Stop Me Before I Spend Again

The Congress has one basic duty. Every year, they must write and pass a budget that will be signed by the president. There’s not much else to do under the Constitution. Lawmakers still write new laws, even 200 years later, including the United States Public Debt Act of 1939. Even though Congress has the sole authority to request credit under Article 1, Section 8 (take that, 14th Amendment), they eventually wanted to have one single limit on debt instead of raising each individual kind of debt held by the government. That means the debt ceiling was created to make it easier to borrow.

Plenty of Democrats (even Obama opponents lately) have questioned both the sanity and the loyalty of Republicans for holding up a debt ceiling vote since it is an increase for funds already spent allocated. In reality, it would be the Democrats who ignored their only job, passing a budget, for over two years and then raising a debt limit insufficient to cover their bills.

The Republicans exploited the bad credit of the 111th Congress to extract their pound of flesh. The cuts being asked for are relatively small in that they will require more debt limit increases in the future. If the Democrats win back Congress in 2012, they can put all of that spending back in, anyway. The real sticking point may be the Balanced Budget Amendment.

The BBA would put in spending limits based on the annual GDP, which has been an indicator of federal income. Essentially 1/5 of our economic output would go into government, down from the nearly 1/4 it is now. That limit would make new debt uncommon, as the deficit would become small by definition.

The interesting part is that this is even a Republican issue. By most accounts, Republican administrations spend more than Democratic ones. You would think that a liberal would like the idea of a president going before the American people and telling them they want to start a war in a foreign country but you have to give up Medicare to do it. We may never fight anyone again.

An Amendment may be too difficult of a solution to implement but we are spending well beyond our means at a time when hoarding is king.  This goes beyond rating agencies and large interest payments. This is the first duty of our lawmakers.

About 1539days

I'm like a word a day calendar for executive disasters.
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99 Responses to Stop Me Before I Spend Again

  1. DeniseVB says:

    “The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the US Government can not pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. Increasing America’s debt weakens us domestically and internationally. Leadership means that, ‘the buck stops here.’ Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.”

    – Senator Barack H. Obama, March 16, 2006 on the US Senate floor

    • 1539days says:

      Dick has already said that he regrets his vote against the debt ceiling now that he’s in charge of it. Of course, I have never heard him deny all the things he said about high debt levels. Did he think Bush’s war was bad debt? He continued it and added to it. Was he opposed to the cost of the Bush tax cuts? He extended them twp years part their sunset date.He needs to really stop speaking, though. Each word lowers his approval rating.

  2. yttik says:

    Good post. I remember when liberals used to be down on defense spending. Dreaming of a day when education is funded and the pentagon has to have a bake sale to buy a bomb. Today it seems like defense spending is just kind of ignored, we’ll just fund social services by raising taxes and borrowing money.

    You’re absolutely right, a balanced budget shouldn’t be a liberal vs conservative issue, it should be a peace issue. There would be no needless wars or wars for profit or ego if the president and congress had to explain to people why it was necessary for them to give up their medicaid. The fact that there is no limit to how much we can spend makes war more likely.

    But then again we haven’t really had a “war” since WW2. Somewhere along the way we allowed congress to worm their way out of their constitutional responsibility to declare war so now they just authorize the president to engage in these policing action conflicts as he sees fit. Congress doesn’t even have to authorize a budget until after the fact and sometimes not even then. Here, take this credit card Mr. President and try to let us know what you’re up to within 90 days…..Not only do we barely require he explain his justification anymore, we never even ask him how he intends to pay for it.

    • Dario says:

      A balanced budget is a bad idea. Balancing the budge is the wrong tool for the job. Most families don’t balance their budgets and would be stupid to do so. I’ve not balanced my budget since I took a mortgage in the 70s. I’ve never not had a mortgage. Though I hate credit cards, I’ve used them when I needed them. The idea of balancing budgets as a means to bring down spending is without merit.

  3. ralphb says:

    In the past, I’ve been opposed to a BBA but no longer. Politicians have proven beyond a reasonable doubt they cannot help themselves when it comes to spending other people’s money. That has to stop and a BBA may be the only way to stop it.

    • DeniseVB says:

      I think it’s politics because Obama doesn’t want to have to face this again in 2012, and the republicans want him too. It’s why I don’t believe any of the doomsday scenarios out of either side’s mouth.

