Blog

In The Dark Of Night - Debt Limit To Be Increased

Saturday, December 12, 2009, 10:22 AM

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

     Ludwig Von Mises

It's time to face facts.  Washington DC is out of control.  Spending is breaking all records, the deficit is climbing higher and higher, and the general populace is voicing graver doubts about the deficit and mounting debts, even as politicians drag the country even deeper into a financial pit.

In 1981, the federal debt first crossed the $1 trillion dollar mark, never to look back.  And now, here in 2009, lawmakers are considering boosting it by as much as $1.9 trillion in one fell swoop, with the hope (fingers crossed) that nobody will notice if they do it over the holidays.  Their calculations in deriving the $1.9 trillion number appear to not involve any considerations about what is best for the long-term fiscal health of the country, but whether the amount will be sufficient to make it past the mid-term elections.

Yes, the debt and deficit are not only large, but embarrassingly large.  And they should be.  Congress should be absolutely ashamed of its role in failing to impart or enforce any regulatory or fiscal discipline. In fact, the entire edifice of power in DC ought to be ashamed.

Sorry, I can't seem to write about this issue without climbing up on a soapbox.  Let me turn to the facts.

Here's the data:

Debt Limit to Be Increased By Up to $1.9 Trillion

Dec. 11 (Bloomberg) -- House Majority Leader Steny Hoyer said the chamber will vote next week on increasing the U.S. debt limit by $1.8 trillion or $1.9 trillion.

The debt limit increase, raising the legal cap on government borrowing to about $14 trillion, would be the fourth in 18 months. A $1.8 trillion boost would probably be enough to prevent lawmakers from having to raise the limit again before next year’s midterm elections.

Such an increase would be more than twice the size of each of the past three debt limit increases, each of which lifted the cap by $800 billion or less.

We can expect three things here:

  1. Some lawmakers will make blustery noises about how the deficit should be reduced, possibly by attaching "pay as you go" amendments to the bill.
  2. Those amendments will be watered down to the point of uselessness by inserting such 'outs' as "unless it's an emergency" or other such rhetorical escape pods.
  3. The bill to raise the debt ceiling by nearly $2 trillion will comfortably pass by a wide margin.

This is not some genius political insight I am offering here, but merely a summary of the last three debt-limit shenanigans.  Here's what I read in 2004 when the debt limit was being raised: 

Sen. Judd Gregg (R-N.H.), who will chair the Budget Committee next year, said the measure of his success will be "putting in place a very definitive budget with strong enforcement mechanisms on the discretionary and entitlement [spending] side."

Of course, no such mechanisms arose in 2004, and neither did they arise in 2006 after a similar pronouncement was made by Gregg, and he's making the same noises again here in 2009.  Which is not to pick on Gregg, necessarily; there are others providing themselves with the same political cover, but nothing ever seems to result from such apparent concerns, so I tend to doubt their sincerity and view this as political posturing rather than real concern. 

The political strategy surrounding the debt ceiling was laid out very clearly in a piece in Politco:

Democrats to lift debt ceiling by $1.8 trillion, fear 2010 backlash

In a bold but risky year-end strategy, Democrats are preparing to raise the federal debt ceiling by as much as $1.8 trillion before New Year’s rather than have to face the issue again prior to the 2010 elections.

The leadership is betting that it’s better for the party to take its lumps now rather than risk further votes over the coming year. But the enormity of the number could create its own dynamic, much as another debt ceiling fight in 1985 gave rise to the Gramm-Rudman deficit reduction act mandating across-the-board spending cuts nearly 25 years ago.

I am hoping that at least some public debate, if not a full-blown game of political football, erupts over this incredibly large proposed surge in the debt ceiling.  It deserves to be seriously debated and considered. How much is too much?  When will we stop?  If now is not a good time to balance our spending with reality, when will it ever be a good time?

