Armed Polite Society
Main Forums => Politics => Topic started by: Desertdog on May 15, 2009, 08:25:26 PM
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This is all over the Internet but I have not heard anything about it on TV.
Obama Says U.S. Long-Term Debt Load ‘Unsustainable’ (Update2)
By Roger Runningen and Hans Nichols
http://www.bloomberg.com/apps/news?pid=20601087&sid=aJsSb4qtILhg&refer=worldwide
May 14 (Bloomberg) -- President Barack Obama, calling current deficit spending “unsustainable,” warned of skyrocketing interest rates for consumers if the U.S. continues to finance government by borrowing from other countries.
“We can’t keep on just borrowing from China,” Obama said at a town-hall meeting in Rio Rancho, New Mexico, outside Albuquerque. “We have to pay interest on that debt, and that means we are mortgaging our children’s future with more and more debt.”
Holders of U.S. debt will eventually “get tired” of buying it, causing interest rates on everything from auto loans to home mortgages to increase, Obama said. “It will have a dampening effect on our economy.”
Earlier this week, the Obama administration revised its own budget estimates and raised the projected deficit for this year to a record $1.84 trillion, up 5 percent from the February estimate. The revision for the 2010 fiscal year estimated the deficit at $1.26 trillion, up 7.4 percent from the February figure. The White House Office of Management and Budget also projected next year’s budget will end up at $3.59 trillion, compared with the $3.55 trillion it estimated previously.
Two weeks ago, the president proposed $17 billion in budget cuts, with plans to eliminate or reduce 121 federal programs. Republicans ridiculed the amount, saying that it represented one-half of 1 percent of the entire budget. They noted that Obama is seeking an $81 billion increase in other spending.
Entitlement Programs
In his New Mexico appearance, the president pledged to work with Congress to shore up entitlement programs such as Social Security and Medicare. He also said he was confident that the House and Senate would pass health-care overhaul bills by August.
“Most of what is driving us into debt is health care, so we have to drive down costs,” he said.
Obama prodded Congress to pass restrictions on credit-card issuers, saying consumers need “strong and reliable” protection from unfair practices and hidden fees.
“It’s time for reform that’s built on transparency, accountability, and mutual responsibility, values fundamental to the new foundation we seek to build for our economy,” the president said.
Obama called on Congress to send to him by May 25 a bill that would clamp down on what he says are sudden rate increases, unfair penalties and hidden fees. He also wants the measure to strengthen monitoring of credit-card companies.
House Bill
The U.S. House of Representatives passed the credit-card bill last month after adding a provision requiring banks to apply consumers’ payments to balances with the highest interest rates first. The bill also imposes limits on card interest rates and fees.
The Senate continued debating its version of the bill today. It would require credit-card companies to give 45 days’ notice before increasing an interest rate. It would prohibit retroactive rate increases on existing balances unless a consumer was 60 days late with a payment.
The president said Americans have been hooked on their credit cards and share some blame for the current system. “We have been complicit in these problems,” he said. “We have to change how we operate. These practices have only grown worse in the midst of this recession.”
The American Bankers Association, which represents card issuers, has warned lawmakers and the Obama administration against taking punitive action or setting requirements that are too stringent. Doing so, the lobby group says, would limit consumer credit and worsen a credit crunch.
Obama said that restrictions “shouldn’t diminish consumers’ access to credit.”
Uncollectible Debt
Uncollectible credit-card debt rose to 8.82 percent in February, the most in the 20 years that Moody’s Investors Service Inc. has kept records. Lawmakers have said they’re under increasing pressure from constituents to respond to rising interest rates and abrupt changes to consumers’ accounts.
Obama held a White House meeting last month with executives from the credit-card industry, including representatives from Bank of America Corp. and American Express Co. Afterward, he told reporters that credit-card issuers should be prohibited from imposing “unfair” rate increases on consumers and should offer the public credit terms that are easier to understand.
“The days of any time, any increase, anything goes -- rate hike, late fees -- that must end,” Obama said today at Rio Rancho High School. We’re going to require clarity and transparency from now on.”
He also said the steps he has taken to stimulate the economy and start the debate on overhauling the health-care system are beginning to take effect.