    • Mary says:

      From Hot Air:

      One debt to rule them all,
      One debt to chide them.
      One debt to bring them all, and in the red-ink bind them.

      🙂

  4. yttik says:

    I kind of like Paul Ryan’s suggestion, “why don’t we just pass a bill to cover the moon with yogurt?” Sounds good, we can stimulate the space industry and the Dairy market at the same time.

    I can’t get upset about this debate. Somewhere between the accusations against Hobbits, trolls, and throwing yogurt at the moon, I lost my ability to take it all seriously.

  5. foxyladi14 says:

    just think we could have had the Real Democrat. That’s Hillary. 🙂

  6. ralphb says:

    I think this qualifies as race baiting. WTF?

    “Democrats criticize Haley’s checking of ‘white’ on voter registration application”

    COLUMBIA — What box should Gov. Nikki Haley check when it comes to her race?

    The South Carolina Democratic Party tried Thursday to make Haley out as a liar for checking “white” as her race on her 2001 Lexington County voter registration application.

    But the application had no specific option for “Indian.” Her options were “white, black/African-American, Asian, Hispanic, Native American or other.”

    http://www.postandcourier.com/news/2011/jul/29/haley-race-choice-attacked/

    • 1539days says:

      Remember when people were checking “Other” on the census forms and writing in “American?”

    • Dario says:

      Desperates.

    • angienc says:

      Not only race baiting & desperate — ignorant as well. Indians have always been & will always be considered Caucasian (which in common lingo is “white”). It has nothing to do with skin tone but skull shape. The Caucasian regions: Europe, North Africa (Algeria, Egypt, Libya, Morocco), West Asia (Middle East, Near East), Central Asia (Afghanistan & Russia) & South Asia (INDIA) . All Caucasian since people the term was coined in the 1880s, but these asshats want to change the definition based on what — skin color. In fairness, their move isn’t unprecedented — the NAZI’S wanted to declassify Indians as Caucasian as well. So, good going, SC Dems.

      BTW — the fact that I know this stuff should in no way be taken as my endorsement of the idea that people are of different races. I don’t. “Race” is a man-made construct to differentiate people into “others” to allow for their oppression; the characteristics that are used to differentiate are superficial biology & do not warrant such distinction into different “races.”

      • Dario says:

        Yup. Indians are Caucasians, and hence white in the race division. But to the desperate and to many who see the black skin, want to use “other”.

      • 1539days says:

        Race is primarily a reflection of environmental conditions in a given region. A mobile and culturally homogenious society will eventually look very much the same.

  7. Dario says:

    In reality, it would be the Democrats who ignored their only job, passing a budget,

    It’s okay to slap the Democrats and Pelosi for not willing to take responsibility and for not passing a full year budget, by using continuations of the prior year budget to fund the the government. It’s not okay to twist the truth. The Democrats passed a budget, if they didn’t, the government would have experienced a shut down like in 1995. If anything, by not passing a full year budget, expenses were kept at the same level for the months that the budget was continued.

    • 1539days says:

      So that means you would accept a budget freeze? Because that will reduce the deficit, too.

      • Dario says:

        It’s interesting the way you put your ideas, Days. To now make my words a form of approval because I disagree with you that the Democrats did not pass a budget is a clear fallacy.

        • 1539days says:

          If anything, by not passing a full year budget, expenses were kept at the same level for the months that the budget was continued.

        • Dario says:

          Yes, that’s what happened, but I did not say that I “would accept a budget freeze? Because that will reduce the deficit, too.”

          I absolutely do not accept that freezing the budget is a good way to bring down the debt. Situations change from day to day and from year to year. It’s not a good idea to keep the budget the same. It should be reviewed and updated to whatever conditions exist today or are anticipated the following year.

    • Mary says:

      Harry Reid CHOSE to do that so his fellow Democrats would not have any “difficult” votes on the record before the next election.

      That, my dear, is chickenshit.

      Due respect.

    • yttik says:

      But there really is no FY 2011 budget. And we’re more than halfway through the year. The gov continues to run because they’ve passed spending bills. Back in 2006 Pelosi herself said the most important thing congress should do is pass a budget. But fast forward to 2010, there’s an election coming and the last thing we want to do is let people know how much money we’ve been spending. Dems had a majority, they had a Dem president, they had the house and senate. They simply didn’t want to be held accountable right before an election so they refused to bring the budget to a vote.