Such questions are now finding their way into the public consciousness, which I am glad to see:

Surplus of worry over national debt

Debt is the essential fuel for a superpower that spends billions of dollars more than it receives in tax revenue — every day. The job of the debt auctioneers is to keep things humming smoothly. It's a boring process, but maybe not forever. When adjusted for inflation, the United States' publicly held debt is nearly $8 trillion. That number could more than double in a decade. The projected growth of the federal debt is widely viewed as unsustainable. It's unlikely that the nation will ever default, but neither is that any longer unthinkable.

Whopper budget deficits for so many years will mean that the cumulative debt will creep up as a percentage of the nation's gross domestic product (GDP). How much debt the country can handle is debatable. The problem is that, if investors believe the United States isn't fiscally responsible, they could start demanding much higher interest rates when they bid on Treasury securities. The feedback loop could get ugly. The nation could have to borrow hundreds of billions just to pay interest. This has been touted as a classic path to irreversible national decline.

"Right now, this year, we have 1.6 trillion in debt coming due. That's roughly twice individual income-tax revenue. Our only plausible strategy for paying that back is to borrow more money," said Leonard Burman, an economist at Syracuse University.

It has been projected recently by the CBO that the cumulative deficit over the next 10 years will grow by an additional $9 trillion.  I am convinced that that the deficit will almost certainly be higher than $9 trillion and the CBO will have to revise those estimates higher and higher over time (a theme I have consistently noted in past articles such as here).

Here we might note that the budget deficit for November alone came in at a reported $120 billion.

Federal budget deficit for November hits $120.3B

The federal deficit for the first two months of the new budget year is piling up faster than last year's record imbalance.

Economists worry the flood of red ink could push interest rates higher and raise the cost of borrowing for consumers and businesses, a potential drag on the fragile economic recovery.

The November deficit totaled $120.3 billion, the Treasury Department said Thursday. That's less than analysts had expected and down from a $176.4 billion imbalance in October. It was a record 14th straight monthly deficit.

Even with the improvement, the deficit is 5.7 percent higher than the first two months of the 2009 budget year when it hit a record $1.42 trillion. The Obama administration expects the 2010 deficit will set a new record at $1.5 trillion.

While this news was largely spun in the media as an improvement over October's dismal results, the truth of the matter was somewhat obscured by the headline.  Underneath the covers, we saw the government's receipts fall by -7.7% yr/yr, while outlays were suppressed by a trick related to the accounting of bailout funds.  As a quick comment, isn't it interesting that the government can report that the economy is growing while federal receipts continue to fall yr/yr?

The real deficit can be easily measured by going to the Treasury website and looking at the increase in the debt held by the public.  That figure stands at $224 billion for the month, and, most intriguingly, shows that the 'intragovernmental holdings' (mainly Social Security and Medicare trust funds) fell for the month, indicating that our entitlement programs have become a net drain on the federal budget far earlier than projected (this is really big news, folks).

The debt held by the public represents the additional cash needs of the government for the month, and those were more than $100 billion higher than the reported budget deficit.  While it's true that there might be some additional funds left kicking around from the Treasury auctions that can spill over into the next month, these are not large enough to foil this statement; the true federal deficit is far larger than is being reported.

The complicating factor for lawmakers this year is that it is an election year and voters have figured out that they've pretty much been sold down the river:

Americans Are Furious at Wall Street

Wall Street firms are recovering—but their standing with the American public is not. The public rage directed at Wall Street banks and brokerages remains at high levels, according to a Bloomberg National Poll of 1,000 U.S. adults conducted on Dec. 3-7 by the Des Moines firm Selzer & Co.

Two-thirds of Americans say they have an unfavorable view of financial executives. More than half say big financial companies, which are expected to pay record yearend bonuses, are out only to enrich themselves and also should not have received government aid.

Banks that got taxpayer help through the Troubled Asset Relief Program—the $700 billion financial rescue plan passed by Congress last year—shouldn't pay any bonuses, according to 75% of those polled. And this includes 39% of respondents who say they disapprove of bonuses even when the banks have paid the government back.