‘Beginning to Turn’
“We’ve got a long way to go before we put this recession behind us,” Obama said. “But we do know that the gears of our economy, our economic engine, are slowly beginning to turn.”
Taking questions from the audience, Obama repeated his stance that he wants legislation to overhaul the health-care system finished before the end of the year, saying it is vital to the economy.
Health-care costs are driving up the nation’s debt and burdening entitlement programs such as Medicare, the government- run insurance program for those 65 and older and the disabled.
The programs’ trustees reported May 13 that the Social Security trust fund will run out of assets in 2037, four years sooner than forecast, and Medicare’s hospital fund will run dry by 2017, two years earlier than predicted a year ago.
To contact the reporters on this story: Roger Runningen in Albuquerque at rrunningen@bloomberg.net; Hans Nichols in Washington at =1871 or hnichols2@bloomberg.net
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This is real?
Obama said this?
Crap, I don't want flying pigs or snow in hell.
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This is real?
Obama said this?
Crap, I don't want flying pigs or snow in hell.
No, this is perfectly consistent with his "listen to what I say rather than what I do" approach. He doesn't intend to do anything about it, except make petty cuts that he will try to make look bigger than they are but otherwise fleece the US treasury and the American people until there is nothing left.
In other words, continue as normal.
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"We can't keep spending like this. Our debt is unsustainable. And that's why we need to fund universal healthcare!"
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He's never had a problem with saying the right thing if it's what his handlers tell him needs to be said. It's just that following through with the right actions is simply not possible for him.
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“Most of what is driving us into debt is health care, so we have to drive down costs,” he said.
Everyone is talking about how our spending is unsustainable, he wants universal health care. What is the most obvious solution? Claim that nationalizing health care will reduce the debt.
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Go see a couple of the threads on THR.us
There are PLENTY of people who think the government will lower medical costs. >.<
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He is in the process of sticking a knife into the heart of this country. He won't let it rebound. Next year he will enact the largest tax increase in the history of the US and he will simply say it's necessary and Congress will put together the legislation. And folks are wondering if the ammo shortage is going to improve. I got news for you. It willl get worse if Obama has his way.
The first thing to stop is the health care bill. Can't afford it. Enact a tax reduction and see what develops for a couple years.
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He is in the process of sticking a knife into the heart of this country. He won't let it rebound. Next year he will enact the largest tax increase in the history of the US and he will simply say it's necessary and Congress will put together the legislation. And folks are wondering if the ammo shortage is going to improve. I got news for you. It willl get worse if Obama has his way.
The first thing to stop is the health care bill. Can't afford it. Enact a tax reduction and see what develops for a couple years.
You may be right.
My first reaction when I heard this today was:
He's laying the groundwork to say we need massive tax increases.
Which, of course, will make the spending even less sustainable. But he won't let simple economics get in his way!
[liberal mutterings] Small minded economists saying things aren't possible... [/liberal mutterings]
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President Barack Obama, calling current deficit spending “unsustainable,” warned of skyrocketing interest rates for consumers if the U.S. continues to finance government by borrowing from other countries.
“We can’t keep on just borrowing from China,” Obama said at a town-hall meeting in Rio Rancho, New Mexico, outside Albuquerque. “We have to pay interest on that debt, and that means we are mortgaging our children’s future with more and more debt.”
To paraphrase Lee Ermey in FMJ......"Well no *expletive deleted*it. I admire your honesty. You can......." er nevermind.
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My first reaction when I heard this today was:
He's laying the groundwork to say we need massive tax increases.
My first thought as well. I'm guessing something around a 75% income tax on anything over $50,000 per household for starters.
Don't take Obama for a fool, he's study his little red book very carefully.
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My first reaction was to assume BHo was a schizophrenic, but that would be too kind. A more sober judgment would suggest that our President's aim, sane or insane, is to reduce America to the status of the kinds of Third World countries he remembers so fondly from his childhood. Mr Toad is driving the American motor car, ladies and gentlemen.
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Obama has been talking responsibility and conservative sounding stuff like that since his campaign. It sounds good if you don't pay attention to anything else he says or does.
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No. Obama is a politician. He has heard that the American people don't like the debt we're running. So.... say you don't like it.
