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New IMF Head Says US Must Raise Debt Limit, or Face 'Nasty Consequences' 932

Posted by timothy
from the spend-all-you-want-we'll-print-more dept.
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."
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New IMF Head Says US Must Raise Debt Limit, or Face 'Nasty Consequences'

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  • Only in America (Score:5, Insightful)

    by Beelzebud (1361137) on Sunday July 10, 2011 @03:35PM (#36713470)
    can people expect to wage 2 ground wars, and 1 air war, while giving tax cuts to the wealthy.
    • Re:Only in America (Score:5, Interesting)

      by fahrbot-bot (874524) on Sunday July 10, 2011 @04:00PM (#36713662)

      can people expect to wage 2 ground wars, and 1 air war, while giving tax cuts to the wealthy.

      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]:

      • During World War I, the top rate rose to 77% and the income threshold to be in this top bracket increased to $1,000,000 ($16 million 2007 dollars); after the war, the top rate was scaled down to a low of 24% and the income threshold for paying this rate fell to a low of $100,000 ($1 million 2007 dollars).
      • During the Great Depression and World War II, the top income tax rate rose from pre-war levels. In 1939, the top rate was 75% applied to incomes above $5,000,000 ($75 million 2007 dollars). During 1944 and 1945, the top rate was its all-time high at 94% applied to income above $200,000.
    • A cartoon: (Score:4, Insightful)

      by Anonymous Coward on Sunday July 10, 2011 @04:05PM (#36713728)

      A relevant cartoon [photobucket.com].

  • Cheap theater (Score:5, Interesting)

    by bradley13 (1118935) on Sunday July 10, 2011 @03:44PM (#36713518) Homepage

    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.

    • by khasim (1285) <brandioch.conner@gmail.com> on Sunday July 10, 2011 @03:55PM (#36713618)

      Force some fiscal responsibility, even if it is probably too late.

      EVERYONE wants lower taxes and reduced spending and "fiscal responsibility".

      The problem is that each person has a DIFFERENT idea of what the government should be spending money on (and what programs should be cut) and what should be taxed.

      And that doesn't even factor in the ear-marks and riders and other pork that gets attached to garner votes.

    • Re:Cheap theater (Score:5, Insightful)

      by cgenman (325138) on Sunday July 10, 2011 @06:01PM (#36714712) Homepage

      It would frankly be wonderful if enough Congresscritters had the chuzpa to not raise the limit.

      Yeah, it would be great if our credit rating were downgraded. That would be wonderful. Paying extra percentages on the 14 trillion we already owe and can barely pay is a wonderful way of staying afloat. In fact, I stay up nights thinking "Gee, I wish the value of the dollar entered the sort of massive decline that Mexico saw in the 90's."

      What I really wish is that the Republicans or Democrats actually believed that a balanced budget was worthwile. I'm sorry, if you're willing to axe a historic deal because you don't want to close tax loopholes on the most profitable industry in America (all the while cleaning up after its oil messes), then you're just a posturing nit. Oh no, we can't lower military spending. Oh, Social Security is sacrocent. And while we're at it, let's extend those tax cuts for the rich again, and keep taxing income from stock accounts at half of what normal income is taxed as.

  • oh no (Score:5, Funny)

    by phantomfive (622387) on Sunday July 10, 2011 @03:58PM (#36713644) Journal

    said in an interview broadcast Sunday that it would cause .... stock markets to fall.

    Oh, no! Please don't let the stock market fall! Anything but that! It'll be a tragedy for all the people who've bought non-dividend paying stock at prices far higher than they're worth!

    It's been pointed out before, and is worth pointing out again, but US government default is prohibited by the 14th amendment of the constitution [wikipedia.org]. Whether they follow it or not is left to be seen.

  • by billstewart (78916) on Sunday July 10, 2011 @04:00PM (#36713670) Journal

    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?

