Wednesday, July 27, 2011

Debt limits ...

The Democrats are willing to increase the debt limit in exchange for a boat load of new taxes, while the Republicans will increase the limit in exchange for a balanced budget amendment. This all sounds like negotiating with a drunk.  The Republican drunk will stop drinking in exchange for no restrictions on visiting the liquor store.  The Democrat drunk will stop drinking provided a distillery is installed at his house.  

I am in favor of a balanced budget amendment, but think the far better solution is simply not to raise the debt limit.  Or is that the credit limit?  California has a balanced budget amendment which is slightly better than meaningless.  The budget must only appear to be balanced, but then it never is so debt just keeps going up.  If you fix the credit limit, however, then a hard stop is hit when the spend-o-holic overspends.  A balanced budget with teeth!

Yes, it will result in total chaos.  Unfortunately the total chaos is inevitable given that the long term US federal budget appears to be designed by Charles Ponzi.  In fact the sooner this chapter is brought to a close the better given that the longer it continues the more pain there will be.


Dee Ice Hole said...

I don't know the answer but I do know you can't spend your way to wealth.

Delirious said...

I agree about setting a debt limit. In fact, it should have been set years ago. But now I fear that there is no way to recover, no matter what they choose.

Looney said...

Given our governor's pick for California supreme court judge yesterday, I would say we can expect things to get much worse. Faith in God is the only hope!

Rummuser said...

I am not an American and so will not offer great ideas. As an interested bystander, I found this approach fascinating. I would like something similar to happen over here.

Inklings said...

I agree with your comment, Looney. Faith in God is the only thing to get us through this. Our country needs our prayers.

Bunc said...

In the short term anything other than focussing on the immediate need to resolve the debt limit and avoid default is utter madness and this is likely to require both sides to compromise. As there seems no obvious sign of that then we may indeed be in for the mother of all financial crashes.

If the US defaults then we are in completely uncharted territory given that the world financial system is dollar based and built on the assumption of rock solid US govt bonds.

What will happen? Your interest rates will rise very significantly which will choke off completley any signs of recovery - prepare for a major double dip - with this second dip almost certainly wildly deeper than the first credit crunch recession.

Its likely to signal the end of the US as the centre of the worlds financial system - and an end to the significant benefits that have accrued to the US as a result of that.

In the medium term the US clearly has to get its debt levels down - and that means greatly lowered lifestyle expectations for people in the US alongside some level of tax increases for those who are well off. the rich right in the US will never accept this though and will agitate against this so increased civil unrest seems a distcinct possiblity given tah some in the US cant really get any poorer. One way or another its going to hit better off americans.

Those that dont actually find themselves getting laid off will find themselves feeling and being much poorer. The very rich will find ways to escape this so much of the pain will be felt by the poor, the ill, the jobless and by middle america.

Sadly you lot will take the rest of the world with you when this happens. the clocks at five minutes to midnight on all this.

Looney said...

Bunc, I can sort of agree with you ... that we should try to find a way through the short term and look for a mid- to longer term adjustment. The only problem being that this has been the strategy for the last few decades. Every proposal coming from the populist politicians/media/university intellectualoids has been to make things worse. I can agree that a fairer tax system that hits the super rich would be good. At the same time, we must face the fact that the super rich are >90% democrats. They will never raise taxes on themselves, only use "making the wealthy pay their fair share" as a pretext to push through legislation that does something else ... and this will make the situation worse. We have already committed suicide. The only question is whether the poison first or the bleeding or the free fall is reported as the final cause of death.

Delirious said...

I had to laugh at your last comment Looney because if you ask my liberal neighbor, all the rich are Republican! And according to her, all big business is owned by Republicans. Nasty, selfish Republicans.... ;)

Looney said...

Delirious, the Marxist class warfare rhetoric never goes away, even though it can be deBunced in 30 minutes.

Here is a leftish publication on the top 10 richest politicians in the US.

Wall Street has consistently given more to Democrats than Republicans, but checking reveals a recent anomaly. Still, it shows the historical trend.

If we slice things up geographically we see Marin county and Santa Cruz county being some of the wealthiest in the US but voting wildly to the rest even of California. Both Santa Cruz and Marin counties have had the distinction of being America's most unaffordable county at one time or another. A typical article is here.

Historically the class warfare theme faced the irony that all communist leaders were from the upper class. The poor, however, are always either legitimately suffering or afflicted by envy so the rhetoric is simply too effective to be ignored. A rich person will always tell the poor that they are being exploited by the rich, and to remedy the situation they should ___________________ . Fill in the blank. In the end the rich invariably benefit and the poor get messed up even more.