Feds Get a Dose of Kitchen-Table Economics
- Posted on July 15, 2011 at 11:06pm by
Scott Baker
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WASHINGTON (AP) — The debt crisis has brought the government to the “kitchen table” to do something that hard-pressed families do routinely, which is tear their hair out over how to pay the bills.
Pawn the family jewelry? Emptying gold reserves at Fort Knox and other repositories could raise a very handy $400 billion.
Sell the property that has been in the family for generations? Yosemite National Park would fetch a pretty penny.
At least so far, such last-gasp ideas are not in serious play at Washington’s kitchen table. But as the Aug. 2 deadline approaches for raising the country’s borrowing limit, you can bet someone in the government is thinking about them. Economists are.
“The consequences of America defaulting on its debt are so unthinkable, catastrophic and costly that we should consider anything,” said Sung Won Sohn, an economist at the Martin Smith College of Business at California State University. “Sell gold, sell oil from the Strategic Petroleum Reserve, do ANYTHING to avoid a default.”
In short, the nation is like a family that‘s overextended and close to wits’ end.
To carry on without going deeper in debt, this family would have to cut its monthly bills by 70 percent or get a huge pay increase at work, enough to raise their income by nearly two-thirds. Now.
Then they could scrape by without borrowing more, at least for a little while.
So calculates the nonpartisan Congressional Research Service in describing the only way the government could move ahead without taking on more debt. An end to discretionary spending, a 70 percent cut in mandatory spending or an enormous boost in tax revenue would suffice, but only for this year, it says. Then it gets even worse.
Nothing like that will happen.
The government is almost certain to raise its debt limit and carry on borrowing something like 40 cents out of every dollar it spends.
The question is whether it will do so in time to avoid late interest payments and economic turmoil, and what size spending cuts, tax increases or both will become part of the deal.
Nothing is stopping Congress from voting to raise the debt limit today. The holdup is over how to reduce future budget shortfalls, which both parties say must be done.
Republicans want a huge cut in government spending. President Barack Obama wants smaller, but still substantial cuts, plus more money coming in from taxes, which Republicans oppose.
To get around this, an idea has picked up steam to let the head of the household increase the debt limit on his own, under certain conditions, and take the heat off the fractious family to agree on all the spending cuts and revenue increases now.
The government bought some time in the middle of May, when it stopped making payments to federal employee retirement funds, the equivalent of halting contributions to your 401(k). The government will make up the lost retirement investments later, plus interest, keeping the funds whole.
But there are no such bookkeeping maneuvers left, Treasury Secretary Timothy Geithner says, “no way to give Congress more time.”
Some big payments are coming due, including $23 billion for Social Security checks on Aug. 2, $87 billion the next day to redeem maturing Treasury securities and more than $30 billion in interest payments on existing Treasury securities on Aug. 15.
Those payouts are in addition to roughly $5 billion to $10 billion the government pays daily to defense contractors, Medicare providers, federal employees and others, all part of the business of running the government.
With red flags flying from credit-rating agencies, Federal Reserve Chairman Ben Bernanke and the corporate sector, the pressure is intensifying for Washington to break the impasse not just by the deadline but before. That would discourage investors from fleeing from the market in a predefault panic and preserve the nation’s top-of-the-line credit rating.
In 1979, when Congress dragged its feet in raising the debt limit and the government ran into technical glitches processing its debt, the U.S. was late making interest payments on about $120 million of bills.
It amounted to a piddling sum compared with what may be coming, causing only a brief delay and no concern by creditors that they wouldn’t get paid. Yet the mini-default permanently raised interest rates by more than half a percentage point, says the Committee for a Responsible Federal Budget.
That’s like making your mortgage payments on time for years, seeing one monthly check get hung up in the mail for a few days, and getting hit in response with a higher rate for the life of the loan.
Some Republicans have argued that the government can do the same thing a family does when faced with more bills than it can pay in a single month. It can set priorities and make only the critical payments, such as the utility bills to keep the lights on and the water flowing, and let other payments wait. In this scenario, interest payments are the most critical.
Obama disputes that approach.
“A family, if they get over-extended and their credit card is too high, they don’t just stop paying their bills,” he said. “What they do is, they say, how do we start cutting our monthly costs?
“We don’t stop sending our kids to college, we don‘t stop fixing the boiler or the roof that’s leaking. We do things in a sensible, responsible way.”
Still, setting aside some bills has not been ruled out.
Obama held out the possibility that the government won’t be able to send retirees their Social Security checks in time. Republicans called such remarks a scare tactic to get them to cave to his proposals.
