US debt limit raised to $8.96 trillion

Source: http://news.bbc.co.uk/2/hi/business/4827248.stm

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US President George W Bush has signed a bill to raise the national debt ceiling to nearly $9 trillion (£5.12 trillion).
The bill means the government can borrow a further $781bn and stops what would have been a first ever default of Treasury notes.

In addition, it permits the US to pay for the war in Iraq without increasing taxes or making domestic cuts.

The debt increase, the fourth since Mr Bush came to power, comes as the budget deficit reaches near record levels.

An additional increase in the debt limit next year is likely, the Associated Press news agency said.

The latest measure enables the debt limit to increase to $8.96 trillion from its previous level of $8.18 trillion.

Well, this take's care of my objections to the amendment of that port security bill. But is paying short term debt with long term debt a good idea? Do you think that the US government is selling out the future for the present?

Jam it back in, in the dark.

The 8.96 trillion is a big number thats thrown around alot. If you've taking some economics classes you'd find out its very misleading and takes into account debt that's not even really bad debt (aka government in debt to itself). Also if you look at the ratio of GDP growth to Debt growth you'd find that our ability to pay the debt has been going up, not down.

Nevertheless, the crowding out effect will happen. Less money will be available to be loaned out to businesses and economic growth will ultimately slow a little. Its all tradeoffs and there's really no right answer.

There's nowhere I can't reach.

Originally Posted by Watts

Do you think that the US government is selling out the future for the present?

Yep, and it has gotten to the point where there isn't even effort put into curbing the huge deficits. I also pity what ever elected official gets stuck having to deal with this situation, as they are likely to become pretty damn unpopular despite the fact that they are having to come in and clean up after someone else's mess.

Anyway, the US isn't the only one spending up huge sums of debt, Japan in particular worries me (their debt has gotten so bad its 150% of their GDP vs. 65% for the US) and with the ever increasing global economy the effects will likely cause a huge ripple when they finally do occur.

This thing is sticky, and I don't like it. I don't appreciate it.

Originally Posted by xen0phobia

Also if you look at the ratio of GDP growth to Debt growth you'd find that our ability to pay the debt has been going up, not down.

The reason why the debt limited needed to be raised, and also the reason why the federal pensions program was dipped into, was because the Treasury Department almost defaulted on their debt repayments. Which is why I asked if paying "short term debt with long term debt" made sense to anybody.

Originally Posted by xen0phobia

Nevertheless, the crowding out effect will happen. Less money will be available to be loaned out to businesses and economic growth will ultimately slow a little. Its all tradeoffs and there's really no right answer.

Or we'll see rising interest rates and inflation. Keep in mind, the Federal Reserve is going to stop printing their M3 (money supply) numbers this month. So nobody will know how much money the Federal Reserve is actually printing off. Make's me a little nervous. Especially if the new chairman thinks he runs a paper factory.

I am a dolphin, do you want me on your body?

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Or we'll see rising interest rates and inflation.

Exactly what i implied, because obviously if there's less money for the private sector then interest rates would go up. Hence, why i said there would be less investing.

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Which is why I asked if paying "short term debt with long term debt" made sense to anybody

It does, but like everything else it involves a trade offs. Putting payments off till later isn't necessarily a bad thing. Of course you'll dissagree, but economically it really doesn't hurt us that much. It just means we'll have to pay back more later. A simple now versus later problem, and when those occur government loves the later. It's not really right or wrong.

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Originally Posted by xen0phobia

It just means we'll have to pay back more later. A simple now versus later problem, and when those occur government loves the later. It's not really right or wrong.

I would only agree with you if there wasn't this notion of interest that the government is expected to pay on the debt they acquire. Of course, this means they are basically throwing away the money right now (I would consider that wrong, I don't know about anyone else) and it leaves a large sum of the country's debt to fall into other interested nation's hands.

I really don't see any positives to letting it pile up, or how you could see this as "right or wrong." The goverment does need to stockpile a certain amount of debt simply so they have the power to influence interest rates through what they currently pay, but the amount they have acquired is far beyond simply keeping that in check in the market.

What kind of toxic man-thing is happening now?

But maybe the effects of increasing taxes could hurt the economy more then the amount the debt will burden us later on. Of course, knowone can really know this but its a valid point to bring up.

FELIPE NO

Originally Posted by xen0phobia

But maybe the effects of increasing taxes could hurt the economy more then the amount the debt will burden us later on. Of course, knowone can really know this but its a valid point to bring up.

Why not just spend less? These record deficits aren't happening with nothing driving them. Also taxing more is inevitable, especially by acquring more debt like the US is. If the current population isn't paying it, then all its doing is passing the buck to the next generation to be taxed more heavily to pay it off.

