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."
Cheap theater (Score:5, Interesting)
We all know they are going to raise the debt limit. Every time this comes up, whichever party is in power votes to raise the limit [ritholtz.com]. Whichever party is not in power delays the vote to the last minute, using the occasion for political grandstanding.
It would frankly be wonderful if enough Congresscritters had the chuzpa to not raise the limit. Force some fiscal responsibility, even if it is probably too late. But, no, this is the Congress that still hasn't passed a budget for 2011 - they just gave up, and there is every sign that there will be no official budget for 2012 either.
Fantasy Island Economy (Score:0, Interesting)
Re:Only in America (Score:5, Interesting)
Obviously, the wealthy do. I believe this is the first time that the US has participated in an extended war w/o raising tax rates. During WWII, the income tax rate reached 94% on income over $200k, from Income tax in the United States, History of top rates [wikipedia.org]:
Hitting the Debt Limit doesn't mean Default (Score:5, Interesting)
The US Constitution says the government isn't allowed to default on the debt. But the Debt Limit Law isn't in the Constitution - it's just a law that says that Congress doesn't authorize borrowing more than $X, and requires some actions if we hit that limit, including not spending more money than we're taking in. It's questionable whether it really even applies, because Congress has passed a budget law since the last Debt Limit Law update, and that budget says they're going to be spending more than they're taking in so they're going to be in more debt.
So what can the Executive Branch do when they hit the debt limit?
I'm guessing that they'll probably do a combination of politically unpopular spending cuts and Federal pay cuts and try to blame the Republicans, plus the Washington Monument's going to be doomed until there's a solution. I don't think they'll default on the debt, not just because it's unconstitutional, but because it seriously degrades their chances of borrowing any more money in the near future, which they want to be able to do - Obama's threatening that, but I think it's more of a political game of chicken.
Re:This threat isn't from banks this time (Score:2, Interesting)
My mistake.
Here are the URLs.
http://www.godlikeproductions.com/forum1/message1029116/pg1 [godlikeproductions.com]
http://restoreamericaplan.blogspot.com/ [blogspot.com]
http://www.youtube.com/watch?v=clkRYkIx4Ks [youtube.com]
http://nesaranews.blogspot.com/ [blogspot.com]
It's the Tea Party behind this budget nonsense not the banks, not Obama.
Re:Blegh (Score:4, Interesting)
Essentially your idea is to have the government extract taxes from people equally by creating inflation, and thus taking money from everyone according to how much they have. It seems like a good idea on the surface, because we get rid of the expense of paying for the IRS, and it's fair: it taxes people according to their wealth.
In practice, it seems there might be obstacles. Countries like Zimbabwe and Brazil have tried similar schemes, and it seems to have had a real negative effect on their economies. Although it would seem fair, ultimately it would not be, because rich are much more capable of putting their money in inflation-protecting schemes, whereas the poor are hurt by constantly rising prices. Given these two considerations, I would be very cautious about moving the entire system over to that method quickly.
The right doesn't want to prevent default (Score:2, Interesting)
The (Tea Party) right wants to trigger a civil war. They know when enough peoples lives are at stake, it will wake up the passions in our country and many more people will be ready to fight. This would help them recruit people into their militias but it most likely could backfire as well. Those people who they cut off social security or government programs, they could just as easily and in all probability will join leftist socialist underground groups and prepare to go to war against their extreme right militia groups.
And this is why the situation wont end well for the nation. There will be a lot of people in the position to be recruited into ANY group. The nation will break into factions, most likely based on location, culture, tribe, and political ideology, and then these factions just like in other civil wars around the globe (including in Iraq) will fight for power violently.
This happens in the third world countries all the time. The only reason it hasn't happened in the USA is because the FBI have an excellent counter intelligence program. This will all change if the USA defaults. The default could set the stage for civil war that even the FBI wont be able to stop.