But should those checks get delayed, it’s a sure bet both parties would be scared.
Messing with Social Security is not just like a family disrespecting its elders. It’s like stiffing your bookie. In political terms, it can get you broken legs.
In some important ways, the federal budget is not recognizable to a real family. It’s from another planet, esoteric, full of accounting tricks, funny money, and obligations that citizens don’t have.
Families don’t have the option of just voting to raise their credit card limit, for one thing.
But that, in essence, is what the government needs to do, and fast, to avoid defaulting on its debt payments, sending markets into a probable tailspin and making all sorts of dire predictions come true.
Even in Washington, math is math.
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mocnarf
Posted on July 19, 2011 at 10:02amOne option Obama has if the debt ceiling is not raise does not require any action from congress. Just as he did when he paid the Bankers after the financial crash of 2008. He could simply tell the treasury to print the 180 Billion dollars that is necessary to pay the August bills.
Yes, this is essentially a tax because it could increase inflation and make the buying power to go down some. However, it is a tax that will be paid by every person, country in the world that holds US Dollars. This would brodden the tax basis so that this people, who normally do not pay US taxes would now be paying them. Consider the people who would be added to the tax rolls:
Drug Dealers
Foriegn Governments
Saudi Oil Companies
The Queen Of England
Swizerland Bankers
and many more.
I hope there is no deal on the debt limit. I would like to see the US Tax basis broddened. I hope Obama will tell the treasury to start up the presses. If it is done in moderation the world will have no choice but to pay the US tax. There is no other currency they can go to.
Report Post »Knucklenose
Posted on July 18, 2011 at 7:08pmWe’re about to be schnookered, and the justification will be “well it’s easier to ask
Report Post »forgiveness than if we asked for permission.” And to boot, they’ll be voted back in,
the sorry sacks of skins.
arrjay
Posted on July 18, 2011 at 9:26amRaise the U.S. credit line another trillion or two, now and again later? I think not!
Report Post »Let’s keep in mind there is that other “elephant in the room,” the one that a Federal judge has ruled unconstitutional, is not being mentioned, but it is being implemented regardless.
Remember it? “The Affordable Care Act of 2010”
Its FULL force is will be felt in 2014.
We are already feeling its effects, progressively, as planned by the creators, The Apollo Alliance (not Obama’s Democrat politicians).
From: http://www.irs.gov/newsroom/article/0,,id=220809,00.html
“A 10-percent excise tax on indoor UV tanning services went into effect on July 1, 2010.”
“Effective Jan. 1, 2011, the cost of an over-the-counter medicine or drug cannot be reimbursed from Flexible Spending Arrangements…”
During these budget talks the president says Obamacare is ‘off the table.’ Did you know it adds $2.5T in additional entitlements to this same budget? Your W-2 form now shows the amount of health insurance your employer provides to you, a tax increase you will be paying in 2014.
Be active folks. Email and phone your legislators, write a snail letter, they all get read and a response may or may not be boilerplate. I live in a blue state, I still email my Obama minion.
arrjay
Posted on July 18, 2011 at 7:58amFor those of us who want to get more involved;
Report Post »Contact information for state and federal elected officials here.
http://www.usa.gov/Contact/Elected.shtml
Mr Sanders
Posted on July 18, 2011 at 7:26amHOw about breaking up the discussions by topic(s) in the budget itself, put a panel on Soc. Sec., Medicare, etc. anf find ways to cut, efficitize, streamline ops? Better yet how about we have a group of outside sources come in and make recommendations? Bob & Bob, Inc., efficiency experts, could come in a clean up the place? (just jokin)
I have a feeling that what the People want will not be served any server-time in the heads of our politicians. Thankfully, the pressure is on but I think its going to be “give-this-to-keep-that” again, no entitlements will be revamped/removed, and it will be business as usual. We started with $4T in demands for cuts, now we’re down to $2T. We may just get another $20B again (which really was $48M)
I think the only thing that could shock US into doing some serious work is for the US to be downgraded to A status or less?
$8-10T Ladies & Gents over the next 4 years of our short tem debt is due!? What’s your plan for that politicians in Washington DC… or did you get that memo yet?!!
Report Post »jedi.kep
Posted on July 18, 2011 at 7:05amWhat idiot wrote this article? No. You don’t keep borrowing money. No. You don’t keep up the same practice that got you into trouble in the first place.The egghead economist’s are predicting doom and gloom because that is what happens when you stop borrowing money. They have never lived without credit cards, so their way of life is going to drastically change. Our country is borrowing money to pay for borrowed money! Spending junkies. Time to bite the bullet get free of this addiction. You are damn right it is going to hurt and the crybabies will beg for more spending just like addicts beg for just one little smoke. Just one little drink. Just one little hit. Just one more time…. If you love your country, you must not approve this debt limit increase. We have to get clean.