Well, Americans have also said they want other people's property. So, Obama is down with opp.
Obama will do whatever he thinks will make him the most popular.
But, truth is different parts of the nation have different desires, and opinions. Just like Bush couldn't keep everyone happy, Obama can't keep everyone happy either. Just like Bush, it won't be long before Obama has pissed off most of the country either.
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[liberal mutterings] Small minded economists saying things aren't possible... [/liberal mutterings]
A leftist fellow once told me that "we can't let economists run the economy."
I replied: "Yeah, that's exactly why we need to deregulate it."
You could almost see the smoke coming out of his ears as it dawned on him what I meant.
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Bend over America, except KA and NY, here comes the tax increase.....chris3
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If Obama actually believed this debt was unsustainable, he'd stop creating it.
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You may be right.
My first reaction when I heard this today was:
He's laying the groundwork to say we need massive tax increases.
Which, of course, will make the spending even less sustainable. But he won't let simple economics get in his way!
[liberal mutterings] Small minded economists saying things aren't possible... [/liberal mutterings]
Tax increases are better than the alternative. The day folks stop buying treasue issued securities.
We're now running approxiately 50% deficit spending. That means we have to borrow over a trillion and a half dollars this year to run the government. We have to pay interest on that debt, Gods alone know how much that will be. Raising taxes is significantly better than the amount of deficit spending Obama is planning on pushing through.
'Course, the even more sane option would be to cut spending. Sigh.
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Tax increases are better than the alternative. The day folks stop buying treasue issued securities.
We're now running approxiately 50% deficit spending. That means we have to borrow over a trillion and a half dollars this year to run the government. We have to pay interest on that debt, Gods alone know how much that will be. Raising taxes is significantly better than the amount of deficit spending Obama is planning on pushing through.
'Course, the even more sane option would be to cut spending. Sigh.
What makes you think Obama won't raise taxes and increase deficit spending?
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What makes you think Obama won't raise taxes and increase deficit spending?
Unfortunately, nothing. There is no one in Congress that wants to put the brakes on spending. You'd have to double tax revenue to cover the current deficit spending.
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Unsustainable is the appropriate word. Our trading partners aren't going to play the game and neither are the American people for very long, not when the pain really starts to hit. The veil is starting to lift already.
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Maybe a country wide crash and burn is just the thing we need to reset the clock on a lot of things.
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Unfortunately, nothing. There is no one in Congress that wants to put the brakes on spending. You'd have to double tax revenue to cover the current deficit spending.
Glad you realize that you have to double revenue, not taxes.
Allow me to introduce you to the Laffer Curve (http://en.wikipedia.org/wiki/Laffer_curve).
Unfortunately, its critics looked at it as a static representation that if you raise taxes, you will lower revenue if you are beyond the apex. (Some critics say the apex is 65%!!!!)
However, the problem they ignore is that tax revenues will go down over time at confiscatory tax rates because the incentive for growth decreases. An increase in taxes now will slow our economic growth rate which means the government will take in less taxes over time, which means the deficits will get worse (barring a spending cut).
I also know a lot of the opposition doesn't care, they just want us to be more "fair". Who cares if a rising tide lifts all ships?! Some of those ships get lifted more than others and that's WRONG! So, instead, they plan to sink as many of the ships as possible so we all suffer equally.
It's their health plan, too.
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Glad you realize that you have to double revenue, not taxes.
Allow me to introduce you to the Laffer Curve (http://en.wikipedia.org/wiki/Laffer_curve).
Unfortunately, its critics looked at it as a static representation that if you raise taxes, you will lower revenue if you are beyond the apex. (Some critics say the apex is 65%!!!!)
However, the problem they ignore is that tax revenues will go down over time at confiscatory tax rates because the incentive for growth decreases. An increase in taxes now will slow our economic growth rate which means the government will take in less taxes over time, which means the deficits will get worse (barring a spending cut).
I also know a lot of the opposition doesn't care, they just want us to be more "fair". Who cares if a rising tide lifts all ships?! Some of those ships get lifted more than others and that's WRONG! So, instead, they plan to sink as many of the ships as possible so we all suffer equally.
It's their health plan, too.
