A good summary of what happened from MSNBC's quick analysis blog:

<< * Walking away: Six months ago, how many Republicans would have believed: 1) that the Obama White House would have backed a plan to reduce the deficit by $4 trillion over the next 10 years; 2) that the president would agree to link the debt limit to spending cuts; and 3) that Obama would put Medicare and Social Security on the table? The Tea Party and deficit hawks like Jim DeMint would have won the argument when it comes to debt, and they would have achieved something -- especially on Medicare and Social Security -- they'd probably never get under a Republican president, unless he or she had a filibuster-proof majority in the Senate. But Republicans walked away from the deal, because they wouldn't give up the one thing that Democrats were asking for in return: any increases in tax hikes for the rich >>

Source:
http://firstread.msnbc.msn.com/_news/2011/07/11/7058805-first-thoughts-walking-away


And a good cartoon from planet Glox:
http://www.dailykos.com/story/2011/07/11/993231/-Crisis-on-planet-Glox

<< Reducing the deficit by 4 trillion over 10 year amounts to 400 billion a year. It sounds good until you realize that the deficit is running closer to 2 trillion than it is to 1. That's like bailing out a sinking ship with a dixie cup. Also, given that budgets are redone every year, it would likely only be 400 billion for 1 year and then after re-election, stopped with the next budget. I wouldn't go for smoke and mirrors, either. >> --Josh

The two choices are to reduce the deficit by $4 trillion ($3 trillion cuts and $1 trillion revenue), which Obama wants, or to reduce the deficit by $2 trillion (all cuts), which Republicans want.

<< But I believe that the Republicans want those cuts made each and every year, which would actually accomplish something. Reducing the 1.7 trillion deficit by 2 trillion yields a 300 million surplus which would start moving us in the right direction. >>

Nope. Both the $4 trillion of deficit reduction that Obama wants and the $2 trillion that Republicans want are spread over ten years. It's apples and apples.

Lets have some fun.

5 friends live in a house together. 2 of them lost their jobs, one of them never had a job, 1 is fully employed, and 1 has rich parents who pay for everything.

Each of them accounts for 20% of the rent.

Eventually after 108 weeks the 2 that lost their jobs get evicted. They can't pay rent. They move back home.

The third, through drug dealing, the fourth, through his job, and the fifth, through his rich parents continue to pay rent. The drug dealer decides to move out because he's upgraded to dealing coke and moves out. Leaving only two roomates.

The fourth resident, who has a job, two in fact, tells the fifth friend they need to split the rent. The fourth friend can pay a maximum of 50% because he only has disposable income and must cover expenses. The fifth friend can actually pay 100% of the rent. His parent (Warren Buffet) says he'll pay it no problem, but the child says he'll only pay the 20% as he originally agreed to when it was 5 residents.

Now you have a resident, who has lost all his other friends, willing to pay to the near maximum of his means, whereas the other remaining resident won't pay more than 20%, even though 50% is completely fair.

So the other resident has to kick out the rich friend (with the 14th amendment) and find another working resident to pay the other 50%.



To sum this all up. If I pay 35% in taxes why can't republicans agree that for a country that can't pay it's bills that instead of 23% we tax the rich 24%?

This is an indefensible position. The Tea Party is a minority and the Republicans are going to be murdered by the middle class, latino, black, and independant voters in 2012 even if they are willing to torpedo everything along with corporate america because they cannot stand a black president because America can't afford to pay it's bills.

>Quite frankly, the one offering to pay 50% is a fool and should be tossed out by the rich kid who should then go get 4 more roomates and continue paying his 20%. - Josh

So, what you're saying is, the answer is to quintuple your country's population via immigration?

:whistle:

Dave, Brandain's Bard, loves analogies

Debbie Wasserman Schultz (D) and Allen West (R) represent neighboring Florida districts in the U.S. House of Representatives. Consider their remarks yesterday and decide who is more reasonable.