"The fact that they're even in existence should be bonus enough," says Cassie Swihart, a 58-year-old retired registered nurse from Warsaw, Ind. Adds Elijah Brown, 42, an unemployed union contractor from California: "Why would you want to give somebody a bonus who put us into this situation?" Brown is among the 64% of people who said bailing out banks was a bad idea.

But this anger goes farther and deeper than a rightful indignation at the offensive bailouts of undeserving banks.  People know that we are on an unsustainable economic path that could end in the financial ruin of the dollar and, by extension, this nation.  To many, this is an unacceptable and unnecessary risk to run.  I'd like to see a couple of surveys done that would ask questions about something besides the banker bailouts.  If they did, perhaps we'd find that the headline could be rewritten as "Americans Are Furious At Congress."

The bottom line is that a crisis rooted in debt cannot be solved with more debt.  Jim Rogers put it very well recently when he said, "Papering over the problem is not going to solve America's problem.  The idea you can solve a problem of too much debt and too much consumption with more consumption and more debt defies belief. I cannot believe that grownups would stand there and say that."

It will be an interesting election cycle, and I am mindful of the idea that there could be some significant upsets at the polls if the current leadership does not appreciate the extent to which we "get it" and wish to see our nation put back on a safe and sound path towards sustainable and true prosperity.

So I will keep a close eye on how the debt-ceiling debates and outcome are managed.  If it turns out to be yet another "in the dark of night" act that gets passed by an embarrassed group of legislators at a moment designed to shield it from public view, then I will take that into consideration when casting my vote.

My strong preference here would be either to reign in federal spending (I have a lot of targets in mind beginning with a 'defense' budget that is more than the rest of the world combined) or to raise taxes high enough to cover our wish-list of expenditures.  Don't get me wrong, I have no desire to see my taxes hiked by 100%.  On the contrary, I am confident that any move to raise taxes by any such amount would rapidly lead to genuine efforts to control spending (or lead to a lot of fired legislators).

This is not a trifling issue.  It is vitally important that we not bequeath our debts to our children.  We need a serious change in attitudes in DC.

"It is incumbent on every generation to pay its own debts as it goes.  A principle which if acted on would save one-half the wars of the world."

    ~Thomas Jefferson   (to A. L. C. Destutt de Tracy, 1820. FE 10:175)

Endorsed Financial Adviser Endorsed Financial Adviser

Looking for a financial adviser who sees the world through a similar lens as we do? Free consultation available.

Learn More »
Read Our New Book "Prosper!"Read Our New Book

Prosper! is a "how to" guide for living well no matter what the future brings.

Learn More »

 

Related content

45 Comments

Nichoman's picture
Nichoman
Status: Gold Member (Offline)
Joined: Nov 1 2008
Posts: 422
Re: In the dark of night - Debt Limit to be Increased

Does anyone know (with data) how the USA government spending imbalance(s) compare with other countries?

Seen a couple of charts in the past month that show the combination of: 1.)  Our rate of increase; and 2.) Percentage debt to GDP, is the highest of all major OECD countries.   In other words, were going over the cliff faster than all others.   One was on Glenn Beck this past week, other can't recall.

These seem to be two key metrics to our fate..  

If charts I've seen are true, this should seal the fate of the dollar (and our country)...both overall and relative to other countries.

Can anyone elaborate on this (confirm/deny) as accurate, and cite data sources to monitor as we ride this roller coaster of folly?  

Thanks,

 

Nichoman

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: In the dark of night - Debt Limit to be Increased
Nichoman wrote:

Does anyone know (with data) how the USA government spending imbalance(s) compare with other countries?

Seen a couple of charts in the past month that show the combination of: 1.)  Our rate of increase; and 2.) Percentage debt to GDP, is the highest of all major OECD countries.   In other words, were going over the cliff faster than all others.   One was on Glenn Beck this past week, other can't recall.