The reason why I said double the revenue is because the 2009 budget is allegedly 3.6 trillion, tax revenue is supposed to be about 1.8 trillion. The deficit is 1.8. To be even, obviously you'd have to double revenue. To start paying off the national debt, you'd have to go above that. Yea, unfortunately, I'm very aware that confiscatory tax rates don't end up making revenue projections because people stop working as hard.
From WWII to Reagan, the debt was 2-3 trillion dollars. Easily manageable, probably even healthy. From Reagan to current, we've increased our debt by a favor of 550%. In 2008, interest payments were $412 billion. Expect that number to go up accordingly. The projected budget deficits are to hit $20 trillion by 2015, using very optimistic numbers. Interest payments alone would be a bit under a trillion dollars a year.
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The reason why I said double the revenue is because the 2009 budget is allegedly 3.6 trillion, tax revenue is supposed to be about 1.8 trillion. The deficit is 1.8. To be even, obviously you'd have to double revenue. To start paying off the national debt, you'd have to go above that. Yea, unfortunately, I'm very aware that confiscatory tax rates don't end up making revenue projections because people stop working as hard.
From WWII to Reagan, the debt was 2-3 trillion dollars. Easily manageable, probably even healthy. From Reagan to current, we've increased our debt by a favor of 550%. In 2008, interest payments were $412 billion. Expect that number to go up accordingly. The projected budget deficits are to hit $20 trillion by 2015, using very optimistic numbers. Interest payments alone would be a bit under a trillion dollars a year.
Yep. As an economist those numbers are very frightening. (As they would be to anyone who understands their implications.)
I honestly don't know how we can avoid massive inflation unless somehow the government stops spending so much money.
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We know the numbers are unsustainable, untenable, mind-boggling. But right now, for most Americans, they are just that: numbers. In a year or two the numbers will become hard daily reality, and the political process will engage in earnest. I don't think extrapolating the numbers or the policies is meaningful. We are talking about national and personal survival; when that becomes obvious to the average citizen all bets are off.
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I also know a lot of the opposition doesn't care, they just want us to be more "fair". Who cares if a rising tide lifts all ships?! Some of those ships get lifted more than others and that's WRONG! So, instead, they plan to sink as many of the ships as possible so we all suffer equally.
It's their health plan, too.
Excellent analogy.
I honestly don't know how we can avoid massive inflation unless somehow the government stops spending so much money.
I don't know either. Right now, both sides are finally talking about it, so I am hoping that maybe it will be the hot button issue in 4 years that the repubs campaign on. Much like ending the Iraq war was much of the basis for the dems 2008 campaign.
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Hot button issue? That's a bit understated, I think. How much civil order do you think there will be in a nation with 15 per cent a year inflation? You will have tens of millions of desperate people. We will not be talking about anything resembling a normal political process at that point. We will be talking about Third World politics, probably by machete.
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I honestly don't know how we can avoid massive inflation unless somehow the government stops spending so much money.
I'm seriously starting to wonder if I should buy a lot of stuff on credit now as a kind of hedge against the inflation that is almost a sure thing. Maybe it's time to get a bigger house, a couple new cars, and a house full of furniture, all on credit. Then when inflation gets bad, it will be easy to pay off.
My aversion to risk and debt probably won't let me do it, but I'm wondering if that might be the smart way to "invest" right now.
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You won't have to pay anything off. Irresponsibility is the new currency. =|
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Hot button issue? That's a bit understated, I think. How much civil order do you think there will be in a nation with 15 per cent a year inflation? You will have tens of millions of desperate people. We will not be talking about anything resembling a normal political process at that point. We will be talking about Third World politics, probably by machete.
15 percent?
That's bad, but we've had that in the US before (http://en.wikipedia.org/wiki/File:US_Historical_Inflation.svg).
It causes problems, but not massive unrest.
Double that, though, and things start getting bad. Make it persist and things will likely get really bad.
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I've been thinking about that (and was talking with dad about it). I'm beginning to wonder if all the ammo/gun shortages we're seeing are really panic buying based on potential bans. I'm starting to worry just a bit that it's people stockpiling for "unrest"... =(
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I've been thinking about that (and was talking with dad about it). I'm beginning to wonder if all the ammo/gun shortages we're seeing are really panic buying based on potential bans. I'm starting to worry just a bit that it's people stockpiling for "unrest"... =(
Well, if you shoot all the looters, you won't have much more unrest. So what's to worry about?