Report Post »jedi.kep
Posted on July 18, 2011 at 8:03amGive the president MORE power? Are you all out of your mind?? No way! It will only corrupt the bugger even more. His head is so inflated now that one good gust of wind will blow that blimp right off it’s moorings! Stop spending so much. Simple solution. Start with the newest spending mess, and work backwards, cutting off from newest to oldest until we get this mess under control.
Report Post »PelositheGreat
Posted on July 17, 2011 at 11:21pm“The consequences of America defaulting on its debt are so unthinkable, catastrophic and costly that we should consider anything,” said Sung Won Sohn, an economist at the Martin Smith College of Business at California State University. “Sell gold, sell oil from the Strategic Petroleum Reserve, do ANYTHING to avoid a default.”
he said asking America to pay his homeland…..
Report Post »cane247
Posted on July 17, 2011 at 10:35pm@ Inversiontheory you are correct, Obama isn’t a National Socialist because he cares not a wit for America. Comparisons with dur fuhrer are stretched. Hitler cloaked his brand of socialism in national pride. Obama thinks America is evil and needs to be taken off of its pedestal not raised to world domination. He’s also not Hitler as he lacks both “vision” and “leadership”. Obama’s a stooge of the NWO crowd not an evil mastermind. (Thank God.) Hitler also wrote his own book without Bill Ayers. Other camparisons with the rise of the Nazi Party however are more apt. Runaway inflation, abdication of power and authority to the chief executive, mindless adoration by the media, and hero worship by a large segment of the populace, are but a few examples.
http://www.youtube.com/watch?v=T4tDTe9sOdU Maybe Donald had it right?
So when is the Reichstag fire scheduled anyway?
Report Post »chershaw8
Posted on July 17, 2011 at 9:32pmNo Mr. President, we DON’T send our kids to college, no we DON’T fix the roof or boiler, if we DON’T have the money. And that’s the way it is. And we especially DON‘T spend money we don’t have and make MORE bills to pay.
Report Post »thebarbarian
Posted on July 17, 2011 at 5:57pmLets start with confiscating the leftist wealth scince they are the thieves in our country and economy.then prosecute and if found guily execute them for the treasonous actions against America. then get rid of the social entitlements. then reform the tax structure. then reform tort procedures. then reinstate all of the laws that the demoncraps have extricated that pretain to the allegence to our constitution and our country. note that they have gotten rid of said laws that make it illegal to take public office as a marxist with the willful intent to overthrow the Government. this should never have happened. SO LETS FIX IT!
Report Post »An AmericanMom
Posted on July 17, 2011 at 12:10pmHow bought we start with cuting the 99 weeks of Unemployment……human natural is that most people don’t look for work in till around week 97.
Report Post »Konacow
Posted on July 17, 2011 at 10:22amAs it was said in a town meeting I went to, the same old group of people show up all the time, what about the other 50,000 people coming down to a meeting and showing support? This is your government, but when things don’t get voted on the way they wanted, they are the first ones to bitch.
Report Post »Atokaite
Posted on July 17, 2011 at 9:54amThis is about the best summary I have encountered on the NET.
Report Post »KUDOS to the author.
We need to re post this across the NET.
Semper Fi
peter469
Posted on July 17, 2011 at 12:23amCut spending first, Cap spending at a % of GDP and pass a Balanced Budget Amendment. Then cut corporate taxes to a flat 22-25% rate, eliminate the current tax system in favor of a flat tax that taxes ALL wage earners at the same tax rate (to be fair of course). Eliminate taxes on Capital Gains and Dividends as well as on Savings. That would be a great start.
Report Post »NormanDeArmond
Posted on July 16, 2011 at 6:54pmAP is full of hooey. The politicians and appointees are like Hewey Dewey and Lewey. This is going to crash sometime. Only Sarah Palin and 76% of America know it. We have to freeze the debt and sooner than later. You know what will happen? The spendthrift wastrels will find another way to keep on spendin. But? we won’t have to pay it back. Keep on raising the limit and we will NEVER be able to pay it back. That is, IF we can even pay it back now. Sell the national park to ACME Oil Drilling and refining, We will more likely hang onto assets like that if we FREEZE borrowing now. They will quantitatively ease their way into extra spending somehow. Sarah has better ideas how to cap borrowing than i do and says it well on her Facebook account
Report Post »WeekendAtBernankes
Posted on July 17, 2011 at 4:20amHooey is right. When the AP says, “let the head of the household increase the debt limit on his own, under certain conditions, and take the heat off the fractious family,“ what they really mean is ”Congress surrenders a purposefully enumerated check which balances its authority against the Executive Branch.”