Re:The only "nasty consequences" require courage (Score:4, Interesting)
Don't you know that taxes work like homeopathy?
Re:Both sides are unreasonable (Score:5, Interesting)
Obama offered a plan for $4 trillion in deficit cuts, with 75% coming from spending cuts (including cuts to entitlement programs). The Republicans turned it down, because in their minds even $100B a year in tax hole closures and rate increases is too much. They are now pursuing only a $2T deficit reduction package, all because they care more about their rich benefactors than the economy.
So don't go saying both sides are unreasonable. The Democrats have been perfectly reasonable. It's the tea-baggers that are the problem.
Re:Cheap theater (Score:4, Interesting)
They will raise the debt ceiling. The depression will happen anyway, only then you'll owe more.
The IMF will bail you out, and they will have their list of conditions as to how the US should be run. Whatever personal liberty you do not realize you have now do not weigh very much on that list.
So, who do you want to be taken over by? The constitutionalist fanatics in the tea party or the IMF?
Re:The same threats from banks... in 2008. (Score:3, Interesting)
What reason would the IMF have to do that? Their entire purpose is to direct resources away from people indirectly by using the state as the enforcer for their policies. They don't care to preserve stability any more than a farmer cares about the stability of his crop. It is only a means to an end and not even a necessary one for the end in question. There are plenty of other metaphorical fields, and while it is convenient that this one is tilled and planted, it is also near overuse.
This isn't speculation either. The IMF, world bank, USAID and other institutions have shown again and again that their policies take from the citizens of a country, and prop up rulers and the wealthy. The 3rd world countries in particular have their rulers bribed with promise of financial aid in exchange for policy implementation that in turn cripples their peoples ability to thrive. Here is a concrete example of what I mean by the abstract general arguments above. The most specific example I studied is Haiti, where agricultural subsidies and bribery encouraged baby doc and other rulers to enact policies that artificially incentivized Haitians to change their economy into a cheap manufacturing export industry. This along with more direct coercion meant that workers had to pack into cities to find work to survive. This however was not done in a natural way, nor was there any centrally mandated creation of decent infrastructure so people were herded into cities(like Port au Prince) in flimsy housing and buildings. The resulting economic damage was ignored by all but economists who do not worship at the alter of the state but when the earthquake hit, direct proof of the harm of this policy manipulation was laid bare for all to see. In the entire time the people of Haiti lived there, earthquakes were endured without even a fraction of the death toll. Why? Because before that coercive centrally planned pressure to live in dense underdeveloped cities, people found it made more sense to stay away from such dangers. They have a history of earthquakes, and knew better. But because employment is more important than possible earthquake, they of course chose to risk it when the option of working outside of the cities was forcibly taken from them.
That is just one specific example, but it is a common story in many developing areas of the world. Africa in particular has a whole set of rulers who have no reason to keep their citizens out of poverty because having poor people is a source of revenue for them. Journalists, economists and writers(like Andrew Mwenda) have been jailed by these African rulers just in pointing out this fact.
Comment removed (Score:5, Interesting)
Re:Only in America (Score:4, Interesting)
You could literally confiscate every dime the wealthy earned last year, and still be nowhere near closing our yearly deficits.
You could easily repeat a stupid and easily debunked lie over and over, and find millions of suckers who believe it.
I first heard Anne Coulter say it a couple of days ago and it struck me as one of those technically true, but utterly irrelevant, slogans politicians pay PR firms to come up with.
The only way I can see it being true is if it is taken literally - confiscate everything the "wealthy" earned, but all of the other taxes we currently collect from the middle class -- those don't count.
Re:Stop Spending! (Score:4, Interesting)
It is very possible the US is too far on the left of the curve and optimal revenue might require a tax increase.
Re:oh no (Score:5, Interesting)
Somehow there is no problem for the courts 'interpreting' the law when it concerns private citizens.
So if you murder somebody, I don't see them trying to do an interpretive dance around that fact and come up with a different explanation on what that law really says.