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There is no one in Congress that wants to put the brakes on spending.
(https://armedpolitesociety.com/proxy.php?request=http%3A%2F%2Flighthousepatriotjournal.files.wordpress.com%2F2008%2F05%2Fron-paul-desk.jpg&hash=ab78967900f1cfc9c06e6394e463a5d018aab6a9)
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Yep. As an economist those numbers are very frightening. (As they would be to anyone who understands their implications.)
I honestly don't know how we can avoid massive inflation unless somehow the government stops spending so much money.
Every third world country that can't pay its debt does one or both of two possible options. Default or hyperinflation. Only two options that exist.
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Every third world country that can't pay its debt does one or both of two possible options. Default or hyperinflation. Only two options that exist.
Yep. And that's what we'll become if we do either of those.
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Yes, we have had 15-20 per cent before, but when I said 15 per cent that was just a "high inflation" number I tossed out. At that rate the value of your assets is halved in under five years. But we don't know what the real numbers will be (and that's assuming we can trust official CPI data; I don't). I suspect 15 per cent will just be act one. at the current rate we are expanding funny money. Combine high inflation with high unemployment and massive unrest is far from unlikely.
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15 percent?
That's bad, but we've had that in the US before (http://en.wikipedia.org/wiki/File:US_Historical_Inflation.svg).
It causes problems, but not massive unrest.
Double that, though, and things start getting bad. Make it persist and things will likely get really bad.
I've often wondered if the correlation between the size of the money supply and the value of money is quantifiable. Does doubling the money supply cause the value of money to drop by half? More than half? Less than half?
Or, to put it another way, just how much to do you have to expand the money supply in order to get a given amount of inflation?
Do you know of any economic studies or theories that seek to answer this sort of question?
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Yes, we have had 15-20 per cent before, but when I said 15 per cent that was just a "high inflation" number I tossed out. At that rate the value of your assets is halved in under five years.
No, under 15% inflation the value of assets remain the same (all else equal) while their prices double in 5 years. Cash loses its value under inflation, which is why you hold hard assets instead.
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THe problem is that value of money does not in fact drop proportionately to money supply. Sometimes it does, but it's not as simple - for example, if your economy is shrinking at the time for whatever other reasons affect the economy, then obviously the money supply expansion will result in a greater inflation. But it's not always so and I'm sure mak can explain it better than I can.
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THe problem is that value of money does not in fact drop proportionately to money supply. Sometimes it does, but it's not as simple - for example, if your economy is shrinking at the time for whatever other reasons affect the economy, then obviously the money supply expansion will result in a greater inflation. But it's not always so and I'm sure mak can explain it better than I can.
That's why I'm curious about a quantifiable relationship between supply and inflation. Subjectively, we know that increasing the money supply relative to everything else lessens money's value. But what exactly is the relationship between the two? It can't possibly be as simple as MV=PQ (if it were inflation and deflation would be historical oddities).
I can reasonably guess that the relationship isn't linear, much less one-to-one. And obviously you'd have to control for all of the other factors at play, too.
Still, knowing what the relationship isn't doesn't tell me what it is. Does anyone know it? Is it even knowable?
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No, under 15% inflation the value of assets remain the same (all else equal) while their prices double in 5 years. Cash loses its value under inflation, which is why you hold hard assets instead.
Most people do not hold significant quantities of "hard assets" of the type that would really insulate them against inflation.
And since when is cash not an asset? Pensions, debt instruments, annuities--all those will be killed by high inflation. And stocks don't do well in a high-inflationary climate. You will recall what happened to the market by '74 perhaps...?
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Inflation simply changes the unit of measurement. Anything measured by cash (anything but cash itself) will rise with inflation. More or less, and all else being equal.
I think it's that "all else being equal" part that's tripping you up. Inflation is never the only economic factor at play in a given time period. For instance, stocks did poorly during '74, but that probably had more to do with the oil shock, recession, war, social unrest, and high taxes of the time. Stocks did quite well in the high inflation of the late '90s, when money was cheap and available but there wasn't any recession or oil shortages or confiscatory taxes or malaise.