Report Post »kcinco
Posted on July 16, 2011 at 4:32pmI hear a lot about the federal govt debt, but I never hear anyone talking about the federal govt income? Where are all the payroll taxes that are raped from our paychecks? Don’t other countries owe the US?
I came out of substantial credit card debt by using a simple Excel worksheet to budget my income and expenses. I could lend it Geithner to help him figure out how to pay the bills.
Report Post »wildwood
Posted on July 16, 2011 at 3:36pmTHE FED AND DEMOCRATS SHOULD HAVE THOUGH, BEFORE THEY SQUANDERED TRILLIONS!!!!!!!
Report Post »Now they want to tax us more to cover their stupitity!!!!!!!!!!!!!!!
Keep telling your representivies No deal!!!!!!
Able1
Posted on July 16, 2011 at 12:14pmHow much of our debt is caused by providing a secure and peacful world??? I say print all the money we owe pay it out and then drop our fiat monitary system and print new money based on the gold standard. sorry world you made some bad investments in lieing govt official not with the american people. Buyer beware. I mean everyone blamed the housing market on bad investments even though when those purchasers bought in a hot market it was still a good investment it did not become a bad one untill Allan greenspan raised short term interest rats 5 quarters in a row with the purpose of bringing our econemy in for a soft landing.
Report Post »Stehekin912
Posted on July 16, 2011 at 12:09pmFamilies have more wits than that. What do families do when they are financially overextended? Pay the necessities. Cut back expenses, fix the roof, yes. But the kids in college – Mom calls up and says beloved child, we can no longer afford your college. You will need to get a job to help out, or quit school for awhile and come home, get a job and help us. When I was in college, that happened to lots of college students.
We can do something similar before we start thinking about silly things like selling our country and its assets in whole or in part. What a ludicrous, Progressive idea! We should repatrate money and jobs that have left us for other countries. Bring our own manufacturing, jobs and money BACK HOME. Don’t even think about selling our oil and gas reserves – bring jobs and money those assets create home to earn income and free us from oil and gas extortionists (who also hate us) by responsibly developing it.
Selling our assets and our country is just like a master carpenter selling his tools and then breaking his hands – it will leave us slaves to the scraps others toss, and nothing to rebuild with. Just what the Progressives want! What a ridiculous option to even contemplate as a hypothetical!. Our country and its people is what we need to put us back on the path to prosperity.
We have delayed so long taking the steps necessary to save our nation that we have backed ourselves into a corner. We must take the step and ACT NOW to save Ameri
Report Post »Stehekin912
Posted on July 16, 2011 at 12:16pm[Sorry to be cranky here, Blaze, but your Characters Remaining counter said I had characters left when I finished writing my post, but it cut the last word off anyway. This is the second time it has happened. I understand you probably need to limit the size of responses, but 1500 characters is kind of short and we need every one.]
We must take the step and ACT NOW to save America.
Report Post »budahbabe
Posted on July 16, 2011 at 11:57amWhy is Social Security being hit this way by this administration. Did they steal all the money from the Social Security fund and use it for other things? They now can’t pay it unless they borrow more money? Is it possible to get some responsible adults in the White House?
Report Post »bfranklin63032
Posted on July 16, 2011 at 11:57amTake social security off the table- a fund with a 2.6T surplus cannot possibly be responsible for our current budget problems- the large SS fund is blurring the vision of congress as to where the budget really has to be cut- we must remember SS is not welfare, private sector workers have paid for it.
Report Post »In Europe the state of Belgium is without a government for over 18 months now, and the country is prospering.
fatpatriot
Posted on July 17, 2011 at 9:33amBen,
Unfortunately the “surplus” you refer to is pure fiction.
http://www.heritage.org/Research/Commentary/2004/11/Social-Securitys-Fictitious-Trust-Fund
http://blog.heritage.org/2009/03/26/sayonara-social-security-surpluses/
Other than really painful cuts in spending and yes I’ll say it increases in revenue our debt and deficit will continue to grow.
Report Post »A common sense approach to taxes and spending similar to what was posted by peter469 at the beginning of this thread is probably the only thing that will make a difference.