    • - They could stop paying back debts that come due, but that's not only unconstitutional, it's not going to help the deficit problem any.
    • - They could stop paying Federal employees (not sure if that's big enough to help.)
    • - They could stop paying Social Security checks, and try to make the Republicans take most of the blame for your grandma being thrown out on the streets, hoping that the Democratic Party leaders don't get stomped in the next election by upset Democrats.
    • - They could cut all the Republican Party's favorite programs, especially most of the military contracting boondoggles. (Unfortunately, some of those can't be done instantly, especially shutting down the wars, and Obama doesn't want to be accused of losing the wars for political reasons, and he seems to like the TSA and Homeland Security.)
    • - They could declare that the most recent Budget supersedes the older Debt Limit law.
    • - They could close the Washington Monument!

    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.

    • by roman_mir (125474)

      The US Constitution says the government isn't allowed to default on the debt.

      - what a bunch of BS.

      I responded to a similar bunch of nonsense right here [slashdot.org]

      But let me provide an important perspective: the people who are deciding on this "debt ceiling" ruse are in Washington DC right now, so clearly the so called 'ceiling' will be raised, don't worry about it, they are just fucking with you.

      So when to worry? When the people in China and all over who hold the debt decide that your ceiling shouldn't be raised.

      Of-course for the past 6 months the Fed was buying 100% of all new debt (QE2 was

  • Heroin (Score:5, Insightful)

    by srussia (884021) on Sunday July 10, 2011 @04:20PM (#36713886)
    In other news, heroin addict must get another fix or face "nasty consequences".
  • by mousse-man (632412) on Sunday July 10, 2011 @04:38PM (#36714068) Homepage

    - 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.

    • You can increase revenue and that will help fix the budget issues. Sure we spend too much; not arguing that. We can afford to fund this budget without the end of the world happening -- don't listen to the propaganda. It will not kill you if your taxes match your spending-- and if they did, then you might spend more wisely...

      A big chunk of the current budget issue is the economy tanked and the revenue is based upon the economy-- so if you CREATE JOBS even at the cost of increasing debt it will pay back quick

      • Because the best way to fix a puncture wound is blood transfusions. No need to remove the metal pipe imbedded into your torso. Just pour more blood in there, everything will be fine.

    • More on the budget (Score:5, Informative)

      by bussdriver (620565) on Sunday July 10, 2011 @06:40PM (#36714994)

      -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.

  • by fluor2 (242824) on Sunday July 10, 2011 @04:41PM (#36714100)

    So that's why the US wanted her as head of IMF

    • by hedwards (940851) on Sunday July 10, 2011 @06:29PM (#36714916)

      That's not really insightful, anybody knowledgeable enough about economics to be head of the IMF would have come to the same conclusion. In fact I came to that conclusion and I've had very little training in economics. It's one of those the sky is blue observations.

      The rates that investors typically demand for their money is related to the perceived risk. Right now that risk is low because investors believe that the US will do whatever it needs to do to keep paying those bonds off. But, if the debt ceiling isn't lifted and or we stop paying our bills that would undoubtedly trigger investors to demand more for their risk.

      It takes a certain level of delusion to believe that there is something special about the US which would prevent that from happening if we start defaulting on our debts. And unfortunately, right now US Savings bonds and the like are still the best bonds to invest in, if the GOP has its way, they're likely to not be worth the paper they were printed on.

  • by Nurf (11774) on Sunday July 10, 2011 @05:09PM (#36714352) Homepage

    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.

  • IMF (Score:4, Informative)

    by hackus (159037) on Sunday July 10, 2011 @07:41PM (#36715416) Homepage

    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

  • by ChilyWily (162187) on Sunday July 10, 2011 @09:10PM (#36715990) Homepage

    In my humble opinion...

    The IMF is the same old bunch of people who have been shunned around the world for the misery they bring to the common person in any country that they have helped themselves to.

    Most recently, see how the South American/Latin American countries rejected them and their so-called austerity measures - the social sector cut backs that would have brought million into poverty and taken services away from those that needed them most, were averted simply because the governments in those countries did not believe the scare mongering from the IMF.

    Today the IMF seeks a place for itself in a world that sees them for the scam they are and so now they are trying to "re-image" and "re-invent" their "role" in the world, trying to bait everyone and anyone so that they can start their games anew.

I find you lack of faith in the forth dithturbing. - Darse ("Darth") Vader

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