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Originally Posted by xen0phobia

But maybe the effects of increasing taxes could hurt the economy more then the amount the debt will burden us later on. Of course, knowone can really know this but its a valid point to bring up.

Well at the rate we're spending money it'll be very hard to pay off the debt at a reasonable pace. I read in the newspaper today from the Washington Post that some republican safety committee or whatever did a study and found out that we can repay our debt by 2011, but at the cost of education, transportation, and welfare programs. Much of the federal funding for the arts and humanities will essentially be gone, medicaid and all other kinds of programs to help people below the poverty line will either be significantly cut back or eliminated. They say by about '08 or '09 the Federal Highway program will also get trimmed significantly. All this is on top of tons of other programs getting the axe (however defense and veterans funding was not touched in this study). No one will want to make these kinds of cut, for that matter even really talk about it. So its either we raise taxes to help pay off this ridicuously massive debt of ours, cut all those welfare programs etc etc, or we just keep accumulating debt.

Jam it back in, in the dark.

Originally Posted by xen0phobia

Exactly what i implied, because obviously if there's less money for the private sector then interest rates would go up. Hence, why i said there would be less investing.

Then the real question is; how does this effect the spending power of the average American with a second mortgage? What adverse effects would this have on our economy? Certainly this scenario would lead to more forclosures.
Possibly an end to the housing market boom.

Originally Posted by xen0phobia

It does, but like everything else it involves a trade offs. Putting payments off till later isn't necessarily a bad thing. Of course you'll dissagree, but economically it really doesn't hurt us that much.

By no means would I disagree with that. If inflation is a factor like I suspect it will be, it's in our best interests to spend as much now as we can now and pay less later. Or... not at all.

Originally Posted by Arbok

I would only agree with you if there wasn't this notion of interest that the government is expected to pay on the debt they acquire. Of course, this means they are basically throwing away the money right now (I would consider that wrong, I don't know about anyone else) and it leaves a large sum of the country's debt to fall into other interested nation's hands.

Let's speak in completely theoretical terms; If I have a load of debt that I have no chance of paying off, and can barely make interest payments on, what would be the point of not using as much credit as possible before I go into bankruptcy? The world's economy and the change in bankruptcy laws aside. Since high energy prices might very well reduce, or even end the former.

There's nowhere I can't reach.

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Why not just spend less? These record deficits aren't happening with nothing driving them.

If you're talking about the government, I agree. But lets be honest, spending less doesn't work with politians. They only know increase so they can get re-elected and be considered a good president. Thats the way I feel anyways. Since most people are to stupid to understand sacrificing things now, for better things later they can get away with it. Knowone does anything unless the problem is right at their feet.

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If the current population isn't paying it, then all its doing is passing the buck to the next generation to be taxed more heavily to pay it off.

Not necessarily true. As long as productivity increases with the debt, technically there won't be a higher burden. But (feels repetitive) its impossible to tell if this will happen so there's a good chance you're right.

But you know, the bigger problem is social security. Buts thats for another topic

This thing is sticky, and I don't like it. I don't appreciate it.

Or, we could enter a global crisis in which all debts are defaulted, or the Asian Banks burn their US bonds.

Either one is not a desirable scenario.

I am a dolphin, do you want me on your body?

Originally Posted by Bradylama

Or, we could enter a global crisis in which all debts are defaulted, or the Asian Banks burn their US bonds.

Either one is not a desirable scenario.

Yet entirely possible. Which was basically what I was hinting at with my response to Arbok.

I was speaking idiomatically.

Or someone drops a nuke and every lil bit of debt doesn't matter a damned bit.

What kind of toxic man-thing is happening now?

Originally Posted by tweeter

Or someone drops a nuke and every lil bit of debt doesn't matter a damned bit.

So assuming the world isn't completely insane, what do you think is the right solution? There's plenty of possibilities.

Originally Posted by Yggdrasil

Well at the rate we're spending money it'll be very hard to pay off the debt at a reasonable pace.

Not if inflation is high. Maybe Weimer Republic style hyper-inflation?

Originally Posted by Yggdrasil

Much of the federal funding for the arts and humanities will essentially be gone, medicaid and all other kinds of programs to help people below the poverty line will either be significantly cut back or eliminated.

Which begs the question of how much in funding cuts to the domestic programs will people tolerate?

Originally Posted by Yggdrasil

They say by about '08 or '09 the Federal Highway program will also get trimmed significantly.

We might not need as much money for the Highway program. I doubt anybody has a clear or accurate picture of our energy situation in 2009.

Originally Posted by Yggdrasil

All this is on top of tons of other programs getting the axe (however defense and veterans funding was not touched in this study). No one will want to make these kinds of cut, for that matter even really talk about it.

Defense spending by far outweighs domestic spending. It does not lend itself much credit to this study that they didn't try to forecast that. But it was probably left out for political reasons.