These seem to be two key metrics to our fate..  

If charts I've seen are true, this should seal the fate of the dollar (and our country)...both overall and relative to other countries.

Can anyone elaborate on this (confirm/deny) as accurate, and cite data sources to monitor as we ride this roller coaster of folly?  

Thanks,

 

Nichoman

The only stats I have seen are debt to GDP and we weren't the worst but we were up there. Having said that it was not - imo - a good barometer as it didn't take into account the off balance sheet liabilities, now according to www.usdebtclolk.org are north ot 106 trillion.

Also I think it really boils down to the yearly deficit, now 2 trillion and most of that isn't being borrowed it is being eased. 2010 2 trillion rolls over so we will have 4 trillion in debt. Don't think going to 2011 to see how that will look is even necessary. 

Nichoman's picture
Nichoman
Status: Gold Member (Offline)
Joined: Nov 1 2008
Posts: 422
Re: In the dark of night - Debt Limit to be Increased

Thanks Davos, John William's at Shadowstats makes the case using GAAP our annual debt is north of 8 Trillion/Yr which I tend to agree with.

As an analyst, would seem instructive though to have reliable comparison data to other countries.

Agree with your comment about 2011.   My sense is this spring/summer should be quite telling.   Yet, as a scientist...yearn for data to confirm this as events unravel.

The closest thing I track are our monthly expenses at US Treasury (yr/yr) in addition to Shadowstats.

Nichoman

csstudent's picture
csstudent
Status: Bronze Member (Offline)
Joined: Dec 22 2008
Posts: 48
Re: In the dark of night - Debt Limit to be Increased

In this article, Chris said "The debt held by the public represents the additional cash needs of the government for the month and they were more than $100 billion higher than the reported budget deficit."  Can anybody explain the discrepancy between what the government reports and what is on the Treasury Department's web site(which can be accessed by going to http://www.treasurydirect.gov/NP/BPDLogin?application=np)?

FireJack's picture
FireJack
Status: Silver Member (Offline)
Joined: Feb 8 2009
Posts: 156
Re: In The Dark Of Night - Debt Limit To Be Increased

Say this debt bubble pops, for whatever reason the US government can no longer add to it's debt. Is this likely? What would happen?

Are we going to see a call for a new currency soon (amero) or will the US dollar hyperinflate first. I'm wondering just what kind of scenerio were facing so I can better prepare.

earthwise's picture
earthwise
Status: Platinum Member (Offline)
Joined: Aug 10 2009
Posts: 848
Re: In the dark of night - Debt Limit to be Increased
csstudent wrote:

In this article, Chris said "The debt held by the public represents the additional cash needs of the government for the month and they were more than $100 billion higher than the reported budget deficit."  Can anybody explain the discrepancy between what the government reports and what is on the Treasury Department's web site(which can be accessed by going to http://www.treasurydirect.gov/NP/BPDLogin?application=np)?

This is how I would explain any discrepancy:  "The government is either lyin', incompetant or both".  Not very helpful, I know, but thanks for the opportunity to blow off some steam!

Jeff Borsuk's picture
Jeff Borsuk
Status: Silver Member (Offline)
Joined: Jul 25 2008
Posts: 150
Re: In the dark of night - Debt Limit to be Increased

Davos! nice avatar! I love it!

 

Jeff

JAG's picture
JAG
Status: Diamond Member (Offline)
Joined: Oct 26 2008
Posts: 2492
Re: In The Dark Of Night - Debt Limit To Be Increased

In "The Fourth Turning" , Howe and Strauss speculate about several possible triggers for the next crisis, one of them being a battle over the raising of the debt ceiling.

Imagine an impasse over the federal budget reaches a stalemate. The President and Congress both refuse to back down, triggering a near total government shut down. The President declares Emergency Powers, Congress rescinds his authority. Dollar and bond prices plummet. The President threatens to stop Social Security checks. Congress refuses to raise the debt ceiling. Default looms. Wall Street panics.

