevant.

If Republicans had there way they'd obliterate Medicare/Medicaid entirely.

[Roflkopt3r]

Start exporting more than importing would be a good way. From what I heard, so many businesses decided to go out of country due to Obama charging higher tax, which results in US employees being laid off due to this. GOOD GOING, SO-CALLED PATRIOTIC BUSINESSES AND OBAMA!

By how much did he raise taxes then?
Well, the US have a problem either way. Decades of lowering taxes ruined the budget big times. How do you think 80% debts/GDP will continue on with low taxes, especially since the ratio of debts per tax income is extraordinarily bad for the USA?




This new budget proposed by Paul Ryan is a sham. It serves to reduce tax rates for the richest, and looks to gut the already shrinking middle class and lower class by de-funding programs. Eliminating Medicare/Medicaid, privatizing Social Security. This is an agenda hardline conservatives have had for years. It's the Democrats' stumble for not passing a budget last year for sure, though. I find it interesting that a fiscal conservative like Ryan, is the same person who voted for TARP and the bailouts of GM and Chrysler. But now all of a sudden it's time to slash spending...it's hypocrisy. Bush spent like no other Republican ever had before and they were fine with it, now it's time to switch ideology?...Having a Democrat as President has a lot to do with that IMO.

At a certain point -medical security, social security- privatising can be very good for profits, but very bad for the people. Not everything can just be measured by money. It's disgraceful how private medical insurances in the US behave towards their members, anyways. Having a reliable national health insurance for everyone makes sure that they cannot treat their members like trash, because then they'ld just go back to national insurance.

That right wing parties were better with budgets is just a big lie these days. All they do is giving the money to companies, mostly in forms of lowering taxes and in form of subsidies, or lowering their security standards so they don't have to spend as much money on them (with the obvious consequences...)
Theres pretty much no difference in the types of spendings of right wing and left wing governments, with the exeption that right wing governments give the money to the companies (from where it's theoretically supposed to go to the people, which never happens however) while raising taxes for the middle/lower class. While left wing gives it to the people who actually need it, who definitly do spend it again and this way empower national economy.

So, while they were throwing away money like hay just a short time ago, as soon as left wing takes power right wing will start nagging about unnecessary spendings and that the lefts were so bad with money... Which is, as you said, just hypocrisy.

Just have a look at California: Decades of Republican tax-lowering, and now they have such abnormous debts that they're beeing compared to Greece from time to time.

[k-dom]

I think that american social security system proved to the entire world that an entire private system is bad for the people AND for profit contrary to what you said. It seems the only ones who make profit are the health insurances.

Seems like the debate starts to slide a bit to much toward the dangerous political path :-)
Roflkopt3r, California has been democrats forever, Schwarzeneger was just a political abheration.

[Roflkopt3r]

I think that american social security system proved to the entire world that an entire private system is bad for the people AND for profit contrary to what you said. It seems the only ones who make profit are the health insurances.

Seems like the debate starts to slide a bit to much toward the dangerous political path :-)
Roflkopt3r, California has been democrats forever, Schwarzeneger was just a political abheration.

Ok, switched that up: Democrats doing neo-liberal economic policy. That basically equals Republican politics x.x

[Franckie]

The current fiscal problems the US faces have their origins dating back to to the 1970s with fiscal policies both Democrats and Republicans supported. Neither party has a basic understanding of sound fiscal policy and engage too much in corporate welfare and such.

Republicans are the worse party right now, however. Besides the wars in Afghanistan and Iraq that were paid for on 100% borrowed money, you also have the medicaid expansion and Bush tax cuts that the Republican Party shoved down the USA's throat. Now their mantra is that lowering taxes and slashing spending will solve the budget problem? :lmao :lmao :lmao

The chief problem with the US right now is that it doesn't take in enough revenue. Half the population doesn't pay any income taxes, you have at least $1 trillion in tax breaks (many are dubious btw), and giant corporations pay squat in taxes (e.g. General Electric). Revamping our swiss cheese of a tax code would save the country from immediate fiscal ruin. Republicans, however, will continue pushing for needless things like making the Bush tax cuts permanent while sidestepping the actual reasons behind the USA's fiscal woes (as will Democrats).

On a side note, I need to remind myself to write to my US representatives and remind them of how nice it must be that they get paid regardless of the situation while several of my family members will not be so fortunate if the federal government were to shutdown. That's one thing I dislike about Congress. Members get paid regardless if they fail to do their most important job: hammering out a budget.


You know how when you borrow too much money and can't borrow anymore? Yea, that's what's happening now for the U.S.A. And what's worse, the creditors might come a calling. But I guess we'll see if the U.S.A. will be bailed out.

Of course we'll be bailed out. The USA is too big to fail! :nuts


Just have a look at California: Decades of Republican tax-lowering, and now they have such abnormous debts that they're beeing compared to Greece from time to time.

How are California and Greece comparable? California's debt amounts to only 1% of its GDP. Raising taxes by 1% would solve the problem. Greece's chief problem right now is its inability to manipulate its own currency as the US is currently doing.