FELIPE NO

As stated earlier, there really isn't any real answer. Unless all the countries of the world form one large federation, I doubt anyone's debt will ever be relieved (with exception taken to the African countries during G5).

What, you don't want my bikini-clad body?

What do you think one nuke would do, anyway?

And by the way, the concept of this debt escapes me. I'm imagining it's not debt in our traditional middle class variation...here's a credit card! Oops, I'm 20,000$ in debt. I wonder exactly where it comes from, and why can't we just say, have no debt any more? Why can't we just wipe the papers out? Debt is an abstract concept. It's not material, so why bother with it? Who is coming to collect?

Can anybody elaborate this for me?

Jam it back in, in the dark.

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What do you think one nuke would do, anyway?

Start a third world war, drive energy prices to never-before seen highs, cause a freefall in stock markets across the globe (and lead to an economic depression), oh and of course, kill tens of thousands, if not hundreds of thousands of people.

How ya doing, buddy?

Originally Posted by deadally

And by the way, the concept of this debt escapes me. I'm imagining it's not debt in our traditional middle class variation...here's a credit card! Oops, I'm 20,000$ in debt. I wonder exactly where it comes from, and why can't we just say, have no debt any more? Why can't we just wipe the papers out? Debt is an abstract concept. It's not material, so why bother with it? Who is coming to collect?

Can anybody elaborate this for me?

I'll try. This is kind of complex. This type of debt is worse then the average consumer debt. If we acquire too much debt, foreign investers will become nervous about holding onto their US dollar reserves/debt. Since the more debt you have the less capable you are of repaying it back. If they were to "deversify" their holdings (which really means stop buying, and try selling their dollars) inflation, interest rates, and our economy would tank. The US economy's and our GDP growth is based pretty much solely upon debt.

Anyway, what they're holding onto is more or less a "I owe you!" note from the Treasury Department. It used to be that you could turn in your dollars for a certain quanitiy of gold. But not anymore, so you are right when you said it's an abstract concept. It's not even paper... just numbers on a computer nowadays. But numbers on a computer that could cause massive problems for the average American if they were mismanaged.

Since the trade in oil take's place only in dollars, countries are required to hold and buy dollars. But that's starting to change. The Iranians tried to launch their oil bourse in Euros. And the Norway has talked about doing the same. If the trade in oil shifted away from dollars, countries would stop buying our dollars, or even loaning them. Then start calling in their "I owe yous" to the Treasury Department. Or trying to sell them. With our trade imbalances and a massive federal deficit, it's doubtful we could pay. As as result the US Dollar would suffer accordingly. Probably through massive Weimer Germany type inflation. Thus the US/world economy and your average American would suffer. Of course that's not the only course of action. Some economists worry about the deficit, some don't.

Uhh I could probably elabarote a lot more. But that's basically a summary... especially since I didn't touch topics like GDP/growth, or even capitalism at large. But that's up to you if you want to pursue it. I'm a crappy 'splainer anyway. I probably left out a few very important details.

This thing is sticky, and I don't like it. I don't appreciate it.

Oil remains the main chink in the armor of the US economy though. It's the main way the dollar would collapse, and frankly, in a business sense, it's stupid for OPEC and others to keep trading in dollars anyways. With the terrible exchange rates, they would make much more money by selling in Euro's simply put, and if it weren't for the obvious threat of a US military intervention to prevent an economic collapse, I'm sure countries would be much more open to a change.

I am a dolphin, do you want me on your body?

Originally Posted by Adamgian

Oil remains the main chink in the armor of the US economy though. It's the main way the dollar would collapse,.

I can agree with that. I bet everybody on the forum bitching about gas prices could too.

Still doesn't change the fact that economists aren't visionaries in any sense of the word. We're conformist reactionaries.

Originally Posted by Adamgian

and frankly, in a business sense, it's stupid for OPEC and others to keep trading in dollars anyways. With the terrible exchange rates, they would make much more money by selling in Euro's simply put, and if it weren't for the obvious threat of a US military intervention to prevent an economic collapse, I'm sure countries would be much more open to a change.

It's gonna be a slow shift to be sure. At the same time countries have to be careful about not underminding their own vast dollar reserves. You also covered the whole military intervention aspect. Which is a concern. Unless the US somehow overextends itself making the fear of a military intervention moot.

I was speaking idiomatically.

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It's gonna be a slow shift to be sure. At the same time countries have to be careful about not underminding their own vast dollar reserves. You also covered the whole military intervention aspect. Which is a concern. Unless the US somehow overextends itself making the fear of a military intervention moot.

Yeah, but the profits from such a change would mean money lost in dealing with dollar exchanges would be made back pretty quickly.

