New IMF Head Says US Must Raise Debt Limit, or Face 'Nasty Consequences' 932
fysdt writes with this from an article on ABC News: "The International Monetary Fund's new chief foresees 'real nasty consequences' for the U.S. and global economies if the U.S. fails to raise its borrowing limit. Christine Lagarde, the first woman to head the lending institution, said in an interview broadcast Sunday that it would cause interest rates to rise and stock markets to fall. That would threaten an important IMF goal, which is preserving stability in the world economy, she said. The U.S. borrowing limit is $14.3 trillion. Obama administration officials say the U.S. would begin to default without an agreement by Aug. 2."
No one reads history books anymore... (Score:2, Informative)
perhaps we should just run up even more debt insuring we will NEVER be able to be rid of it. I think its a very smart plan to just raise it every time we want more money. That way, we can million dollar bills and have a gallon of milk cost $12billion dollars! Genius!
Eventually... if you cant pay.. you cant pay. It MUST be corrected sometime
Re:File under (Score:4, Informative)
"Taxes Bad.", "Spending 10s of billions of dollars in 'wars' killing brown people Good."
Re:The same threats from banks... in 2008. (Score:4, Informative)
It's not the banks.
It's government debt, eg bonds. Greece's interest rate is like 28%, The US is 2%. Greece's economy has basically gone titsup without default, but they're still expected to default. All the countries that are in trouble their bond rate skyrockets as soon as it looks like the bonds are going to be worthless.
What does the government do with money? It pays government employees (Miltary, Entitlement programs, infrastructure and creditors.) Creditors are other countries/people/businesses, both domestic and foreign. If the US defaults, expect the equivalent of a bank-run on bonds and stocks (equities) to get their money out of the US and into safer places like... Japan or Canada (even if it's only for a short period of time.) Take a look at the price of most of the S&P 500 1 minute before and after the jobs report last friday. So many stocks dropped by 10% for several hours before picking back up, now multiply that in a downward trend, that is what will happen.
Publicly traded companies with stocks worth less than 5$ get delisted, and that means those companies are toast. Companies that are private and those that have physical assets like Apple might survive, but a lot of the service industry does not have physical assets and they are history if the US government defaults. The irony here is that the banks would survive, but they would be calling in their loans, which means 30% interest for you.
Yes it can be doom and gloom, but it's inconceivable that the debt limit doesn't get raised. If by some chance the politicians screw the pooch and don't get it lifted, every last one of them better not be re-elected.
Re:The same threats from banks... in 2008. (Score:4, Informative)
You do realize that the US debt limit has nothing to do with "the banks", right? It has to do with the US being able to pay its obligations to its citizens. Yes, some of those obligations are to banks, but not just US banks, and they are also to other countries. The US has never defaulted on its financial obligations and I'm sure now would be a bad time to start.
Re:The sky is falling...OH NO!!! /sarc (Score:2, Informative)
Tax increases on the rich (who already pay way more than their fair share)
Care to justify that? Even Warren Buffet one of the richest and most respected financiers on the planet has repeatedly stated that we should cut taxes for the poor, and raise them for the rich;
http://finance.fortune.cnn.com/2010/10/05/buffett-says-cut-taxes-for-the-poor/
Re:Only in America (Score:5, Informative)
Re:The sky is falling...OH NO!!! /sarc (Score:5, Informative)
Rich people pay above 30%.
False. Rich people don't make money from wages. They make money from investments, dividends, and bond interest. That's why the super rich pay almost no tax (and why C-levels get paid in stock as opposed to salary). In the US we tax income from work, but we do not tax income from wealth.
Looking for Economic Wisdom? (Score:2, Informative)
This isn't the place!