[M3J]

By how much did he raise taxes then?
Well, the US have a problem either way. Decades of lowering taxes ruined the budget big times. How do you think 80% debts/GDP will continue on with low taxes, especially since the ratio of debts per tax income is extraordinarily bad for the USA?





I dunno, I don't really pay attention to stuff like that. I remain in ignorance so I don't fear for the future. I fear it enough with the generation that'll take over the world as it is, why add to it? <_<

He didn't need to target just the businesses. Rich people should be the main target. Making middle to lower class pay more taxes hurts in the long run because they have less money to spend on stuff and thus, less money circulates and keeps the economy moving. Rich people can afford to keep spending with higher taxes, though their lifestyle wouldn't be as grand.

[segua]

It's not that far yet. So far it's only that the government is not allowed to make any new debts, because their sovereign - the people, represented by the parliament (well, at least this is the theory ;)) did not allow them, but they would still get new money if they were allowed to.

If it should really come so far that nobody would want to buy US state bonds anymore, then it would be really lights out - national bankrupcy would necessarily follow.

The issue from what I understood was that the debt ceiling had to be raised.

Anyway, notable countries are dumping their U.S. currencies for something else. I forgot which site I read it from though(it was a financially geared site) . From what I've read, the rest of the world is preparing to switch the oil reserve currency from U.S. dollars to a combination of Yuan and Yens. The fall of the dollar is occurring which was similar to how the reserve currency switched from British Pounds to U.S. Dollars.

The IMF is even ready with the new currency they have developed.



Businesses have been outsourcing to other countries for years now, it started when Bush was in office really. Businesses are patriotic at their convenience, it's always about the bottom line.

As someone who thinks themselves as more of an Independent, it seems like Republicans desire to shut down the government is purely for political reasons. They want to de-fund Planned Parenthood and other Women's Health resources. The Democrats have made compromises, while it seems the Republicans refuse to...or at least the Tea Party faction do.

This new budget proposed by Paul Ryan is a sham. It serves to reduce tax rates for the richest, and looks to gut the already shrinking middle class and lower class by de-funding programs. Eliminating Medicare/Medicaid, privatizing Social Security. This is an agenda hardline conservatives have had for years. It's the Democrats' stumble for not passing a budget last year for sure, though. I find it interesting that a fiscal conservative like Ryan, is the same person who voted for TARP and the bailouts of GM and Chrysler. But now all of a sudden it's time to slash spending...it's hypocrisy. Bush spent like no other Republican ever had before and they were fine with it, now it's time to switch ideology?...Having a Democrat as President has a lot to do with that IMO.

I looked into the reason why so many business are moving overseas. The cause was really too high of a price to do business in the U.S. Causation? High business taxes created an unfriendly business environment. It's no wonder why so many businesses would outsource many jobs overseas where cost is cheaper. At the end of the day, it really is the bottom-line.

Also, the suggestion of taxing the rich is ludicrous! This reminds me of a story of taxation I read before. The middle class and the poor wanted to tax the rich. The King agreed. It was such a huge success that eventually the middle class and poor were taxed too. So if there is a hike in taxes for the rich, expect that to trickle down.

In my honest opinion, no one in Washington has a plan that will work.

[k-dom]

What history of taxaxion did you read ? Because in middle age and a bit further nobles and church did not pay taxes, they even get some from the others.
And i think in France, at first taxes were payed only when the country was at war. It happens that england and france where engaged in the 100 years war which kinda made the tax permanents

[segua]

What history of taxaxion did you read ? Because in middle age and a bit further nobles and church did not pay taxes, they even get some from the others.
And i think in France, at first taxes were payed only when the country was at war. It happens that england and france where engaged in the 100 years war which kinda made the tax permanents

If I recall correctly, it's from a book by Robert Kiyosaki. I believe it was English. If you would like, I'll try to find it.

[xi0]

lso, the suggestion of taxing the rich is ludicrous! This reminds me of a story of taxation I read before. The middle class and the poor wanted to tax the rich. The King agreed. It was such a huge success that eventually the middle class and poor were taxed too. So if there is a hike in taxes for the rich, expect that to trickle down.

In my honest opinion, no one in Washington has a plan that will work.

No it isn't. The best way to solve this problem is to remove the Bush tax cuts, AND cut spending. Anyone trying to convince you they can solve the problem by only doing one of these things is fooling themselves.

Decreasing taxes for the wealthy, as Ryan's plan suggests makes no sense RIGHT NOW. I read that his plan would balance the budget...in 50 years, and by doing so he would privatize social security, and get rid of medicare and other social welfare programs completely. That would only increase the burden on the Health Care system, and the Republicans are the ones who are against what they call "Obamacare". They say they're for Health Care reform, but it clearly isn't that important to them.

The notion that cutting taxes for anyone right now just doesn't make sense to me.