Actually, I can see such a change occuring in the near future though, especially as the US becomes a less dominating factor in international politics. Most people outside the region don't know this, but the GCC (Gulf Cooperation Council) is planning to adopt a common currency by 2010. Logic means that it won't be pegged to the dollar, since that would just be the same thing it is now then (all current gulf currencies are dollar pegged, mostly because the Saudi Riyal is, and they control the gulf). Oil sales in that currency would be a great way to prop up the currency, give it international legitimacy, and even give the region potentially better rates to China, who they see as a more reliable ally since it doesn't "interfere in their internal affairs."

And do you know why above all they will want to do this? To fuck over Israel, and frankly, it's the ultimate way to fire a broadside at the economies of Israeli supporting nations, while also greatly helping the regions allies that decide to cater to their interests.

What kind of toxic man-thing is happening now?

Originally Posted by Adamgian

Yeah, but the profits from such a change would mean money lost in dealing with dollar exchanges would be made back pretty quickly.

Given that the dollar is weakening and that it's future outlook is not bright, I can agree with that. Despite my weak protests to the contrary.

I don't suppose you've heard some of the crazy things our Federal Reserve Chairman has been talking about lately? One plan is to load up helicopters with 100 dollar bills, and drop it on the populace at large to "deinflate" the US economy and currency. World's economy be damned. The man's either completely insane or a genius. Maybe both.

Originally Posted by Adamgian

Actually, I can see such a change occuring in the near future though, especially as the US becomes a less dominating factor in international politics. Most people outside the region don't know this, but the GCC (Gulf Cooperation Council) is planning to adopt a common currency by 2010. Logic means that it won't be pegged to the dollar, since that would just be the same thing it is now then (all current gulf currencies are dollar pegged, mostly because the Saudi Riyal is, and they control the gulf). Oil sales in that currency would be a great way to prop up the currency, give it international legitimacy, and even give the region potentially better rates to China, who they see as a more reliable ally since it doesn't "interfere in their internal affairs.".

I've only heard really vague plans to that extent. Plans don't always mean occurances in reality. The US may not be able to interfere in your internal affairs at that point, but the Europeans can. I'm not convinced that they wouldn't at that point.

Then again, it'll be 2010 or later. It won't be hard to imagine that there's going to be a whole 'nother playing field at that particular point in time.

Originally Posted by Adamgian

And do you know why above all they will want to do this? To fuck over Israel, and frankly, it's the ultimate way to fire a broadside at the economies of Israeli supporting nations, while also greatly helping the regions allies that decide to cater to their interests.

The main reason I would think such a switch over would occur would be to get their currencies/economies away from the dollars instability and unpredictability. That's primarily the reason why the European Union collectively turned to the Euro. Helping to foster trade in the region, which convienently leaves out Israel is a bonus.

FELIPE NO

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I've only heard really vague plans to that extent. Plans don't always mean occurances in reality. The US may not be able to interfere in your internal affairs at that point, but the Europeans can. I'm not convinced that they wouldn't at that point.

Then again, it'll be 2010 or later. It won't be hard to imagine that there's going to be a whole 'nother playing field at that particular point in time.

European economies deal much more with oil exports than the US does however, and while in decline, a boost in oil prices would probably benefit the continent. Russia, the Netherlands, and Britain would all like to make more money off it after all.

Considering China's economic boom as well and the strains it will be putting on global oil supplies, anything that causes a decrease in US oil consumption would lossen up capacity for them that they desperately need. They'll be interested in seeing how such a situation plays out as well.

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The main reason I would think such a switch over would occur would be to get their currencies/economies away from the dollars instability and unpredictability. That's primarily the reason why the European Union collectively turned to the Euro. Helping to foster trade in the region, which convienently leaves out Israel is a bonus.

You've highlighed the problem in that though. The main reason many countries peg their currencies to the dollar and that oil is traded in it is because it is considered a stable currency. A dollar fluctuating too much is not a safe currency to do business in, which is why many are probably looking for a slow way out.

How ya doing, buddy?

Originally Posted by Adamgian

Considering China's economic boom as well and the strains it will be putting on global oil supplies, anything that causes a decrease in US oil consumption would lossen up capacity for them that they desperately need. They'll be interested in seeing how such a situation plays out as well.

Not just China, but India too. Also factor in the world's inability to keep raising production quotas of our hydrocarbon energy sources to keep our economies growing.

Which is why I said that the global playing field is definitely going to shift by 2010 even though that's only four years away. Exciting times we live in eh?

Originally Posted by Adamgian

You've highlighed the problem in that though. The main reason many countries peg their currencies to the dollar and that oil is traded in it is because it is considered a stable currency. A dollar fluctuating too much is not a safe currency to do business in, which is why many are probably looking for a slow way out.

Well then, touche sir.

Jam it back in, in the dark.