You could try http://krugman.blogs.nytimes.com/ [nytimes.com]
Several Inconvenient Truths About The Debt Ceiling (Score:5, Informative)
- Not one penny of US debt has been repaid for 51 years: the last time US government funded debt actually decresed on a year-over-year basis was 1960
97% of today's funded debt has been accumulated since August 1971 - the end of the Bretton Woods era by Nixon, and the terminal delinking of all fiat currencies from any and all hard assets, ushered in the era of modern-day hyper-debt insolvency
- Obama projects 2.5% Fed Funds rate in budget calculations through 2020. Average Fed Funds rate since 1980: 5.7%; Since 2008: 0.00%, If average 5.7% rate was used, projected US deficit would increase by another $4.9 trillion by 2020
- Obama projects 4.2% growth rate over next 3 years. If a normal growth rate of 2.5% is used, deficits would increase by another $4 trillion by 2020
- The US government borrows 40-50 cents for every dollar it spends. A balanced budget would mean cutting government spending in half.
- Implementing a balanced budget would not reduce current debt outstanding. It would merely stop it from growing.
- Over the past three fiscal years US debt grew by over $1.5 trillion per year: this is more than three times the record annual debt increase in any previous year in US history
- Last night deficit reduction targets were cut from $4 trillion to $2 trillion over the next decade, in exchange for a $2.4 trillion debt ceiling hike, which will last the Treasury until the next presidential election. Said otherwise, the Treasury needs to fund a $2.4 trillion hold over the next 15 months. Over a decade this come to $20 trillion: ten times more than the proposed deficit reduction.
In other words, cut the US budget in half to stop the situation from getting worse. Then start working on your debt mountains.
Re:This threat isn't from banks this time (Score:5, Informative)
You forget that the Tea Party had the power of FILIBUSTER! (by agreement, they didn't even have to do anything, just say they were filibustering and magically things more than just a simple majority to pass)
Re:This threat isn't from banks this time (Score:3, Informative)
The Democrats never controlled the Senate, except for a period of a few months, and even then it was only if count Lieberman as a Democrat. The Republican willingness to abuse the filibuster led us to a state of minority rule, in which our country was held hostage by the representatives of barely over a third of its population.
That which cannot be paid, will not be paid. (Score:5, Informative)
The solution to debt is not more debt. At some point someone is going to have to be grown up about this. It would be nice if they were grown up sooner, so that it hurts less. I'm not holding my breath.
Also, the US makes enough tax income to pay interest on it's current debt. In other words, "default" is not a consequence of refusing to raise the debt limit. Something will have to go unpaid, but it doesn't have to be the USA's debt interest. People are running fast and loose with the meaning of the word "default". Don't let them take you in.
Social security is an unfunded liability, currently funded through a Ponzi scheme, which is just now entering the "not enough new suckers" phase. (No, really, it is. There is no SS "trust fund". I can write checks to myself all day; it doesn't mean I have more money.)
Medicare is a disaster in terms of cost.
The US spends each day double what it takes in in taxes.
The US decided to take what was entirely a private problem (big banks would go bankrupt because they made bad bets on housing) and turn it into a government problem by bailing private entities out that should have gone bankrupt, and then guaranteeing lots of other debt. This actually prolongs the problem and makes it worse.
The Federal housing entities are some of the worst culprits, helping blow the housing bubble, and now pretending they are not bankrupt. They will have to implode and be shut down at some point. Bye bye Fannie and Freddie.
The inmates are running the asylum. It seems the solution to being seriously in debt is to spend more. There is also apparently a magical money multiplier that makes government spending somehow blessed and better than private spending. We have economists making arguments based on very dubious differential equations in which they carefully never specify their boundary conditions. The well known "economists" are more about justifying their political leanings than any actual scholarship.
Public union pensions for federal and state workers are unfunded to the tune of tens of trillions of dollars. These will never be paid out.
All of these chickens will have to come home to roost. Arguing about Democrats or Republicans or Left or Right completely ignores the fact that reality will eventually force a solution.
The current administration will do all of the worst possible things they could do. Not because they are evil, or Democrats, or whatever, but because bureaucracy is about protecting the way things are now. Their universe does not include actions which could fix this problem, because they would change the power balance and the money flows upon which they depend. The Republicans are being forced to pay lip service to the concept of being fiscally responsible by entities such as the Tea Party, but I can't see them doing anything real. They too are bureaucrats, and they too have rice bowls to fill.
