The Fiscal Cliff

[BiggyRat]

"Fiscal Cliff" put in a much better perspective.

Lesson #1:

* U.S. Tax revenue: $2,170,000,000,000
* Federal budget: $3,820,000,000,000
* New Debt: $1,650,000,000,000
* National Debt: $14,271,000,000,000
* Recent budget cuts $38,500,000,000

Let's now remove 8 zeros and pretend it's a household budget:

* Annual family income $21,700
* Money the family spent: $38,200
* New debt on the credit card: $16,500
* Outstanding balance on the credit card: $142,710
* Total Budget cuts so far: $3.85

Got it ??..........OK now,

Lesson # 2:

Here's another way to look at the Debt Ceiling:

Let's say, You come home from work and find there has been a sewer backup in your neighborhood, and your home has sewage all the way up to your ceilings...

What do you think you should do.....

Raise the ceilings or remove the SHlT?

 

[johnnydawg68]

"Fiscal Cliff" put in a much better perspective.

Lesson # 2:

Here's another way to look at the Debt Ceiling:

Let's say, You come home from work and find there has been a sewer backup in your neighborhood, and your home has sewage all the way up to your ceilings...

What do you think you should do.....

Raise the ceilings or remove the SHlT?

That's not accurate. The debt "ceiling" shouldn't even exist. It's simply making good on paying back money you've already borrowed and that congress has already authorized to be spent. It's conflating the issue to say you shouldn't pay back money you've already borrowed with saying you should reduce the deficit. Two separate issues.

 

[evilwebby]

That's not accurate. The debt "ceiling" shouldn't even exist. It's simply making good on paying back money you've already borrowed and that congress has already authorized to be spent. It's conflating the issue to say you shouldn't pay back money you've already borrowed with saying you should reduce the deficit. Two separate issues.

Given that the current borrowing is not even enough to service the interest on the current debt, it doesn't make any sense to think of them as separate issues.

 

[johnnydawg68]

Given that the current borrowing is not even enough to service the interest on the current debt, it doesn't make any sense to think of them as separate issues.

Defaulting on our debt would send shock waves through worldwide financial markets. Playing with it last time damaged our economy tremendously. Pay what you owe, and reduce spending going forward. Two separate issues entirely.

 

[Brennan]

All of yer mar's.

 

[steken1]

Interesting stuff from co-dependent cousins from over the pond in here.

 

[evilwebby]

Defaulting on our debt would send shock waves through worldwide financial markets. Playing with it last time damaged our economy tremendously. Pay what you owe, and reduce spending going forward. Two separate issues entirely.

No, it's not.

We have to continue to take on more debt to pay the interest on the debt that we already owe. I'll repeat that - We have to continue to take on more debt to pay the interest on the debt that we already owe. That's called a ponzi scheme.

We are absolutely 100% broke. We can't pay what we owe - we can't even begin to pay off what we owe, and that is with the government being able to borrow at 2%.

Imagine the day when the markets decide that they will no longer throw good money after bad, and interest rates rise. There is no chance at all that we will ever even begin to pay back what we owe, none whatsoever. That is just maths. A couple of years ago Greece was still able to borrow at low rates. Then the markets decided to stop throwing good money after bad. We are no different at all from Greece; we are just as broke. In our economy and monetary system, money is debt - the debt must be continually grown, or the struts will collapse.

Look what happened to Greece when the markets decided that the would no longer lend to them:

The only thing that keeps this going is the bond market bubble. It is the biggest bubble in history, and like with all bubbles it is unsustainable and must eventually collapse.

 

[evilwebby]

"Fiscal Cliff" put in a much better perspective.

Lesson #1:

* U.S. Tax revenue: $2,170,000,000,000
* Federal budget: $3,820,000,000,000
* New Debt: $1,650,000,000,000
* National Debt: $14,271,000,000,000
* Recent budget cuts $38,500,000,000

Let's now remove 8 zeros and pretend it's a household budget:

* Annual family income $21,700
* Money the family spent: $38,200
* New debt on the credit card: $16,500
* Outstanding balance on the credit card: $142,710
* Total Budget cuts so far: $3.85

Got it ??..........OK now,

Lesson # 2:

Here's another way to look at the Debt Ceiling:

Let's say, You come home from work and find there has been a sewer backup in your neighborhood, and your home has sewage all the way up to your ceilings...

What do you think you should do.....

Raise the ceilings or remove the SHlT?

Good analogy.

Acutally in fairness, I think it's not quite like that; the US is like a household so you should include the private sector too: the Government is like the overspending wife with the wild credit card, while the private sector is the husband who is collapsing under the weight of trying to fund her spending spree.

US Total GDP is $15trn and debt is $14trn, so debt to GDP is approaching 100%, and the debt is continuing to grow at $1trn a year - about 7-8%.

Greece imploded when debt hit 120%. Within 2-3 years, the US will be right there where Greece was. How much more rope will the markets lend the US (and everyone else)? No one knows the answer to that.

The real crisis is coming, there's nothing anyone can do about it.

 

[Bruce Wayne]

Can it collapse though? I mean that would mess up pretty much the entire global financial system. If many banks were too big to fail, then you'd think the biggest economies in the world would be in the same boat?

I can imagine the current system being dragged onwards by hook or by crook before it is ever changed.