During a debate, yesterday, Wasserman Schultz said the following about West:

<< "The gentleman from Florida. who represents thousands of Medicare beneficiaries, as do I, is supportive of this plan that would increase costs for Medicare beneficiaries, unbelievable from a Member from South Florida," Wasserman Schultz said, saying the legislation "slashes Medicaid and critical investments essential to winning the future in favor of protecting tax breaks for Big Oil, millionaires, and companies who ship American jobs overseas." >>


That prompted an e-mail from West to Wasserman Schultz later in the day:

<< Look, Debbie, I understand that after I departed the House floor you directed your floor speech comments directly towards me. Let me make myself perfectly clear, you want a personal fight, I am happy to oblige. You are the most vile, unprofessional ,and despicable member of the US House of Representatives. If you have something to say to me, stop being a coward and say it to my face, otherwise, shut the heck up. Focus on your own congressional district!

<< I am bringing your actions today to our Majority Leader and Majority Whip and from this time forward, understand that I shall defend myself forthright against your heinous characterless behavior......which dates back to the disgusting protest you ordered at my campaign hqs, October 2010 in Deerfield Beach.

<< You have proven repeatedly that you are not a Lady, therefore, shall not be afforded due respect from me! >>

Source:
http://www.politico.com/blogs/bensmith/0711/Allen_West_tirade_WassermanSchultz_viledespicablenot_a_Lady.html


He's telling on her, taking it to the Majority Leader! And he says she's not a lady!

What a baby.

In writing emails or really anything with a paper trail (Text messages, etc) I was of the opinion "If this was plastered on the screen in the middle of Times Square would it pass for professional?"

Schultz comments were true. Florida has one of the highest retired/social security rates.

West was completely unprofessional and calous, not be mention defensive, and made to look foolish by his actions, statements, and this joke of an apology fiasco.

<< Below is a link to a 58 second explanation from economist Douglas Holtz-Eakin (economic adviser to John McCain's 2008 presidential campaign) of the deficiency of funds the federal government will suffer if the debt ceiling is not raised. As explained in the video, the government could pay (a) all interest on the national debt, (b) some mandatory expenditures (Social Security, Medicare, etc.), and (c) no discretionary expenditures (soldiers, education, etc.). >>

His explanation is fairly worthless. All it does it take into account the way things currently are, which MUST change. Since the expenditures MUST change, his analysis is flawed and doesn't do a whole heck of a lot to explain why the ceiling has to be raised. If we listen only to this guy, the ceiling will have to be raised until our credit is worthless since the amount we cannot pay will just become worse and worse.

We need to cut expenditures to the point where we don't need to continually ask for more money.

Josh

<< Since nothing's going to change before Aug 2nd, I think the point stands that we have to raise the ceiling before then. >>

If you raise it without change, then it becomes business as usual. Why would anything ever change if we do business as usual? That just tells the party in charge that all they have to do is refuse to deal until the deadline and they'll get their way anyway. Change has to happen concurrently or prior to any raise for significant change to occur.

Josh

I don't think Obama has any other choice but to raise the debt ceiling on his own if no compromise is reached. Abraham Lincoln suspended habeus corpus, so there is certainly precedent.

The only question is whether he should announce it now, or just do it later. These people (below) think he should announce it now, but I don't think our president is into threats.

http://www.nytimes.com/2011/07/22/opinion/22posner.html

Bairyn

>Why? Because they've all lied to us and told us the sky will fall if the debt ceiling isn't raised.

Yeah . . . this makes anything else you said moot. This is a naive and flawed view of the situation. The debt ceiling not being raised is a huge deal. Banks are already making plans to dump US treasuries in favor of AAA-rated corporate debt and other solid foreign government debt; and they hold a lot of treasuries. We might be okay for a few days, but much more than that would have serious, long-lasting consequences. The only reason now is the "right" time to make a stand is because the public doesn't understand what the debt ceiling is exactly and republicans are trying to turn that misunderstanding into political gain.

>We need a little pain so that we can gain.

A flawed analogy.

It simply makes no sense to make this stand now instead of when the budget is actually being decided. Limit spending when you choose what to buy, not when you're paying the credit card bill. (A better analogy.)

- Greminty

Apparently a lot of the problem is the Norquist tax oath that almost all the House Republicans and 41 of the Senate Republicans have sworn:

“I, [name], pledge to the taxpayers of the [district or state] and to the American people that I will: ONE, oppose any and all efforts to increase the marginal income tax rates for individuals and/or business; and TWO, oppose any reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates.”