I'd want a federal version of what Governor Cuomo is doing in New York, a Forensic Audit of where the money is actually going. You'd be shocked at how well bureaucrats and politicians are doing, despite the fact that everyone else is being gouged at the pump, paying more for goods and utilities. It's a joke.

[kkck]

In feudalism the rich did not pay taxes, rather the nobles actually charged taxes from the people which worked in their lands (the poor).

As for the outsourcing, I don't think there is anything anyone can do about it and it cannot be blamed on a president. Companies don't outsource because of things like principle, they do it based on numbers. As it is, the cost of operating a plant anywhere in the world is basically the same. Basically, machinery, equipment and running those costs the same everywhere. In turn what varies significantly is the cost of labor. Nowadays everyone must have heard how minimum wage in US is 7.50 and hour (depends on the state though) while elsewhere it would 1 or 2 bucks and sometimes even less. Its that simple, there are no political reasons behind it, the math behind simply works for profit.

Taxing the "rich" is usually more of a political thing though, that much is true everywhere. As for the proposed taxes, I really don't know the math behind them so to speak. I am not talking about how to actually calculate taxes but rather the effect of increasing those taxes would have on the deficit. Would it really be something actually significant enough for it to be worth it? Or would the effect be marginal? If there is anything that suggests that increasing these taxes specifically would be effective in reducing the deficit then it would perhaps be a good idea but in turn if there is no reason to believe it would have anything but marginal effects then there is nothing but political BS behind it. The cost of raising the taxes should also be considered.... What effect would increasing taxes have on expected returns on investment or the amount of overall investment? Low and middle classes have no money or credit as it is so would reducing the amount of money available the supposedly rich have left for investment be a good idea? I guess we would also have to consider whether they would actually invest or save the money though. Democrats have experienced a decrease in popularity as obama's presidency has gone by so perhaps this could be a move to counter that? It's rather easy to make people who would oppose these taxes to look like the bad guys(republicans) and those who support them as good guys (democrats). Wish I could see some numbers on all of these things, it would make things so much simpler lol.

As I see it, one way or another spending has to be reduced. Increased taxes would perhaps be an appropriate measures to deal with the debt in other scenarios but in turn the US is also dealing with the recession and unemployment.

[Roflkopt3r]

Standard and Poor's speaking of possibly downrating U.S. ratings. (http://online.wsj.com/article/SB10001424052748704004004576270693061767996.html)
Standard and Poor's label chances of having the U.S. rated down from top rating AAA within next two years to over 1/3.

This is quite a new developement, so far nobody ever questioned the U.S. AAA, even though debts per GDP is pretty high and debts per annual tax income enormously high. But this might be the beginning for serious trouble awaiting the USA. I guess most here know about how important such ratings are for getting good and cheap credits. Having US downrated would potentially trigger a chain reaction:
Lower rating often means that credits become more expensive, as interest rate on them rises, because the risk of losing the credit is higher for the credit grantor (after all the rating means how safe it is to lend money to the rated state/company). Paying more interest means that national debt will have an even worse developement, which can backfire to the rating... and so on.

Imo it's absolutely justified. All I can imagine for the US to escape this would be some secret negotiations and "inofficial" buiseness with them... I can't see a legal way out of this.

(Renamed thread title to adjust it to this discussion)

From Standard and Poor's analyst Q&A on Wall Street Journal:

Q: Why now?

A: Because we've been looking at the proposals coming from the Adminstraion and from the House Republicans. We've also been taking note of what we consider to be the gradual deterioration of the U.S. fiscal profile. But most recently, at the end of last year, at the agreement of the Congress and the administration to extend the Bush tax cuts.

We think that the fiscal profile of the U.S. is increasingly diverging from a number of its AAA peers. And given the uncertainties of administration and the Congress coming up with an agreement to halt this movement, we think this was time to update our opinion.

[BBB Banana]

If that trully happens it will be interesting to watch.

A few days ago there was a BRICs' reunion and they were talking about trying to make a few reforms to the monetary system if US's ratings are actually cut this will probably givem them a push.

[kkck]

This might actually make the republicans even more popular with time.... I read somewhere they are currently betting on the debt issue being a decisive aspect when it comes to the next elections. They are currently pushing more cuts to government spending which in turn limits what the democrats actually can do and they have no intention of raising taxes which at large appeals to a more than significant section of the population. Obama is getting increasingly unpopular at large evidenced by his lose of majority at the senate so if the republicans manage to get a strong and charismatic enough candidate(Donald trump anyone?) we could actually see a republican president for the next elections.

[cmertb]

I don't get this downrating thing. The US debt has been implicitly AAA because the US gov't controls the currency that its debt is in. So all they need to do is just print more dollars and give them back to China. Are they seriously considering the situation that the US would go into default rather than print more cash to pay back the creditors? That doesn't happen normally...

[kkck]

I don't think debt holders would appreciate printed dollars considering they would lose value though. I don't think it is as simple as that.

[cmertb]

I bet they would appreciate default even less. In the end, it's not their decision whether to print more money or not. Also, as far as I know, rating agencies only estimate the probability of default, not inflation. So inflation outlook should not be a consideration in the credit rating. Hence the mystery.