      • Dario says:

        Yes there is a FY 2011 budget. Without a budget the government would shut down. The GOP, when it came to power in January 2011 passed a budget for the rest of the year, to October 2011. The 2011-2012 budget should be debated right now, but it’s not. I guess the GOP will do a continuation too until there’s agreement on the spending cuts.

      • Three Wickets says:

        It’s about the 2012 budget now. Why didn’t Nancy call a vote to end the Bush tax cuts when the Dems had control of both houses last fall, before the midterms. Raising the debt ceiling should always have been part of the one trillion December tax cut stimulus package which is baked into the 2012 budget. The choreography was about leveraging the ceiling for spending cuts. But now we’re facing a double dip recession, so oops..

        • Dario says:

          Obama wanted the Bush tax cut extended. Nancy simply went along with Obama because, you know, he had shown judgement. Whatever Obama wants, Nancy gives. She is the worst speaker, ever. She has given the word “liberal” a bad name.

        • Dario says:

          But now we’re facing a double dip recession, so oops..

          The GOP doesn’t care if we go into a recession, but want a bad recession, the worst the better. May I add too, that the Democrats did the same thing in 2006. They wanted a bad recession and did nothing to change the dynamics of the economy. The GOP is simply paying the Democrats with the same coin.

        • jjmtacoma says:

          I think the double dip is well under way. The determination of economic condition is made months after the fact, so come September, we’ll hear about it – maybe. More likely: “they” will cook the books initially and say things are flat and then release the data by bits and pieces to “correct” downward the leading indicators without diagnosing what they mean. Because we wouldn’t want to panic investors or anything.

          My tea-leaf reading and spidey sense are telling me we are there and this budget will just put us in the fast car on something already happening.

  8. Three Wickets says:

    Unlike a household budget, a government budget has to help drive the economy in addition to financing the public sector. Only caring about balancing the budget is like having the government trying to manage a household budget without a job. The Fed’s printed a lot of money, and it hasn’t translated well to growth and tax revenue. In order words, supply-side stimulus with Fed infusions and tax breaks is not working. If the private sector will not invest, the public sector needs to step in with more direct stimulus investments. We can’t have both sectors contracting at the same time. Borrowing rates are near zero right now, so more stimulus will not add a lot to debt service.

    The debt ceiling debate is an stageshow meant to deal with our long term challenges with entitlement costs. But it is badly timed since we’re going back into recession. They’ll probably adjust their scripts in Washington accordingly.

    • Dario says:

      Unlike a household budget, a government budget has to help drive the economy in addition to financing the public sector.

      Families use credit all the time to leverage their earnings. Most of us who buy a home don’t pay cash, for even if we did have the cash, we’d be better off by leveraging. Institutions use leverage. Apple is one of the few that’s decided not to leverage for reasons that make sense to that industry. Balancing budgets is just not a good idea. That doesn’t mean that borrowing the way the federal government has done it to carry on an imperial agenda is a good idea. In the end the U.S. will lose everything to keep a military that cannot fulfill an impossible agenda.

    • 1539days says:

      People take painkillers to reduce debilitating pain. If they take them all the time, they just damage their health. How does Keynesian economics help to stimulate a weak economy when we’ve run a budget deficit for most of the last 50 years? We’re not boosting a stuggling economy, we’re doping up the economy with a bigger dose. It’s hair of the dog economics.

      The debt ceiling increase is approximately $2.4 trillion. We’ve extracted that much from the economy in interest on the debt in just the last five years. The national debt has doubled in seven years. The GDP has grown by 1/3.

      • Dario says:

        That’s why I want the GOP to win and win big. I want their ideas to be put to the test. Unlike Krugman, whose knickers get in a twist, I want the GOP to prove that bringing the spending of the fed government will bring jobs and a great economy. Go for it. Cut taxes for the wealthy, keep the taxes or make them higher for the middle class, like RR, and make deep cuts in fed spending. Get rid of unemployment insurance and Medicaid. At this point I want a full blown test of those ideas and see where we go. I thought that after Dubya, it would be clear that when the GOP is in control disaster follows. But the Democrats were complicit with the GOP and stopped the disaster in 2008. Too bad. It’s also too bad that the Democrats decided to put Obama in the WH to take full credit for the disaster the GOP left.