I also think lots of confusion stems from using CPI increases as a proxy for measuring inflation. But that's a whole 'nother can of worms.
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...that probably had more to do with the oil shock, recession, war, social unrest, and high taxes of the time...
As if all these are not looming in our current future?
It wasn't my intention to get into a debate with you about economics. Inflation may be a two-edged sword, but it is, that said, a sword that sharpened too much beheads its user.
Inflation distorts the investment process and makes managing businesses very problematic. It is also deadly for lenders, and unless we all intend to be only borrowers we should be seriously worried about the implications of that for not only our economy but our society.
By the way I don't use the CPI if I can help it. In my view the CPI seriously understates inflation.
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Inflation simply changes the unit of measurement.
In a word, no.
The money supply is not increased equally along the entire economy. Essentially the "new" money is distributed via a ripple-effect, which enables the people who get their hands on it first (large financial institutions, for example), utilize it at a greater value than the people that get it last, which usually causes a temporary inflationary boom and a spike in consumption.
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In a word, no.
The money supply is not increased equally along the entire economy. Essentially the "new" money is distributed via a ripple-effect, which enables the people who get their hands on it first (large financial institutions, for example), utilize it at a greater value than the people that get it last, which usually causes a temporary inflationary boom and a spike in consumption.
Austrian Business Cycle, very well done.
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In a word, no.
The money supply is not increased equally along the entire economy. Essentially the "new" money is distributed via a ripple-effect, which enables the people who get their hands on it first (large financial institutions, for example), utilize it at a greater value than the people that get it last, which usually causes a temporary inflationary boom and a spike in consumption.
All of what you describe boils down to inflation being a change in the unit of measurement, more or less.
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All of what you describe boils down to inflation being a change in the unit of measurement, more or less.
WIth the side effect of wealth transfer to the people who use the new money first
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WIth the side effect of wealth transfer to the people who use the new money first
Moreover, your money loses even more value for knowledge that it will continue to inflate.
Suppose I inflate money to a point of issuing $10 per every $1 that perviously existed. The $10 are now slightly less valuable that the one-dollar bill used to be, because people have reasons to believe I will inflate more in the future.
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"U.S. Long-Term Debt Load Unsustainable" may- if we are very lucky- be Obama laying the groundwork to his faithful socialist followers that congress (or his handlers in the shadows) won't allow him to follow through with much of the socialist agenda proposed during his campaign.
Maybe they are beginning to understand the real threat of free citizens removing the current government from power.
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One factor that goes along with an increase in the money supply to cause inflation is something called the "velocity" of the money supply, which is to say how quickly people spend that increase. If you have reason to believe that your 401k money is going to be worth vastly less, in real terms, in the future, you have every economic incentive to cash it in, pay taxes and penalties, and buy SOMETHING that will retain its value in the future. Krugerands, real estate (if you can pay cash, or can find a lender), Registered Magnums, fine artworks (but I repeat myself). There's also been some squeaking by the Chinese, who hold well over a trilliion of our debt, about their concern that we might monetize the debt.
There was an article by a doom-'n-gloom economist on Bloomberg earlier this week that was predicting "Zimbabwean" inflation here within a few years. As for myself, I don't think we could sustain low double-digit inflation for long. I think the flood of money exiting other markets and seeking assets, goods, whatever, in this country would quickly blow by the double-digit stage.
Trade goods, durable goods, non-perishable food, precious metals. Like the Shakespearean "wars and lechery", these hold fashion.
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WE ARE MONETIZING THE DEBT- BIG TIME- I read today the amount "bought" by the the fed is about equal to ALL the other holders .
For the most clear picture of what is going on I recomend the "Martenson Crash Course". As a second, start reading the "Market Ticker" blog.
We have finally managed to push all the "toxic" assets to the lowest common denominator-you and me, via the Gov.
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Obama Says U.S. Long-Term Debt Load ‘Unsustainable’
Must be a d'ooohhhh! moment for Obama as he realizes he has just
tripled Dubya's contribution to the debt ....... :mad:
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New members read this regarding giving politicians derogatory nicknames... http://www.armedpolitesociety.com/index.php?topic=11378.0