[Roflkopt3r]

I don't get this downrating thing. The US debt has been implicitly AAA because the US gov't controls the currency that its debt is in. So all they need to do is just print more dollars and give them back to China. Are they seriously considering the situation that the US would go into default rather than print more cash to pay back the creditors? That doesn't happen normally...

They dont just "print money" out of nowhere. To my knowledge the term "printing dollars" basically means, that the FED buys US state bonds. Since the FED is partially governmental, it "almost" means that the US government buys their own bonds.
Still, they are paying interest and so on, so their debts are rising and rising while it of course produces inflation.

Let's assume nobody would give loan to the US anymore, because the US have so high debt that it's doubtful they would repay that loan. Then only the FED would do so, which means that there is a lot of money "coming out of nowhere". This would be equal to enormous inflation, thus nobody would want to have dollars anymore (because it becomes worthless by inflation).

So, saying "they should just print dollars and give it back to China" would effectively mean: Shifting the debts the US has in China to the FED. But: If the FED would give away all this money for free (which means: without interest on it. Interest is the price of money), nobody would trust the FED anymore, because it would be a big balloon of debt itself. The effect for the dollar would be devastating, plus the inflation it would cause. And if the FED takes interest (as usual, the same % of interest to everyone), then the US debts continue rising as always while weakening the dollar further.

[BBB Banana]

I doubt dolar would be that affected by inflation there are lots of countries willing to buy dollars just to maintain it more or less stable so they can have more competitive prices for their exports.

[Roflkopt3r]

I doubt dolar would be that affected by inflation there are lots of countries willing to buy dollars just to maintain it more or less stable so they can have more competitive prices for their exports.

Not at any price. They will do so for a certain amount of stabilisation, but not infinitly. When US debt goes out of control, they won't even try keeping up with that.
This recipe only worked until now, but might not do so any further.

[k-dom]

I don't get this downrating thing. The US debt has been implicitly AAA because the US gov't controls the currency that its debt is in. So all they need to do is just print more dollars and give them back to China. Are they seriously considering the situation that the US would go into default rather than print more cash to pay back the creditors? That doesn't happen normally...

Controling your money and having a AAA is not really related. And if inflation was the ideal solution I guess not everyone would try to avoid it. Of course it is helpful to decrease your debt but in the long term it has quite huge bad effect on your economy.
If the dollar was a standard money, the US would have been in default since long ago. If it starts to be questioned then I guess that only means troubles for everyone

[kkck]

I would think it would be a big deal if US bonds lose their AAA rating. Although it is true that it is unlikely that they would go into default instead of paying with printed money. I don't think there is something inherently wrong with being in debt as it is a better alternative than paying for everything straight up but in turn with the bailouts and the not so cheap reforms and projects obama has the whole thing is very close to going out of control. I think obama choose a bad time for the reforms he wanted to make. IMO it would have been wiser to leave those things for a time when the economy is better and can afford them. At the very least changes could have been more gradual, not outright increase spending to an apparently unknown amount. Obama should have focused on putting the economy back on track first. Basically, make the money and then use it not the other way around.

[Roflkopt3r]

I would think it would be a big deal if US bonds lose their AAA rating. Although it is true that it is unlikely that they would go into default instead of paying with printed money. I don't think there is something inherently wrong with being in debt as it is a better alternative than paying for everything straight up but in turn with the bailouts and the not so cheap reforms and projects obama has the whole thing is very close to going out of control.

So, what you are saying is that they should shift more debt towards the FED, as that is what "printing money" means (buying the own state bonds via FED).
However, that does not lower the amount of debt, it lowers the interest on state bonds while increasing inflation - that is very bad, because it can happen that inflation is higher than the interest on state bonds then, and then really nobody would buy them anymore as buying them would result in a deficit instead of profit.

[Franckie]

I have a hard time understanding the big deal about the downrating. My attention is focused on the people who determine the rates, however. These individuals have proved their own incompetence one too many times. For example, what were rating agencies saying before the Great Recession hit? "Everything is A-OK! Don't worry! The markets are doing swell!" Then 2008 came and showed these agencies just how wrong they were.


I looked into the reason why so many business are moving overseas. The cause was really too high of a price to do business in the U.S. Causation? High business taxes created an unfriendly business environment. It's no wonder why so many businesses would outsource many jobs overseas where cost is cheaper. At the end of the day, it really is the bottom-line.

High taxes? The 17,000+ page US tax code is filled with so many loopholes that a model of the tax code would look like swiss cheese. 2/3 of US corporations do not pay federal taxes at all and only account for 10% of total revenue. So taxes are not the chief reason companies prefer to ship jobs overseas

The chief reason why companies ship jobs overseas is because of labor costs. Foreign labor is much cheaper than US labor. In addition, companies no longer have to comply with the stricter US safety + environmental standards.