 

[McBain]

I'm abit scared.

 

[BiggyRat]

Just makes you realise that China's military isn't for conquest, it's just there to protect what they own in places like the USA...

 

[evilwebby]

Can it collapse though? I mean that would mess up pretty much the entire global financial system. If many banks were too big to fail, then you'd think the biggest economies in the world would be in the same boat?

I can imagine the current system being dragged onwards by hook or by crook before it is ever changed.

To be slightly rhetorical, the current system will go on until it doesn't; no one can tell when it will unravel such is the nature of bubbles. But we are in the end-game now; we have exhausted all the tools normally available and the only thing left is increasingly endless money printing to keep the ball in the air. The fate of all fiat currencies has been that they eventually hyperinflate and end in currency destruction.

As pointed out by those who have cared to study their history (http://www.marketoracle.co.uk/Article8100.html), Gold has replaced every fiat system ever devised in the last 3000 years.. what are the chances that this time it will be different?

Yes McBain, I'm scared too..

 

[johnnydawg68]

No, it's not.

We have to continue to take on more debt to pay the interest on the debt that we already owe. I'll repeat that - We have to continue to take on more debt to pay the interest on the debt that we already owe. That's called a ponzi scheme.

We are absolutely 100% broke. We can't pay what we owe - we can't even begin to pay off what we owe, and that is with the government being able to borrow at 2%.

Imagine the day when the markets decide that they will no longer throw good money after bad, and interest rates rise. There is no chance at all that we will ever even begin to pay back what we owe, none whatsoever. That is just maths. A couple of years ago Greece was still able to borrow at low rates. Then the markets decided to stop throwing good money after bad. We are no different at all from Greece; we are just as broke. In our economy and monetary system, money is debt - the debt must be continually grown, or the struts will collapse.

Look what happened to Greece when the markets decided that the would no longer lend to them:

The only thing that keeps this going is the bond market bubble. It is the biggest bubble in history, and like with all bubbles it is unsustainable and must eventually collapse.

Sorry but that's total hyperbole. We absolutely are not broke, and we can pay our debts and we just raised revenue so as not to borrow as much. Interest rates are at historical lows, and Quantitative Easing is working. The economy is picking up, and whenever we get back to anywhere close to full employment, tax revenues will rise significantly.

We have a jobs problem in the short term, not a deficit problem. Long term yes, but short term no.

 

[evilwebby]

Sorry but that's total hyperbole. We absolutely are not broke, and we can pay our debts and we just raised revenue so as not to borrow as much. Interest rates are at historical lows, and Quantitative Easing is working. The economy is picking up, and whenever we get back to anywhere close to full employment, tax revenues will rise significantly.

We have a jobs problem in the short term, not a deficit problem. Long term yes, but short term no.

It totally isn't hyperbole, mate.

I guess we have different definitions of what paying your debts means. To me, paying your debts means what it actually says - ie, paying off what you owe. What you are talking about is just servicing the current debt. That's like taking out an interest only-mortgage, re-mortgaging each year for an extra 8%, and not having any plan to pay back the principle. Is that sustainable?

QE doesn't work at all; they've been trying to find the right stimulus programme in Japan for 20 years, and they're still trying.

Don't believe any propaganda about falling unemployment, either: the (US) labor participation rate is at a 30yr low and tells a much different story.

Where do jobs come from? Real productive jobs (not penpushing government jobs) come about because of under-consumption and savings, which frees capital resources for future growth, but you can't have savings when interest rates are zero. Historically there is a very strong positive correlation between growth and savings rates. So to have real job growth they have to raise interest rates to make savings worthwhile, but that will collapse the economy in the short term- but it's only after a collapse that the economy can truely restructure and have real growth.

 

[roydo]

No, it's not.

We have to continue to take on more debt to pay the interest on the debt that we already owe. I'll repeat that - We have to continue to take on more debt to pay the interest on the debt that we already owe. That's called a ponzi scheme.

We are absolutely 100% broke. We can't pay what we owe - we can't even begin to pay off what we owe, and that is with the government being able to borrow at 2%.

Imagine the day when the markets decide that they will no longer throw good money after bad, and interest rates rise. There is no chance at all that we will ever even begin to pay back what we owe, none whatsoever. That is just maths. A couple of years ago Greece was still able to borrow at low rates. Then the markets decided to stop throwing good money after bad. We are no different at all from Greece; we are just as broke. In our economy and monetary system, money is debt - the debt must be continually grown, or the struts will collapse.

Look what happened to Greece when the markets decided that the would no longer lend to them:

The only thing that keeps this going is the bond market bubble. It is the biggest bubble in history, and like with all bubbles it is unsustainable and must eventually collapse.

Your points re debt levels and market sentiment are correct, but to compare the US and Greece is a bit unrealistic insofar that the world economy needs, (currently!), a vibrant US economy. It doesnt need a Greek one.

Sure, currently the US borrows to pay maturing debt notes & interest payments, but until the main buyers of new debt issues dont need the US economy, (ie, China), the cycle will continue.

When it stops, or more likely slows, then stand back from the touch paper!

A massive part of US, (and most Western Governments) problem, is welfare & old age provision caused, in the main, by the massive change in demographics since WW2. This problem/cost will only last for another 30 years or so, which is not that long.