Obama inherited a huge deficit. It was a Republican administration that increased our expenditures while reducing taxes. Increased debt would seem to be a logical result of these actions.

If Republicans have sworn not to raise taxes, could they have at least not lowered them?


Bairyn

<< Obama inherited a huge deficit. It was a Republican administration that increased our expenditures while reducing taxes. Increased debt would seem to be a logical result of these actions. >>

Obama and his supporters have absolutely no right to stand behind this sort of statement anymore. His 2010 budget debt increase of 1.6 trillion is the highest single year increase ever.

Josh

Greminty, your numbers are very suspect. 100 billion a week comes to 5.2 trillion for the year. Considering the entire budget which includes the ALL of the bond payments for the year PLUS everything else is only 3.5 trillion, I think your numbers are off by an amazing amount.

The amount budgeted for 2010-2011 for bond repayments was 164 billion. That's 164 billion for the ENTIRE YEAR, not week. We can pay the entire year with no issues whatsoever easily and still cover the lion's share of everything else. We just need to cut spending to keep from failing to pay for other things that we owe. Spending must be slashed and that can start right this minute.

Obama just has to start cutting the amount he spends. In fact, he could have been cutting his spending during the entire time he has been "negotiating" with the GOP, except that he has no interest in doing that. He just wants the cap raised so that he can put the problem off long enough to get re-elected. If he was at all serious, he would have been making cuts.

Josh

>Greminty, your numbers are very suspect. 100 billion a week comes to 5.2 trillion for the year. Considering the entire budget which includes the ALL of the bond payments for the year PLUS everything else is only 3.5 trillion, I think your numbers are off by an amazing amount.

Perhaps you should read more about how debt works then. Our debt payments come in two forms, interest and principle. When you talk about what's included in the budget, you're talking about interest payments. We allocate those in the budget, because it's new spending that increases our overall debt. But in addition to that, every week, some number of bonds mature (come due). To pay back the principle on those, it takes more money, generally from newly issued bonds. This process is called rolling our debt (as I referenced in the last post). This is not recorded in the budget, because it's not new spending and it's not generally a net increase in the debt ($1000 of debt is repaid by borrowing a new $1000, net $0 new debt). However, in the case where banks are dumping treasuries, the market becomes flooded with treasuries, crashing the price creditors are willing to pay, so that when $1000 matures, we may only be able to get $900 (or less) from a new $1000 bond, which means we need to get the additional $100 from somewhere else.

If you want to try to estimate the amount that rolls each week, it's a bit complicated. If we assume all of our debt is in 1yr treasuries, we'd just divide our total debt (14.3T) by 52, to get 275B a week. But of course, a lot of our debt is in 10yr and some 30yr bonds (and plenty in shorter bills as well). So I'll just take our Treasury Secretary's word on it:

http://www.msnbc.msn.com/id/43672884/ns/meet_the_press-transcripts/t/meet-press-transcript-july/

>So on August 2, we're left with the cash on hand and the cash we take in. And we have to convince people to come and refinance $500 billion in maturing principal payments that come due in August.

- Greminty

>You can see how to get something like the $100 billion a week figure (14.3T * 43% / 52).

Except we do not need to pay 100 billion per week. Nor do we need to borrow 100 billion per week (or else we would have an 8 trillion a year deficit. Everyone is talking about paying for the servicing of the debt which is the 250 someodd billion per year. That is what those rollovers are costing us. That is a number easily paid by the money coming into the government each year (2.5 trillion or so in taxes). The raising of the debt limit is not needed for 250 billion (10%), it is needed for the over 1 trillion in other spending in the federal budget that goes beyond the taxes taken in.

If you are worried that not raising the limit to pay for all the other welfare programs is going to cause our rating to fall and thus increase that 250 billion to some higher number...

Tell me, which person should be more questionable to a lender?

A: Person makes 25,000 bucks per year, spends 35,000 bucks, and is asking for another credit card to maintain that spending.