[Roflkopt3r]

I have a hard time understanding the big deal about the downrating. My attention is focused on the people who determine the rates, however. These individuals have proved their own incompetence one too many times. For example, what were rating agencies saying before the Great Recession hit? "Everything is A-OK! Don't worry! The markets are doing swell!" Then 2008 came and showed these agencies just how wrong they were.


Downrating means, that the U.S. will have to pay higher interest rates on their state bonds (that's how states get their money after all). Obviously that is like a highway to financial ruin when the high debts become even more expensive.

Yes, it's true that these ratings are not very reliable, but that's absolutely not important for the situation. As long as investors believe in the ratings, they are important.

About the interest: Lately, US 10yr treasuries pay 3.99% interest rate, which was increased only because S&P changed outlook to "negative".

[Roflkopt3r]

Recent Update:

Moody's consider lowering US credit rating (http://www.reuters.com/article/2011/06/02/usa-debt-idUSN0121488820110602)
Mainly because another inability to pay might occur in two months, when it could again happen that republicans and democrats won't make a compromise about the budget.

[HegemonKhan]

partly why the reason that the U.S. is broke:

~50% of our population (the poor or near poor) pays no taxes + the rich % of population pays no taxes + the financial mess/breakdown of "too big to fail businesses" + the wars/involvement in middle east and north africa + regulation and corporate taxes further driving businesses overseas and making it UNaffordable for the businesses still in the U.S. to hire workers too + the entire world's economic mess and being broke too = U.S. is very broke (well, going to be, anyways, lol)

-----------

as for "raising the debt ceiling", this is a massively contentious political issue in the U.S., so who knows if we'll do it or not, if moody lowers the U.S. rating or not, etc...

----------

what's the point in raising taxes if most of our population (poor+rich) doesn't pay any taxes anyways?

no, what we really need is ENFORCEMENT of paying taxes, and than we can see if we still need to raise taxes or not, lol.

[Drmke]

According to my poli sci professor, if that debt ceiling doesn't get raised we are fucked...default on our loans for the first time in our history which will make us seem unreliable and that of course will be followed by a dramatic decrease in the value of the dollar...hurray!

[Roflkopt3r]

According to my poli sci professor, if that debt ceiling doesn't get raised we are fucked...default on our loans for the first time in our history which will make us seem unreliable and that of course will be followed by a dramatic decrease in the value of the dollar...hurray!

Die Zeit (German Newspaper) agrees with him: http://www.zeit.de/politik/2011-07/sommertheater-mit-restrisiko
The quandary continues. Republicans want no more taxes but lower welfare (is that even possible in the U.S.? omfg), Republicans say no cuts but higher taxes for the rich.
If they cannot find a compromise in three weeks, the U.S. will be unable to pay their bills.

As I used to say here before, both have to be done - cuts on spendings as well as increasing taxes. Yet especially decreasing spendings appears risky to me, as it endangers economy. And the U.S. have finally to cut on their military... :eyeroll It's bigger and more expansive than during cold war, cmon. Obviously arms industry would be severely opposed, so I guess nothing will happen.

The U.S. are pretty much done for imo. It's an unstoppable descend.

[xi0]

I really can't see the entire Republican Party going along with this farce too much longer without risking SERIOUS damage to them in 2012.

[Roflkopt3r]

I really can't see the entire Republican Party going along with this farce too much longer without risking SERIOUS damage to them in 2012.

I'm not so sure. They are clinging to economic liberalism while making a xenophobic appearance, thus still wanting their military to be strong. It is a total complete jam in financial matters, but it seems that the financial situation was severely underrated by vast parts of U.S. population and even politicians, at least German newspapers said so a few weeks ago. That this might be the most serious problem of the U.S. - big crisis and not enough people even notice that.

[xi0]

I'm not so sure. They are clinging to economic liberalism while making a xenophobic appearance, thus still wanting their military to be strong. It is a total complete jam in financial matters, but it seems that the financial situation was severely underrated by vast parts of U.S. population and even politicians, at least German newspapers said so a few weeks ago. That this might be the most serious problem of the U.S. - big crisis and not enough people even notice that.

Well people who care notice...it's all that non-conservative media talks about every day. I'm not talking about anything in specific, just the debt-ceiling issue. Those of the Tea Party may wave the flag and all that, but it's pretty obvious that they're anti-government, and they at least act like they want to see us default or something. Heads will role next year if the extreme right gets their way.

[Franckie]

I really can't see the entire Republican Party going along with this farce too much longer without risking SERIOUS damage to them in 2012.

The Republican Party has proven its own incompetence regarding the power of the purse one too many times already. The Bush years are a blatant example and the party has hardly changed since then as their current views on topics such as tax cuts and Medicare demonstrate. The party is far too willing to gamble the USA's health in order to get what they want, so I can see the majority of the Republican Party actually going through with their threats if Democrats don't accept their demands. Especially since their political base has been very partisan here these past few years.