If any entity did force some kind of resolution, it will be vilified by all and sundry, because resolution involves the death of a million sacred cows at all levels of this society. There's no upside for a politician in being vilified for doing something that will hurt this much, even if it's the right thing to do.
It would be nice to say that we get to pick whether we try to deal with it now, and maybe have a little control, or later, when it will be completely out of our control. In reality, I can't see that choice having any chance of being presented.
The Financial Crisis never ended. It was just temporarily papered over by insane government spending. Now we just have a bigger can to kick down the road.
A massive failure is coming, whether it be a cascade failure, or death by a thousand cuts. I have no idea when or how. I wish it would happen sooner so I can start concentrating on rebuilding, instead of trying to dodge falling pianos while the world at large tries to pretend we're in a light summer rainstorm.
Re:The same threats from banks... in 2008. (Score:3, Informative)
Lagarde is also the politician who has been involved in a huge scandal over offering french troops to Tunisia's ousted dictator Ben Ali to suppress demonstrations.
Actually, it was not her, it was Michèle Alliot-Marie who offered French "expertise" to the Tunisian government. Both are french, women, and politicians, but that's all they have in common.
More on the budget (Score:5, Informative)
-Obama added the wars to the budget so all that military spending that was 'off the books' is now on the books making the budget look much larger when it was there before but was outside the budget!
-When we have a surplus, state or federal there is a big push from our fools to give tax rebates and tax cuts INSTEAD of paying off the debt. This is what we do each time so the debt grows.
-The deficit and debt are two different things people confuse too often. Fixing the deficit does not fix the debt and the interest on the debt only compounds creating more deficit problems.
-Cutting the budget in half will not stop the situation from getting worse. Breaking even will not stop it-- the only way for things to not get worse is if we pay back the interest on the debt and actually break even.
-Trickle down economics do not work; it has a bad reputation... Well, the terms are considered bad-- we've simply shifted the terms while still supporting supply side economics with Democrats slowly warming up to it as well. What is clever is the use of cover terminology that can be swapped out after it takes too much damage. Today its all veiled in terms of jobs-- the rich provide jobs etc. Its just another way of selling the same old failed economics which made huge gains around the Nixon era when the powerful started think tanks to legitimize their positions (the beginning of the modern corporate info war.)
There are other issues leading to a collapse around 2020 besides OUR money mismanagement. Its all interconnected to a point where repair is impossibly difficult.
Re:I wonder (Score:5, Informative)
Yeah, no one seems to understand this.
Guys, we already had the budget debt. Remember the whole 'tax cuts for the rich' Obama wasn't able to get removed? Remember that? Several months ago?
That was the fucking budget.
This is now the Federal government is attempting to operate with our democratically decided and constitutionally passed budget, and needing to borrow more money to do it. (As everyone knew they would.)
And now the right has decided to pretend it's time to make budget decisions again. The joke is, it actually almost is time again, for the 2012 budget. But not for how much we spend in 2011.
It's probably worth mentioning that we're basically the only country in the world where we actually have #5 as a separate process...most countries include, in #4, the authorization to borrow as much as needed to actually implement the budget.
Incidentally, people predicted this back during the budget fight, and that fucking idiot Obama just shrugged it off, because he can't get it through his head that the Republicans are goddamn assholes with no interest in actually running the country, and are, in fact, utterly willing to break it to tiny pieces to get reelected.
Re:Not surprised she said that (Score:4, Informative)
Uh, not raising the debt limit isn't 'not getting more debt'.
Not raising the debt limit is not paying the minimum balance due on your credit card.
Gee, I wonder why that would hurt your credit rating?
IMF (Score:4, Informative)
Crooks and Criminals = IMF
How many banks have told people that Oh, you are in debt. No problem, take on more debt! That will fix your problem!
The only reason why they are suggesting this is because they want every country they can to go bankrupt, and privatize the infrastructure of the country afterwards.