B: Person makes 25,000 bucks per year, cuts his spending to 22,500 bucks and spends 2,500 bucks to pay the monthly fee on his credit cards. (Cut spending to current incoming, cap the number of credit cards asked for, require future spending to be balanced with income).

Do you really think the democrat plan A is less likely to be downgraded than plan B?

I leave you with a quote from the 2006 debt debate when every single Democratic Senator voted against raising the limit. You can guess which current U.S. president I am quoting. Two tries, first one doesn't count.

"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 U.S. Government can’t 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."


AIM: GS4Menos

>Here lies the formless world we´re living in
>Gravity is finally giving in
>High altitudes and still upward we go
>I was never meant to lead but to follow

And somehow magically, borrowing 5.2 trillion more this year to pay off the maturing debt, for a deficit increase of 6.8 trillion, or nearly half of the current deficit for all time in just one year is going to make things better? I think he's lying to us about how much is coming due. If he's not, then their solution of borrowing more is only going to make the collapse that much greater when we eventually cannot borrow enough to pay off the borrowing. As bad as it MIGHT be now (and we don't know how bad it will be), if we continue to borrow it will be MUCH worse when this happens later.

Josh

>And somehow magically, borrowing 5.2 trillion more this year to pay off the maturing debt, for a deficit increase of 6.8 trillion, or nearly half of the current deficit for all time in just one year is going to make things better?

You still don't really understand. Yes, borrowing 5.2 trillion more this year, to pay back the 5.2 trillion debt that's maturing this year will absolutely make things better. Because the alternative is we clearly don*'*t have enough to pay back the maturing debt, and that is called a default. But again, it's not a "deficit increase". This happens every single year (albeit with more total debt rolling over per year more recently). And it's not really optional (unless you do want a literal default), we owe several trillion in maturing debt every single year. That's just how it works. Period.

I think the problem is that US debt doesn't work like any consumer debt you're used to. We don't borrow money and pay it back when we feel like it. We borrow money for very specific amounts of time: 3 months, 6 months, 1 year, 2 years, 5 years, 10 years, 30 years, and some intervals in between. When that debt is due, we simply replace it with new debt. Think of it like paying off one credit card with a 2nd one; you're not spending any more money, just transferring the debt (but in the govt's case, it's just the normal course of business, unlike in consumer credit, where it's probably a red flag).

For example. If we borrow a total of 1.5T in 2010 in 1yr bonds, then in 2011, we have to re-finance (roll) that 1.5T, in addition to the 1.5T we have to borrow in 2011 to cover spending. In fact, if we borrow 1.5T in 3 month bonds in January, then we have to roll it in April, and again in July and Oct. That's a total a 6T in "borrowing" over the course of year, to finance 1.5T in spending; but in the end, we've paid back all but the most recent (Oct) bonds, so our net increase in debt is only the 1.5T.

>I think he's lying to us about how much is coming due.

Please read the Ryan report I also posted. It sites very similar numbers (for 2009). (But really, the fact that you don't seem to trust our own Treasury Secretary says something pretty sad about the state of our nation.)

>If he's not, then their solution of borrowing more is only going to make the collapse that much greater when we eventually cannot borrow enough to pay off the borrowing. As bad as it MIGHT be now (and we don't know how bad it will be), if we continue to borrow it will be MUCH worse when this happens later.

Yes, agreed that eventually our deficit spending will collapse really really hard if we don't fix it. That's what all this rolling debt means. However, to force the collapse now is still not a good idea. We have much more time to fix it than the arbitrary debt ceiling deadline.

- Greminty

If we are indeed so near to default that something must be done in the next week, wouldn't it be better to cut spending which can be done in an instant, rather than spend even more on "investments" we hope will generate greater funds at some indeterminate time in the future?

>You're wrong. Please re-read my prior explanation. Rollovers are debt that's maturing and being replaced with other debt. This is indeed 100 billion new borrowing per week. Yes this is normally ignored in budget considerations, because, as I mentioned, in a normal environment it has no net effect. But in an abnormal environment it could have a very very massive effect. I work in this industry; I know what I'm talking about.