[xi0]

The Republican Party has proven its own incompetence regarding the power of the purse one too many times already. The Bush years are a blatant example and the party has hardly changed since then as their current views on topics such as tax cuts and Medicare demonstrate. The party is far too willing to gamble the USA's health in order to get what they want, so I can see the majority of the Republican Party actually going through with their threats if Democrats don't accept their demands. Especially since their political base has been very partisan here these past few years.

I think you're off there. The entire Tea Party movement was born out of how much money was spent recklessly by the Bush administration (They blame liberals, but won't acknowledge that Bush raised the debt ceiling every year but 2005). The bailouts he signed into law when he was a lame-duck. The Republican party received an infusion of these Teabaggers to make them even more right-wing.

Yes Bush passed tax cuts for the richest, but he spent money just as much as any other president has, liberal or conservative.

[Roflkopt3r]

Three days ago, S&P lowered U.S. credit rating to AA+.
So, ultimately it happened. Many newspaper are guessing wether this could be the end of the U.S. as a "superpower" and write about how humiliating it is that they get critizised by China now.

[kkck]

Well, this is significant but I kinda have my doubts about this being the end of the US as a superpower. Surely there will be trouble associate with it but not enough to do that much, specially if other country's debt seems to be slowly but surely getting as uncontrollable. A number of other things have to go wrong with the US to stop it from being a superpower IMO and more particularly, a number of others things don't have to go wrong with other countries (which is unlikely). US economy is in bad shape (understatement of the year lol) but if the other superpowers are in bad shape too then its position should remain comparatively the same. More importantly, for US to lose its position there has to be someone to take over it. As things are, even china might not be quite up there. That said, I would rather have US in charge than china any time of the year.

[thsv]

Well, this is significant but I kinda have my doubts about this being the end of the US as a superpower. Surely there will be trouble associate with it but not enough to do that much, specially if other country's debt seems to be slowly but surely getting as uncontrollable. A number of other things have to go wrong with the US to stop it from being a superpower IMO and more particularly, a number of others things don't have to go wrong with other countries (which is unlikely). US economy is in bad shape (understatement of the year lol) but if the other superpowers are in bad shape too then its position should remain comparatively the same.
On the plus side the US economy is pretty diverse so if enough areas can get their act together they should pull through.

More importantly, for US to lose its position there has to be someone to take over it. As things are, even china might not be quite up there. That said, I would rather have US in charge than china any time of the year.
China needs the US more than the US needs China. China's main concern is that the US doesn't screw up so badly that it's $3.2 Trillion cash reserves become worthless. Hell if China was so concerned with western debt it shouldn't tell the EU that it'll buy up it's debt to get them out of the hole the Greeks, Portuguese, Spanish and Irish have dug for everybody. I don't include Italy in that as they are actively trying to sort themselves out.

As for the US debt problem - Grit your teeth and pay your taxes. Or maybe stop fighting overseas wars.

[kkck]

Well, china needs the world as a whole, not just the US. I mean, they sell everything to everyone right? I guess you can ultimately trace everything to the US considering everything its sheer importance though... China should be about close to paying for their child control policies though, they are screwed in that regard (not talking about karma or anything of the sort though).

I don't think the debt issue is as simple as paying your taxes, the debt is far to huge for that to solve the issue. One fo the more prominent aspects of obama's government has been the ideological fights between parties. According to the democrats anyone who wishes to reduce taxes and decrease spending is immediately a right wing nutjob who only cares about making rich people richer.... Then on the other hand you have the republicans claiming that anyone that wants to increase taxes and spending is a freedom hating communists who would be better off sucking of castro's balls. have these guys gone utterly insane? As a result, there is no clear direction as to what is being done to improve the economy..... Democrats lost strength over the years (the result of voting for a guy who obviously has lacked the leadership to unite the country simply because they perceived that he could bring change because he was black rather than the usual white dude) and as a result both the democrats and republicans are failing to do whatever they were originally planning to do and settle for somewhat stopping the sheer insanity of the other party. Increasing or decreasing taxes or expenditure (within certain ranges of course) does not make you a freedom hating communist nor a right wing nutjob, it all depends on the situation the economy is in and what they are trying to achieve. brazil for example has a butload of money coming in even now and god knows inflation would have destroyed them by now if certain taxes were not as high as they are now.

As far as I am concerned, there is no 1 way to deal with the crisis at large right now but I do think that having both parties reaching only half or scraps of what they wanted will not help anyone. Rather than thinking in terms of right or left wing they should be thinking of controlling the debt. Replublicans can't afford to not tax individuals and companies and democrats sure as fuck cannot afford the level of spending they want (worst, they wanted to further increase it...). Hopefully obama will be nowhere near the presidency for the next term and someone who can actually give the nation some actually direction is elected as obama has proven to be a terrible leader who only caused further division... Ok, maybe obama was not as terrible as I make him out to be but at the very least he was not the precident the US or the world needed IMO.