See what they are doing to Greece? Those idiots in Greece voted to increase the debt limit and now the IMF is asking for some of the islands, their bridges and historic works of Art to be used as collateral to private foreign interests.
By the time the IMF gets done with Greece, the citizens of that country won't even own their own water works, Hospitals or government buildings.
The IMF will own everything.
Now, the IMF has its sites set on the USA. By the time they get done, we won't even have a national park anymore, it will be owned by IMF private investors.
-Hack
solutions (Score:4, Informative)
1. enforce transparency with laws
2. put people in prison for breaking the laws
i know they sound too simple, but that is basically what happened in the US from the 1930s to circa the 1980s, when it had the 'best financial system in the world'. the SEC & financial laws were somewhat well enforced (especially compared to every other country) and these companies had to show what they were doing in public.
that broke down with the rise of the 'shadow banking system' and the end of the rule of law, which many people will say began in circa the 1980s when the big investment banks stopped being partnerships and started being 'shareholder driven'. the rise of special purpose entities, collateralized debt obligations, off-balance sheet special investment vehicles, and other various creatures of the shadow banking system destroyed all semblance of transparency. modern large banks do not have any idea what their actual financial condition is - it is simply too complicated to properly calculate it or to know what they have at risk.
yves smith covers a lot of this at nakedcapitalism.com
Comment removed (Score:4, Informative)
Re:The same threats from banks... in 2008. (Score:5, Informative)
Most of the "entitlement programs" are Social Security and Medicare. That money doesn't pay "government employees", it pays our huge (and overpriced, and inefficient) private medical industry and the entire network of many private industries that old people spend their money on (beyond healthcare).
Also, banks can't just "call in their loans" ahead of schedule, or raise the interest on existing loans retroactively. There's no such thing as a "bank-run on bonds" because bonds aren't liquid until their maturity date.
I agree that the US defaulting on debt, or even just cutting the current stimulative spending (other than the military/intel $TRILLIONS, which are far more stimulative spent nearly any other way), would wreak havoc in the bond markets, and in the stock markets that can delete existing wealth. But let's be correct about how the economics actually work, and what actually works. That makes it easier to see what doesn't.
Re:Cheap theater (Score:5, Informative)
The June 2011 economics analysis data shows that the US has actually been much better than its target deficit reduction for 2011 -- in effect so much so that the US is fully expected to achieve its deficit reduction targets for 2012 with no need to take "harsher" decisions. Perhaps you would like to read the reports on Economic indicators before firing off your words.
The Government didn't bail out the banks because it was fully tied up with the fat cats; the Government had NO choice but to facilitate the bailout, because BANKS ARE INTERCONNECTED, hence so were the millions of mortgages, loans, debts, and receipts. Had AIG collapsed in the free market style -- the shock would have been so strong to the economy that we would really have needed an event like WWII to rescue us out of it.
And don't forget -- the bailout program was actually done in the last days of President G.W. Bush.
And the US is not like your family that you need to lecture about "cutting" spending and lecture on prudent usage of resources. YES that needs to be done -- but you are holding the fragile recovery hostage by holding the debt ceiling limit steady. If the US' AAA credit rating is harmed due to this posturing the interest will pile up so fast that it will end up increasing your debt, and such a strong shock to the economy that it will take decades to recover.
But the biggest reason is that with such posturing, the US will no longer whet the appetite of risk averse investors. In effect, money that used to come back here in case of global crises will no longer come back here. With this trust erosion the US will lose its dominance in the Global Economy. Which other country will step in? We do not know for sure, but the fact is that US will not be able to reclaim that title because of its own fragile recovery -- the net effect; you can say bye-bye to US leverage and capital influence.
So get your head out of that all-knowing sand hole, read the actual Economic data before you throw around your wisdom!
Re:Cheap theater (Score:4, Informative)
The IMF will bail you out, and they will have their list of conditions as to how the US should be run.
With what money? The reason the IMF insists that the U.S. must raise its debt limit is because the money it uses to bail out other countries mostly comes from the U.S. government. If the U.S. does not raise its debt limit it will not be able to borow the money to fund the IMF.