  9. Dario says:

    To those who are of the Republican thinking that balancing budgets is the best thing since apple pie, I’d like to bring to your attention that most of our advances from the horse and cart days is due to the simple idea of using banks. The banks were able to bring all the currency that were stashed under mattresses and make that money available for lending so that families, businesses and government to leverage. It was that borrowing that made possible to build canals, highways and families to buy homes that would not have been possible with the cash that was made from month to month.

    To balance the budget to just receipts is the worst idea out there. That’s why Republicans are not my cup of tea. Their ideas are backward thinking. I think the Amish are a great culture, but I don’t believe that a freeze in time is the way to go.

    • 1539days says:

      Where does it stop? I think Paul Krugman has said that 200% of GDP is the danger zone. It would be comparable with Japan. Why not 300% or 400% of GDP? I’m sure I just have a bad rhetorical attitude by asking such questions.

      The attitude of going into debt up to your eyeballs and dying with a big credit card bill seems to be pervasive in this country. Buying a home implies that it will be paid off, not that it will be flipped and flipped again and leveraged into eternity. Debt itself is not bad, overextended debt is.

      You could easily have a balanced budget amendment that has a rainy day fund written into it. Then COngress would decide when to tap into it.

      • Dario says:

        Most of us who leverage our earnings do so in terms of our potential to make money. Banks, when they do their jobs, lend based on earnings potential. Though assets are important, it’s not the whole story. That’s why a person who makes no money can’t get a loan for a car even if that person owned a home and had jewelry that he could sell to pay off the loan. The U.S. has much more potential for increasing its earnings and lowering its spending, hence it’s rating is fine AAA. GDP is not a measure of earnings potential.

      • Dario says:

        I think Paul Krugman has said that 200% of GDP is the danger zone.

        I’ll take Krugman’s words because he’s the economist. I think that beyond 200%, the country would have receipts to pay the interest and for nothing more. But GDP is only a way to measure the earnings of the people who live in the country. In a recession, that goes way down, as we witness the U.S. today. If the GDP is growing at a nice clip, like 5.4% (that’s Kennedy’s GDP), then obviously the people will be rich and will pay more taxes or could be burdened with more taxes. So what we want to do is grow the GDP, not stagnate it or bring it to a complete stop, which is what the GOP wants to do.

        Methinks is time for the GOP to do it. Nothing would make more happy than the two parties disappearing.

        • Re GDP, I’ve seen it said:

          A flood reaches two neighbors, same damage. Each one hires the other to clean up his basement. GDP goes up! Yea for the flood!

        • 1539days says:

          That is the nature of GDP. But you have to go further back than the repair. Supplies are bought. If the neighbors have insurance, money is pulled from insurance company assets and pumped into the economy. Today, I heard a worse one. If a bank executive gets a raise, it’s an increase in GDP as well.

          There’s this thing called Hauser’s Law and it shows that over 80 years, federal revenue has consistently landed in the high teens as a percentage of GDP. This is over a period of time where tax rates have changed significantly. GDP may not be a true judge of economic activity, but it’s a decent indicator of the country’s salary.

    • SYD says:

      A “budget,” in fact, can include borrowed money. For most of us it does.

      Borrowed money goes in the green column. The interest paid goes in the red column.

      No one is advocating for a total ban on borrowing, or paying interest. Are they?? If so, I have not heard it expressed that way.

      The idea is that even borrowing and payback practices must happen within a “balanced budget.”

      Where does this “just receipts” language come from?? Just curious…

      • Three Wickets says:

        My assumption is that with a Balanced Budget Amendment, all spending including entitlement payouts and debt service must be covered by incoming revenue, which I believe would exclude net new debt.

        • SYD says:

          Perhaps.

          But there is already ample borrowed money in the system. So, we are still using that $$ as part of our bottom line.

          Capping borrowing at the point where it is about to undermine financial stability is not a bad idea.

          Then the question becomes… where does new revenue come from? And also what can be cut, without destabilizing the country more.

      • Dario says:

        I think that when the Republicans scream that they want a “balanced budget” it means that revenue and spending balance. Most states and cities have balance budget requirements in the constitutions/charters, hence, states don’t borrow to pay day-to-day expenses. The only borrowing allowed is through voter approved bonds for specific expenditures, like building of schools, bridges, etc. The federal government can’t have voter approved bonds, hence spending must match revenue.

        • Three Wickets says:

          Which is a problem in a recession when tax revenue is low, and there is no shortage of private sector investors who want to lend to the Treasury at historically low rates.