[Roflkopt3r]

Well, this is significant but I kinda have my doubts about this being the end of the US as a superpower. Surely there will be trouble associate with it but not enough to do that much, specially if other country's debt seems to be slowly but surely getting as uncontrollable. A number of other things have to go wrong with the US to stop it from being a superpower IMO and more particularly, a number of others things don't have to go wrong with other countries (which is unlikely). US economy is in bad shape (understatement of the year lol) but if the other superpowers are in bad shape too then its position should remain comparatively the same. More importantly, for US to lose its position there has to be someone to take over it. As things are, even china might not be quite up there. That said, I would rather have US in charge than china any time of the year.

Well, totally agree with the last sentence.

Hm, looking at the state of the world...

I got the feeling many more countries will be in such bad debt soon, and worlds nations have gathered abstruse amounts of debts. I'm still waiting for a massive wave of bankrupcy around the world, and I'm very curious what will follow to that. The states might actually come out of that strengthened, beeing less influenced by economy once they got rid of their debts, but just as well massive crisis can occur and maybe carry further when banks will once more lose billions.

[kkck]

What do you mean about countries being less influenced by the economy? Or do you mean by the market?

[Kaiten]

Well, china needs the world as a whole, not just the US. I mean, they sell everything to everyone right? I guess you can ultimately trace everything to the US considering everything its sheer importance though... China should be about close to paying for their child control policies though, they are screwed in that regard (not talking about karma or anything of the sort though).

The reason the U.S. is so much more important to China than other economies is that they are so heavily invested in the dollar. The more the value of the dollar drops, the greater the effect on the Chinese economy. They are also heavily invested in short term U.S. bonds, using low risk treasury bills as cash havens. China is so invested in T-Bills that they can not cash out, the Yuan is so closely tied to the dollar that inflation would literally make Chinese money worthless. For all intensive purposes China is America's sugar daddy, and we only need to pay back when we feel like it. Since T-Bills are considered risk free the U.S. pays extremely low interest to China. China does not have similar investments in the Euro or European debt. They have no stake in the current Eurozone crisis.


I don't think the debt issue is as simple as paying your taxes, the debt is far to huge for that to solve the issue. One fo the more prominent aspects of obama's government has been the ideological fights between parties. According to the democrats anyone who wishes to reduce taxes and decrease spending is immediately a right wing nutjob who only cares about making rich people richer.... Then on the other hand you have the republicans claiming that anyone that wants to increase taxes and spending is a freedom hating communists who would be better off sucking of castro's balls. have these guys gone utterly insane? As a result, there is no clear direction as to what is being done to improve the economy..... Democrats lost strength over the years (the result of voting for a guy who obviously has lacked the leadership to unite the country simply because they perceived that he could bring change because he was black rather than the usual white dude) and as a result both the democrats and republicans are failing to do whatever they were originally planning to do and settle for somewhat stopping the sheer insanity of the other party. Increasing or decreasing taxes or expenditure (within certain ranges of course) does not make you a freedom hating communist nor a right wing nutjob, it all depends on the situation the economy is in and what they are trying to achieve. brazil for example has a butload of money coming in even now and god knows inflation would have destroyed them by now if certain taxes were not as high as they are now.

As far as I am concerned, there is no 1 way to deal with the crisis at large right now but I do think that having both parties reaching only half or scraps of what they wanted will not help anyone. Rather than thinking in terms of right or left wing they should be thinking of controlling the debt. Replublicans can't afford to not tax individuals and companies and democrats sure as fuck cannot afford the level of spending they want (worst, they wanted to further increase it...). Hopefully obama will be nowhere near the presidency for the next term and someone who can actually give the nation some actually direction is elected as obama has proven to be a terrible leader who only caused further division... Ok, maybe obama was not as terrible as I make him out to be but at the very least he was not the precident the US or the world needed IMO.

Sadly, that's the same rationale Standard and Poor's used to justify the downgrade. While it is true that the ideological divide is hampering efforts to grow the economy and decrease sovereign debt, in no way does it put the U.S. in the same position as Greece, Portugal, or Ireland where there is a real threat of default. Now that the debt ceiling through 2012 was lifted there is no chance of U.S. default in the short or medium turn. The U.S., simply put, can not run out of money. As the world reserve currency the U.S. has license to print as much money as needed, tempered only by inflation (printing to much would be insane, the dollar would become worthless). The only possible way for the U.S. to default is if the debt ceiling crisis is repeated in 2013. Considering how unlikely it is for the political situation to remain the same after the next election the odds are very low. Credit rating agencies are not in the business of making long term political forecasts. There job is to assess the risk that a party will fail to service their debt obligations. As there is no chance of the U.S. running out of money in the short or medium term, revoking our AAA rating was simply asinine, another example of Standard and Poor's failing to read the market. In 2007 it was clear that mortgage backed securities were quickly losing value, yet they retained a AAA rating. Last week it was clear that U.S. bonds remained safe havens, as investors sought risk free investments in the face of a growing Eurozone crisis. Yet Standard and Poor's again ignored the market and revoked our AAA rating. The market spoke again yesterday: as stocks fell, investors moved money into U.S. bonds as a safe haven, along with the Yen and Swiss Franc.