This was written in 1995. 

Its time to get the boomer generation out of political office, and take care of business.

Viva Gen X! (OK, this point you should know that I'm joking)

darbikrash's picture
darbikrash
Status: Platinum Member (Offline)
Joined: Aug 25 2009
Posts: 573
Re: In The Dark Of Night - Debt Limit To Be Increased

My fear is that this will be positioned as a partisan issue, and indeed, when election time comes around again it will be reduced to a Democrat vs. Republican blame game. In fact, this business was well underway with the last administration and has continued in earnest under this one as well.

People will be pacified that the solution is embedded in election of the opposite party, and nothing will change.

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: In The Dark Of Night - Debt Limit To Be Increased

Hello Chris: As always, yet another exceptionally written expose. Thank you!

PS Add the mess the states are making in their diapers to the Federal debt and it is really a stinky disaster.

Montana Native's picture
Montana Native
Status: Silver Member (Offline)
Joined: Mar 17 2009
Posts: 166
Re: In The Dark Of Night - Debt Limit To Be Increased

I know our rapidly expanding and eventually unserviceable debt will surely implode or explode at some point. I just get the feeling that this charade will go on longer than seems logically possible. Anyone else feel this way?

idoctor's picture
idoctor
Status: Diamond Member (Offline)
Joined: Oct 4 2008
Posts: 1731
Re: In The Dark Of Night - Debt Limit To Be Increased

I know our rapidly expanding and eventually unserviceable debt will surely implode or explode at some point. I just get the feeling that this charade will go on longer than seems logically possible. Anyone else feel this way?

I feel this way also. It maybe slow implosion by a thousand bad decissions by our so called leaders. One thing might prolonge this much longer than expected is it is a world wide problem & everyone seems like they like to print.

ao's picture
ao
Status: Diamond Member (Offline)
Joined: Feb 4 2009
Posts: 2220
Re: In The Dark Of Night - Debt Limit To Be Increased
Montana Native wrote:

I know our rapidly expanding and eventually unserviceable debt will surely implode or explode at some point. I just get the feeling that this charade will go on longer than seems logically possible. Anyone else feel this way?

Yep ... death by a thousand cuts.  I don't think there will be an explosion, just a relentless, slow, grueling grinding away of all that we had.

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2385
Re: In The Dark Of Night - Debt Limit To Be Increased

My friend... that is what this website is all about.... you need to subscribe if you have not done so, take the crash course, and read the last six months of subscriber content.  No one can answer the question you pose with certainty, but you will sure feel more prepared as you educate yourself and start making the changes you deem appropriate, such as setting aside some gold and silver, etc.      

jslovely's picture
jslovely
Status: Member (Offline)
Joined: Aug 16 2009
Posts: 5
Re: In the dark of night - Debt Limit to be Increased

In response to your question, the general conclusion you reach is true and is backed by Moody's recently released Soverign Monitor report that discussed 8 Aaa rated sovereigns (including, in detail, U.S., U.K., France and Germany).  France and Germany were characterized as "resistant" to downgrade while the U.S. and U.K. were merely "resistant" to downgrade.  I believe the full report can be accessed from an attachment to a recent blog at Zerohedge.com.

The stress tests (which are not that severe) were truly frightening for the U.S.  For example, in the worst interest rate stress case (+150 bps rise in Treasury yields next year and +300 Bps thereafter), the U.S. quickly hit Aa rated status (by 2012) and, more importantly, was using something like 24% of all revenues just to support the interest cost on our SIV like liability side of the balance sheet (4.5 year average maturity).

NMNJGRL's picture
NMNJGRL
Status: Member (Offline)
Joined: May 23 2009
Posts: 20
Re: In The Dark Of Night - Debt Limit To Be Increased

"People will be pacified that the solution is embedded in election of the opposite party, and nothing will change."