  10. WMCB says:

    OT – our new puppy came home today. Meet Maus:

  11. Pingback: Debt Ceiling Hobbits Versus The 'I' Of Sauron - Why We Indeed Do Need An Election Year Debt Ceiling Debate — Hillary Is 44

  12. Dario says:

    To those who are stuck on balanced budgets, here is something to look at: Greece, Ireland and Iceland. Greece has had to cut its government spending, and the more it cuts, the lower its GDP, and the more it has to cut. I think Greece’s GDP is about -11% now.

    Ireland also had to cut its spending and it’s a full blown recession. Btw, Ireland, as Krugman has pointed out, did not have a deficit before the banks took away its money.

    Iceland told the bankers to go Cheney themselves. It’s doing fine.

    • 1539days says:

      Didn’t you just say how important banks are because they finance debt?

      • Dario says:

        Yes. Banks are really important and we owe our development to them. But when banks act irresponsibly, like they did during the Bush years, it’s legalized theft. That’s why we had a financial crisis. Banks betting with other people’s money and paying their CEOs to do it. Sometimes people entrusted to take care of other people’s money take it or mismanage it. That doesn’t mean that the idea of banks is bad. It’s also common for accountants to cheat their customers, but we need accountants.

    • 1539days says:

      The people of Iceland are not having a great time of it, though.
      .
      http://news.bbc.co.uk/2/hi/programmes/from_our_own_correspondent/9550667.stm

      • Dario says:

        Thank you for that link. I think Iceland has shown the way to deal with fraudulent banks. Iceland is not out of the woods, but their story shows that going the way Greece went is a horrible idea.

        • 1539days says:

          I’m sure Iceland didn’t choose to run up a bunch of debt and than stop paying creditors. They made a decision that would hurt them in one way but keep them out of paying bank debts for years to come. One of our problems is the reign of the federal reserve bank.I think it’s funny that both Bernie Sanders and Ron Paul have been using the Fed audit to bolster their views.

          When any entity walks away from a financial obligation, it hurts the bank. It doesn’t hurt the CEO. The board of directors doesn’t cut his salary or take his house. The pain usually goes to the investors. For one thing, I think TARP was a disaster. If a house is worth $100,000 and was bought for $150,000 it’s always worth $100,000. So either the buyer loses $50,000 in money the overpaid, the bank loses the loan money they backed or a third party (like the government) takes the hit. Something has to give.

        • Dario says:

          When any entity walks away from a financial obligation, it hurts the bank. It doesn’t hurt the CEO.

          Days, you are right. But my question would be: why did the bank lent so much money to bad creditors that its survival is at risk? In the case we saw in 2008, the banks lent to people who were not credit worthy, hence the banks needed to go under. It’s a simple rule of risk.

          Banks with bad CEOs deserve to go under and I don’t cry for banks when they do. Depositors are insured up to a reasonable amount and everyone knows what that limit is. Just go to Calculated Risk blog and you will see banks go under every week. We’re up to 61 in 2011. Only the politicians saw banks as too big to fail. It was b.s. and bad presidents, Bush and Obama, that decided that saving the investors was the right thing to do.

        • Lola-at-Large says:

          That’s the question I keep coming back to, Dario. What was the reckless behavior of Wall Street predicated on? People don’t act in a vacuum. They have motives for almost everything they do. This is demonstrated in the countless studies funded by Wall Street itself that seek to understand what drives the behavior of investors or potential investors. Economics these days is all tied up in understanding the psychology of markets. But precious little time has been spent wondering what motivated the keepers and drivers of those markets–the banks and investment firms. What were they thinking and why did they take risks they knew were too much, lie about it to everybody as it was happening, etc? And what of the behavior of economists, the academics, every one of whom failed to see this coming, even as the likes of Atrios screamed “shitpile” for over three years? These questions are never even considered, let alone answered. But they need to be.