The debt ceiling crisis and budget debate had as much to do with internal Republican politics as an inter-party divide. Any bill that the sixty Tea Party representatives would be willing to vote for would never pass the Senate and White House. Anything that would pass the Senate and White House would lose Tea Party support, requiring Boehner to cross the aisle and court a large number of Democrats. Obviously, that is politically unacceptable. Come election time the Democrats could use that against the Republicans. What he did instead was actually politically savvy. He knew the debt ceiling had to be raised, he was not going to be the Speaker who forced the country into default. So he passed a bill that was acceptable to the Tea Party, without any Democrats voting yes, even though he knew it would die in the Senate. He knew that the Senate would reconcile his bill with the Reid bill, that the reconciled bill would likely pass both houses and be signed into law. That way the U.S. would not default, a bipartisan compromise would be reached, and he would not have to explain why he needed to lobby Democrats for votes. Had the Tea Party not begged for more concessions (that were not in the final bill anyway), the Boehner bill would have passed the House on Wednesday and we would not have come so close to the deadline. The mainstream of the two parties were never that far apart, it was the Tea Party that brought us to the brink. It would not surprise me if most donors turn there back on the Tea Party, pouring money into primary challengers in 2012 and 2014.

As far as reducing long term debt goes, tax reform is essential. Major corporations are essentially untaxed, costing the U.S. trillions. Corporate profits deposited in an off shore bank can not be taxed, a completely legal way to avoid taxes. Some industries, like oil and coal, are not taxed. Targeted spending cuts are also important but it is important to avoid cuts that hinder growth. The government should reform how it negotiates prices for medicare, how it negotiates contracts with sub-contractors and other smart ways of spending money. Only cutting programs means that someone else is losing money, hurting the economy more than any deficit spending could. For example: to large a cut in military spending means bases are closed and jobs are lost. Ultimately lowering unemployment, investing in growth industries, building infrastructure, and restoring growth to pre-banking crisis levels will build a surplus faster than any cuts possibly could.


Well, totally agree with the last sentence.

Hm, looking at the state of the world...

I got the feeling many more countries will be in such bad debt soon, and worlds nations have gathered abstruse amounts of debts. I'm still waiting for a massive wave of bankrupcy around the world, and I'm very curious what will follow to that. The states might actually come out of that strengthened, beeing less influenced by economy once they got rid of their debts, but just as well massive crisis can occur and maybe carry further when banks will once more lose billions.

It is unlikely that the EU or U.S. would allow any country to default, assuming it's economy is large enough to effect international finance. The EU central bank will start buying Italian and Spanish bonds soon, essentially paying there debts for them. Technically Greece is in default because of the terms of the last bail out, but it has such a small economy that it can be contained. Italy and Spain are much scarier.

[kkck]

I just read an interesting article on my cnn app. The taxes on the rich which obama wants to implement affect a mere 3% of the taxpayers who are those who earn more than 200000 dollars a year. 0.2% of taxpayers make more than 1 million a year and only 8274 people made more than 10 million a year. Now, with the proposed tax rases obama plans on raising 750 billion over a decade. If this numbers are indeed true then I just can't imagine how this would even begin to make a dent on the trillion dollar debt which continues to grow. I agree in that taxes should overall be raised but in turn even what obama is suggesting the government would make out of it seems marginal at best. In the end I do get the impression cuts could have to be made elsewhere. of course, the debt does not have to be paid overnight either but at the moment tax raises for a marginal section of the population don't seem to be the answer at all (at least if the numbers are real), kinda seems more like generic not very useful populism.

[Roflkopt3r]

I just read an interesting article on my cnn app. The taxes on the rich which obama wants to implement affect a mere 3% of the taxpayers who are those who earn more than 200000 dollars a year. 0.2% of taxpayers make more than 1 million a year and only 8274 people made more than 10 million a year. Now, with the proposed tax rases obama plans on raising 750 billion over a decade. If this numbers are indeed true then I just can't imagine how this would even begin to make a dent on the trillion dollar debt which continues to grow. I agree in that taxes should overall be raised but in turn even what obama is suggesting the government would make out of it seems marginal at best. In the end I do get the impression cuts could have to be made elsewhere. of course, the debt does not have to be paid overnight either but at the moment tax raises for a marginal section of the population don't seem to be the answer at all (at least if the numbers are real), kinda seems more like generic not very useful populism.

Haha according to right wing such tax increases always hit the hard working middle class :XD
Actually german right wing said that even when it was about a tax only for millionaires...

It eventually will hurt U.S. armor industry, but the U.S. definitly have to cut their military spendings. They're ridiculous right now.

[kkck]

Well, as far as economics decision goes everything you do is speculation. The only way to actually know whether that will happen is to actually implement the measure. Even applying the same economic method under similar circumstances won't necessarily yield the same result. Could a tax raise for the rich hurt the middle class? It could -basic idea is that the rich invest less or not at all, they remain as rich due to keeping their money and middle classes have less jobs- yes. Will it always result in such a thing? No, it won't.