The only environment under which this 100 billion would be required to be paid back is if the government could issue no debt whatsoever. That is a situation not being discussed by anyone in these talks (save those who want to raise those numbers as a specter to say it is impossible to deal with outside of increasing the total debt amount allowed).

>I'd much rather invest in a country that itself is invested in its own growth and middle class, rather than one that stratifies wealth and fights so hard over an arbitrary deadline about whether or not to pay what they owe (both in bonds, and internal obligations that they've already agreed to).

And here is the rub. If you agree to pay internal obligations well in excess of the funds available, what can you do? Do you keep running up higher and higher debts to bay government bureaucrats and just assume that more money will come from somewhere in the future to pay those ever increasing debts or do you stop and make choices as to what needs to be paid with the money you really do have?

>But if you really like your scenarios, let me amend them to be a little more accurate. Who would you rather invest in?
>A: Person makes 25,000 bucks per year, spends 35,000 bucks (10,000 of which is on education to get a better job in the future), and is asking for another loan to maintain that spending.

Total spending this year by the government is 3,800 billion, give or take. Of that 130 someodd billion is eduction. Not the 1,000 in your example. I picked my numbers to reasonably reflect the actual numbers. You may want to do the same.

Harping on those education numbers for a little bit. Do you really think the federal government is doing any good with all of that spending on education? The current expenditures for a student in public school averages at about 11 thousand dollars per year. This is up from an inflation adjusted 5,700 in 1979 when the Feds really got into the picture. Do we get twice the schooling today as we did in 1979? Heck, the private schools I attended charge less than what the public school gets for me. I contend that the fed could spend 50,000 dollars per student and would still make an inherently worse product. Because they can simply confiscate the money to pay for it there is no impetus to improve the product or streamline the costs. Are you happier at the return desk at Target or the DMV? I rest my case.



AIM: GS4Menos

>Here lies the formless world we´re living in
>Gravity is finally giving in
>High altitudes and still upward we go
>I was never meant to lead but to follow

>If we are indeed so near to default that something must be done in the next week, wouldn't it be better to cut spending which can be done in an instant, rather than spend even more on "investments" we hope will generate greater funds at some indeterminate time in the future?

IF that were the case, yes, obviously. But we're not. We're only so near to default as we force ourselves to be through the arbitrary debt ceiling.

>The only environment under which this 100 billion would be required to be paid back is if the government could issue no debt whatsoever. That is a situation not being discussed by anyone in these talks (save those who want to raise those numbers as a specter to say it is impossible to deal with outside of increasing the total debt amount allowed).

Sort of. I see how you're looking at it, but to be clear, the 100 billion does need to be paid back regardless. It's just that as long as we can issue any debt, we can pay it back with new debt and remain under the ceiling (assuming rates don't rise). Regardless though, the issue I'm talking about (and what others should be talking about) is the fact that if there is a downgrade, we hit very bad territory, very quickly, due to this rollover. In that case, it's very possible that we can't pay back these weekly 100 billion payments because we won't be able to find enough new buyers for new debt. And the problem is that the rating agencies have now said explicitly, they would downgrade us if we default on our soft obligations (social security checks, etc.) after Aug 2nd. The bottom line being that no, we can't guarantee that we can avoid a credit default just by defaulting on our soft obligations.

>Total spending this year by the government is 3,800 billion, give or take. Of that 130 someodd billion is eduction. Not the 1,000 in your example. I picked my numbers to reasonably reflect the actual numbers. You may want to do the same.

As I said initially, these simple scenarios don't come close to representing our country. However, school in my analogy was not just analogous to education spending, but rather to ALL spending that enables our economy to grow. That includes research spending, unemployment benefits, social welfare spending, etc., all of which have positive effects on our long term GDP growth.

>Harping on those education numbers for a little bit. Do you really think the federal government is doing any good with all of that spending on education?

Yes, and they should be doing more. But yes, reform is also needed. And yes, the private sector is always more efficient in what it does, but the private sector cannot possibly accommodate everything that a government needs to do. And the fact is that we, as a country, will be better off if we educate our middle-to-lower class who can't (or won't) pay whatever private schools cost. If you took away all public education, you'd end up with far more class stratification, which will cut out our economy from beneath us.

- Greminty