        • Dario says:

          Lola-at-Large, I’ve looked at the 2008 crisis and the only thing that is clear to me is that the best way to rob a bank is from the inside. In a nutshell, what the CEOs, VPs, etc. did was create great earnings through excessive risk, e.g. subprime mortgages, swaps, credit cards to risky borrowers. The compensation of the CEOs, VPs, and sales people were based on profit made. On top of that, the Fed oiled the system with low interest rate, and Bush gave tax cuts to the rich. Unlike the middle class and the poor, when the rich get money, they don’t spend it all, but use it to make more money. With all that liquidity, the rich put the money in oil and drove up the price of oil to highs we’ve never seen before. As the price of oil skyrocketed, all the people that lived from paycheck to paycheck but wanted to own a home and bought with nothing down, but high interest rates (NINJAs), defaults began. Banks, without the payments and all the money tied up in bad loans or swaps, started tumbling down. We saw Bear Stearn and then Merrill Lynch fall. Like dominoes, the deck was about to crash when Lehman Bros collapsed in September 2008.

          TARP never saved the banks. $700 billion was not enough. In the end the Fed did the job, lending trillions of dollars to rescue the banks and the financial system. My view is that the government should have taken over the system (the banks) and cleaned them up. Let the investors lose their money. That’s what Stiglitz recommended, and I agree.

      • Pips says:

        And not only that, ‘the people of Iceland’ (“among the world’s most computer-literate”) has also been asked, and met the challenge, to help draw up a new constitution. Iceland crowdsources its next constitution

        The crowdsourcing follows a national forum last year where 950 randomly selected people spent a day discussing the constitution. If the committee has its way the draft bill, due to be ready at the end of July, will be put to a referendum without any changes imposed by parliament – so it will genuinely be a document by the people, for the people.

    • Three Wickets says:

      Not sure what that 11% for Greece refers to.

      • Dario says:

        The total negative growth Greece has experienced since 2008, when the economy grew at 2%, the last time it had a positive number. I’m going from memory. I read that number somewhere.

  13. Dario says:

    Days, I really appreciate posts that deal with the economy. Sometimes I learn, and sometimes, hopefully, my views bring something to the table.

    See ya later.

  14. Lola-at-Large says:

    Good post, Days. We do need to balance the budget for now, and decrease our spending substantially.

  15. Dario says:

    Not all borrowing is bad and not all spending is bad. The GOP doesn’t seem to differentiate and attack all spending, except the Pentagon, which is mostly bad spending.

    Borrowing to go on a vacation doesn’t do anything to enhance future earnings. Borrowing for tools is a good way to leverage current earnings to increase future earnings.

    Building highways, like Ike did, increased our transportation system and helped grow our GDP. Going to the Moon is a great example of how spending expanded technology and productivity, hence better GDP. Spending on wars, like the Iraq War is fools spending. It did absolutely nothing for the U.S.

    SS, unemployment insurance, Medicare, Medicaid, and other safety net spending are sort of neutral in that most of the taxes imposed for their support take away from the economy, but go back to it. Those who receive the benefits spend most of it in their monthly living that support many businesses. The GOP doesn’t like it because it’s socialism. And that’s true, but without it, we’d be like India instead of like Europe.

    • Lola-at-Large says:

      That’s not actually true. The GOP is in no way unified on Defense spending, and actually were the first to put it on the table.

      http://www.washingtonpost.com/business/economy/gop-compromise-on-debt-cut-military-spending/2011/06/25/AGPrGBmH_story.html?hpid=z3

    • 1539days says:

      Under Eisenhower, the debt grew by 10%, or a paltry 1% per year. During the entire decade of the 1960’s, the debt grew by 24%, or about 2% per year.

      The national debt grew by 19% in 2009.

      • Dario says:

        Those are meaningless numbers. Like I said, during Kennedy the GDP grew by 5.4% and during LBJ GDP growth was 5%. If the economy is growing, everyone is working (unemployment was 4% and really 4%, not a phony number like it is today), then revenue is high because everyone pays taxes. Unless I can see what the revenue was in the 60s vs spending, the numbers can’t be analyzed. On top of that, the Vietnam War got going in the mid 60s, which would explain the huge increase in spending. That war was the beginning of the end of our economy.

        If one looks at the deficit during WWII, it’s clear too that deficit was extremely high. Wars tend to do that.

        • 1539days says:

          My point is that all this important infrasctructure and innovation spending was small in comparison to the out of control binging that’s going on now. A balanced budget rule of 19% of GDP would have made all of that possible because it’s not that much of a burden.

    • yttik says:

      I think we’re finally reaching a point where Gov borrowing is bad, Dario. The nat’l debt is like a hidden tax on our cost of living. That’s why we used to buy a loaf of bread for 50 cents but now we pay close to four dollars. Wages never keep up with the declining dollar and the increased cost of living.