GOTT-EM-MAUSER
Posted on July 18, 2011 at 12:12am1. There is NOT ONE DIME in the Socialist Security Fund. EVERY PENNY ever paid in has been (Borrowed) for other Federal Expenditures, and squandered on other Pork Barrel projects by the U.S. Congress, BOTH PARTIES.
2. The Socialist Security Fund was originally supposed to be and income earning trust fund for a minimal retirement payment for those that had paid into it. It has become another OPEN ENDED ENTITLEMENT PROGRAM for every free loading “Disabled” leech in this country, most of whom never paid squat into the system. AND, tons of the folks that draw a retirement benefit paid very little into it, and everybody is now living decades longer than any actuary ever dreamed was possible.
3. There are not now, nor have there ever been, ENOUGH PAYERS to support all the PAYEES, and as the Baby Boomers start flaking out from PAYERS to PAYEES, with ONLY the NEW IMPORTED AMERICANS to foot the bill, it’s OVER.
The greatest PYRAMID SCHEME of all times is at it’s END, one way or another. Either the entire system will have to be ENDED, or the VALUE of the checks it sends out will have to be “quantatatively eased” (INFLATED) to the point they won’t buy a loaf of bread.
AS my Dad told me about going through the Great Depression in the 30s, “Son you better learn how to Grow Food and Shoe Horses, otherwise You WILL be “HUNGRY and ON FOOT!!”
Report Post »Bruce01
Posted on July 16, 2011 at 10:39amBeing a small business owner the first priority is to pay the employees, second pay the taxes third..pay your suppliers, after this, it becomes discreretionary, unfortunately, the POTUS is willing to hold the seniors hostage…book knowledge doesn’t mean he understands the reality of running a business. After all, he is the CEO of the largest corporation in the world and has minimal qualifactions for this leadership position. This entitity called the USA has too much debt to equity and needs to cut the expenses because raising prices (taxes) will put this entitney out of business! There isn’t enough tax dollars in the system to cure the problem of spending. I guess they don’t teach this type of economics at Harvard.
Report Post »NOBALONEY
Posted on July 16, 2011 at 10:28amThis is not 1979. Unlike the many times they have raised the debt ceiling. There are other important factors that change things about just raising the debt ceiling. The 850 billion dollar Stimulus, and Quantative Easing 1 & 2. Raising the debt ceiling without real cuts would only add fuel to the fire, and Fed Chair Bernanke’s call for another stimulus(QE3) would do the same. Preaident Obama said a default would cause interest rates to rise, but does he know that his Fed Chairman Bernanke in the June meeting talked about the exit strategy; which would raise interest rates in an attempt to reduce money supply, but he needs a sound economy to begin to do that function.
Report Post »1TrueOne55
Posted on July 16, 2011 at 11:33amRemember the Weimar Republic!!! This President is hell bent on destroying the American Dream so that he can replace it with a National Socialist agenda. This was tried in Germany but it failed because they were killing their own citizenry. Those in power now have the same plan, the SDS was trying to take control through violence when the FBI infiltrated them. They found out that if they took power they would have to eradicate approximately 25milliion citizens because they would simply not allow themselves to be “Re-Educated”, in other words the elderly. Since the elderly would not have enough time or will to follow the Reich they would be removed.
These were the plans of Obama’s Neighbour and political mentor William Ayres of the Militant arm of the SDS called the Weather Underground.
Report Post »InversionTheory
Posted on July 16, 2011 at 10:47pm@TrueOne — Will you stop calling Obama a National Socialist! The man doesn’t believe America is a special place. He’s no nationalist. He’s a proper socialist….Internationalist to the core.
Report Post »GOTT-EM-MAUSER
Posted on July 18, 2011 at 12:42am@1TRUEONE55,
We are seeing the very plan you describe coming to fruition. BUT, it is many decades late, and the Communists have failed in the most important aspect of their preparations. We are still a VERY VERY WELL ARMED society.
The twenty five Million that the originators foresaw won’t be a drop in the bucket to what is coming now. When the CRUNCH comes, fully two thirds of the people now living in this country will be dead in the first three months. Initially High Speed Lead Poisoning will take the butchers toll, and then starvation and disease will make that number look small by comparison.
Our REICHSTAG FIRE will most likely be the flame out of the Economy and the Fiat Currency that supports it. Aug. 2 may well be a very interesting day, if the Republisocialists hold against letting the Democommunists raise the debt limit, trying desperately to hold onto what power they have, just the Psychological Moment (Perfect Storm) created, may well be enough to trigger CRUNCH TIME.
We shall see.
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