But when it concerns the law, which is supposed to apply to the government, now all of a sudden we need an 'interpretation'?
That's a bunch of nonsense.
SCOTUS is not supposed to be interpreting the law, he is supposed to be upholding it.
There is nothing to interpret there. When somebody says: validity will not be questioned. They mean just that. That it is valid, and it cannot be declared invalid by the government. That's all there is to it. It doesn't mean it must be paid at all. But it's valid.
Same with the rest of the Constitution - it does not need interpretation, it needs honest fucking people being judges, so they would uphold the fucking law.
Re:The same threats from banks... in 2008. (Score:4, Interesting)
"Because frankly I don't see how we can continue down this path without almost certain full scale class war."
We've been in class war for a while now, it just isn't obvious.
Try fighting your way up from a net worth of $0.00 and living in a homeless shelter up to the middle class. Most places won't hire you if you don't have a permanent address and reliable transportation. You'll end up getting kicked out of the shelter long before you have enough for a rent deposit, and most renters won't rent to you if you don't have a previous address or at least a good credit history. Then you come in to work smelling funny one day because you can't shower daily (no place to shower) and get fired because a customer complained. Now you've got to live on the street for a while before you can get into the homeless shelter.
Then you see every day in the paper that homeless shelters are running out of money while we're sending billions of dollars of aid to various countries, bailing out companies that knowingly risked and lost billions, billions of dollars just vanishing overnight, etc. That is class warfare.
We don't hesitate to hand out billions for free, but we aren't going to hand out billions to the people that really desperately need it right here at home.
It really saddened me that a lot of those free-healthcare-missionaries recently started setting up places here in the United States rather than in remote jungles of Cambodia because neither could afford basic health care.
Re:Homeless (Score:5, Interesting)
Been there, learned a trick.
If you saw anything coming before hand, you might still have a car left. You can sleep in your car. Your first X bucks go to a gym membership. That's your shower. Then your next $20 goes to one of those fancier "street boxes" where they can't tell what 188 Main St #24 is.
Rent + cars are the killers of today's economy - a lot of places have really skewed rents vs the jobs available.
the Shadow Banking System and Lehman 2.0 (Score:5, Interesting)
there are massive hordes of credit default swaps against US debt out there right now.
credit default swaps are almost completely secret. nobody knows how many are out there. there could be a hundred billion, there could be 10 trillion.
if you allow the US debt to default, it will make the Russian and Asian defaults of 1997/1998 look like a kids birthday party.
When Lehman went under, the money market funds started to crash, and then the credit system started to crash. Yes, McDonalds was going to have problems meeting payroll.
the US government is like tens of thousands of Lehman Brothers, not in its operation but in the tentacles it has to every other financial product and financial system on the planet. credit default swaps against US debt are just the tip of the iceberg - and they are completely secret. we have no idea how many other products and institutions of the 'shadow banking system' are linked to US debt, or what the repercussions would be.
we would see currency devaluation on a massive scale. we could see entire companies disappear overnight. we could see entire countries central reserves emptied, overnight.
it could make the AIG bailout look like a child asking for 5 cents for a gumball.
it would be like taking a cigarette lighter and throwing it into a fireworks factory.
----
some people want to see the factory blow up. yes, it would be awesome, and serve the factory owners right for running such a sweatshop. but it is completely irresponsible to allow it to happen.
the only safe way to take apart the fireworks factory is brick by brick, slowly, over time. not in a massive explosion that will destroy an entire quadrant of the city.
Re:but the wars are not the problem. (Score:4, Interesting)
"The problem is jumping nearly 25% is expenditures in two years. "
Jumping what? Expenditures have not risen 25%, in fact they have barely risen 2%: http://www.angrybearblog.com/2011/02/federal-spending-growth.html [angrybearblog.com] There was no meaningful expedinture growth to speak of.
And repealing tax cuts would solve the deficit problem nicely.