      On the ground what we did was try to put a bandaid on it, open up lending and credit cards to average people so that they wouldn’t realize they can’t really afford a home or a car anymore. We also started importing cheap goods and places like Wal Mart and fast food, places people could go and buy really cheap goods, thinking they are maintaining their standard of living just like they always have. In the olden days you could pay off a home in less than five years. Now we have 40 yr mortgages. Nobody really seems to notice that most American families have to take on all this debt just to appear to have the same standard of living their parents had. Nobody really seems to notice that the quality of our goods are declining.

      And nobody really seems to notice that for such a prosperous country, we seem to be growing a whole lot of poor people, people needing that Gov spending just to survive. 46 million people are now on food stamps, 6 million of them have that as their only source of income. It’s the most people we’ve ever had on the program.

      Debt really does matter. For instance, when I’m sending off my credit card payments, a whole lot of my income in the form of interest is going towards those credit card companies, not towards my household. The same is true of the nat’l debt, that interest is being siphoned off our income and we now have less money then we used to. When you have to borrow money, you aren’t getting much bang for your buck, in the case of credit cards, your creditors are getting hefty interest payments. In the case of the Gov, the federal reserve is making off like bandits.

      • Dario says:

        That’s why we used to buy a loaf of bread for 50 cents but now we pay close to four dollars

        One would think that borrowing and deficit spending creates inflation, but that’s not true. If something is true, is true no matter what. So I just mentioned that during WWII our deficit was sky high, the highest is been (I don’t know if it got that high during the Civil War). But if one looks at inflation during those years, it was paltry. Borrowing and spending do not create inflation. That’s basic economics. If one studies the Fed policies during Volcker, one understands what causes inflation: money supply. That’s how Volcker brought down inflation. He clamped on the money supply, watching it like a hawk. As the supply shrank, interest rate skyrocketed. He didn’t care. He shocked the system to stop inflation on its tracks. I would say it’s a combination of money supply and velocity (how fast people spend the stuff) is what creates inflation. Usually those two go together because the more money people have, the more they want to spend it instead of invest it.

        • Dario says:

          One more thing. Japan has a higher deficit than the U.S. and they’ve been experiencing DEFLATION. How can that be? The Japanese are savers, and no matter how much the money supply is increased, the Japanese don’t go on a spending binge. So even if the Japanese government is on a spending binge, the people are not spending, low velocity.

        • Three Wickets says:

          The difference between Japan and the US is threefold. They are habitual savers (austerity is a way of life), they have perpetual trade surpluses, and their central bank lends to the government at virtually zero interest but they do not monetize (print new money). That’s why they have 2X our debt-to-GDP ratio, but the yen keeps appreciating against the dollar, and their social programs are robust.

        • Dario says:

          The interest is that low because most of the money the government borrows is from internal sources. Which brings me to SS. It has been a source of internal borrowing for the U.S. government, and I don’t understand why the GOP hates it. Oh wait, I know. The banks don’t make any money when the government borrows from the SS fund. Evil people.

        • Three Wickets says:

          But I assume interest is being paid to the trust funds and included in the debt service amounts in the annual federal budgets. In fact I’ve assumed the interest is what covered the shortfall in SSI payouts in the most recent budget.

        • Dario says:

          The SS fund gets interest, but I don’t know if the interest is fixed or if it fluctuates depending on the market. I would not be surprised if the government has been pegging the interest of the special U.S. Treasuries the fund gets to a low rate, like 2% since forever.

        • Three Wickets says:

          $49 billion shortfall in the past year, so 2% would about cover it.

      • Dario says:

        Not all interest that’s paid on debt is bad. Companies would never borrow if it was bad, and I don’t know of any company that doesn’t borrow and lives within it’s revenue only. Those who borrow from credit cars are not savvy borrowers. Let’s not compare silly credit card borrowers with what companies and government do. Both are borrowers, but that’s where the similarities end. I would say that what governments do when they borrow is closer to what individuals do when they buy homes, or borrow to do a new roof to make sure the house doesn’t go down the tube. Most credit card is for dumb purchases. Sometimes credit cards are used for educations and stuff like that. It’s a dumb way to borrow. I would advise anyone with a credit card to cut it and never use it unless it’s paid at the end of the month in full. But I’m a smart user of my money. Except for the interest on my mortgage which is low, I’ve not given a bank a single dime for 20 years, not for credit cards or car loans. Zero.

  16. the nat’l debt, that interest is being siphoned off our income and we now have less money then we used to.

    Isn’t that what Bill Clinton figured out? So he started paying down the natl debt, so we weren’t paying so much interest.

    Who exactly gets that interest, and what do they do with it?

    • 1539days says:

      The government actually owns 50% of the debt. Much of that is Social Security. Some is in federal pension plans, I’m sure. Some was bought by the Fed in QE2. Foreign governments own about 28%. Then there are private investors and insurance companies, which make up about 5%. The rest is bought by various pension funds and local governments. Of the foreign governments, China owns about 25%, Japan about 20%.

      http://en.wikipedia.org/wiki/United_States_public_debt#Ownership_of_debt

    • yttik says:

      Yes, Bill Clinton not only began to pay down the nat’l debt, he tried to convince congress to put the interest saved towards SS and medi, which would have been enough to sustain the programs for another 50 yrs.

      He wasn’t working alone, he had a Republican congress, but between them all they did manage to preside over the longest economic expansion in our history and they can take credit for the most jobs ever created under a single administration.

    • Dario says:

      I don’t believe Bill Clinton paid down the debt. He stopped increasing it. He wanted to use it to pay down the debt, but it never happened, and in the end Bush gave away the surplus, mostly to the rich, but a little bit to everyone. Dumb man.

      Interest is paid to those who buy U.S. Treasuries. If you buy one, you will get money from Uncle Sam.

      • 1539days says:

        That’s one thing. The interest rate on US Treasuries is almost too low. The only places that buy them are retirement funds and entities required to have the safest AAA investments. Actually, if the interest rate on treasuries went up, the American public might be encouraged to buy bonds again. The debt is public, the public might as well benefit from the interest.

        Dario is right. The national debt never even went down during the Clinton era, although it probably went down as a percentage of GDP.

        • Three Wickets says:

          Fed wants inflationary *expectations* to spur investment, but they will not raise the target rate. That would be suicide in this economy.

        • Dario says:

          Actually, if the interest rate on treasuries went up, the American public might be encouraged to buy bonds again.

          Days, the Fed pegs interest rates, but in the end, is the market that drives the real interest rates on U.S. Treasuries, when they are sold and later when the Treasuries are traded among investors. Let’s say that a 20 year $10,000 Treasury has 2% interest. When that Treasury goes on sale, if the investors want 3%, they will not give the U.S. Treasury $10,000, but will discount the money so that the Treasury returns 3%.

          Whatever interest you see, it’s what the investors are willing to get. Those who feared that interest will go sky high because of the debt or QE3 have been wrong. It’s possible that down the road that might be true, but with a bad economy, it’s unlikely that the debt will pressure the interest rate higher.

        • 1539days says:

          Either Moodys, S&P or both have said that the US economy is under watch and a $4 trillion reduction in spending would be the thing to prevent a downgrade.

          I know the US doesn’t actually set the interest rate, except that it would only issue debt up to a certain rate before it would become prohibitive. I just think there is an upside to higher interest rates.

  17. Three Wickets says:

    Now the chatter for invoking the 14th Amendment is heating up again. If BO goes that route, it will probably end up at Scotus quickly, and BO will be turned down. If the Tea Party caucus in the House does not budge, we might be facing a slow motion selective default at Treasury. Fed cannot overrule Congress. Who knows, impeachment proceedings could follow. BO and the Senate Dems should have agreed to the original Boehner proposal for a short term hike in the ceiling. Now with the Balanced Budget Amendment poison pill, even that’s no longer on the table.

    • yttik says:

      He won’t go that route. Seriously, he’d have to be prepared to take full responsibility and blame for it all by himself. That just doesn’t fit BO’s method of operation. That’s something Bill Clinton might have done or perhaps Bush Jr, but not Obama.

      • DeniseVB says:

        That’s the pattern alright. BO must be in a position to take all the credit if a policy’s successful and someone to blame if it fails.

        OBL for example. If that ended up a clusterfu*k and the mission failed, he would have blamed the military.

    • Dario says:

      I’m enjoying the theater. Like a scared puppy, Obama must be urinating all over the place. 🙂

  18. lurker says:

    About, why banks lent?
    Does Fannie/Freddie have anything to do with it?
    Why banks made sub-prime?
    Did CRA have anything to do with it?

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