 

It may even get worse!  With social services that people need already getting cut in many states, do you think Republicans will ride to the rescue?  They're perfectly happy to slash and burn anything that's left of the safety net...

Erik T.'s picture
Erik T.
Status: Diamond Member (Offline)
Joined: Aug 5 2008
Posts: 1234
Re: In The Dark Of Night - Debt Limit To Be Increased

I think most of us agree that at this point, full repayment of the national debt in real terms is an impossibility. The only realistic outcomes at this point are to inflate away the debt by paying it back in watered down (inflated) dollars, or to effect some sort of default or cramdown.

It occurs to me that just a "Inflation vs. Deflation" was a central issue that warranted utmost attention, the next "big issue" after Inflation vs. Deflation is the matter of how the default in real terms is effectuated, i.e. through explicit default or implicit default [in real terms] through inflation.

I've created a new thread in the forum area for discussion of Inflation vs. Default of the National Debt to allow for ongoing discussion of this topic.

Erik

 

Tapani's picture
Tapani
Status: Bronze Member (Offline)
Joined: May 3 2009
Posts: 69
Re: In the dark of night - Debt Limit to be Increased
csstudent wrote:

Can anybody explain the discrepancy between what the government reports and what is on the Treasury Department's web site

My guess: there is an almost 100M jump between 10/30 and 11/02, so the figure is 220M or 120M depending on which of those days you start your November with.

darkhorse's picture
darkhorse
Status: Member (Offline)
Joined: Sep 20 2009
Posts: 1
Re: In The Dark Of Night - Debt Limit To Be Increased

I don't think we can afford to wait until the next elections.  Some of these people should be fired (hopefully that is the outcome of this next election).   Unfortunately I don't think this gets resolved by removing one party for another.  I think, regardless of what party is in office, the spending party will continue.  The budget needs be reigned in now instead of later.  If the government doesn't do something soon about this, it will be like turning a large ship, the longer you wait the more momentum forward and the rougher the turn (if it doesn't tip over).

Christopher H's picture
Christopher H
Status: Silver Member (Offline)
Joined: May 29 2009
Posts: 148
Re: In The Dark Of Night - Debt Limit To Be Increased

All of this is an excellent summary of our problems on the public side, but perhaps even a larger problem is looming on the PRIVATE side with regards to out-of-control debt.  Rather than try to clumsily explain this myself, I suggest watching the interview with Australian economist Steven Keen.

The interview starts right after the 12:00 break.

Nichoman's picture
Nichoman
Status: Gold Member (Offline)
Joined: Nov 1 2008
Posts: 422
Re: In The Dark Of Night - Debt Limit To Be Increased

Thanks to Jslovely, I located the other source that outlines where the USA fits compared to many other countries w/r/t debt sustainability.

It's Moody's Aaa Sovereign Monitor (Dec 2009) report.

One can question the assumptions used (they could very well be too optimistic).

However, note how clearly it shows for the spectra and assumptions used, how dire (unsustainable?) the USA way of life and governance is...even compared to other countries.  The spectra of assumption demonstrate how serious and dependent we are to unrealistic economic growth projections, and impossible spending and debt levels.

Encourage those who are interested to further consider CM's points to review and consider and then read the report.

Two words to offer...sobering and chilling.

 

Nichoman

 

kmaher's picture
kmaher
Status: Bronze Member (Offline)
Joined: Feb 5 2009
Posts: 84
Re: In The Dark Of Night - Debt Limit To Be Increased

Erik,

     I think you've got it exactly right.  The only question is how the debt will be defaulted.  ONce I realized this I actually started to feel better and not get so worked up over the incompetence we see in DC.  None of this extra debt matters much because it won't be repaid.  I think that the choice will be to attempt to inflate away the debt, which I think is also the fairest way to go when you consider future generations.  Deflation would make debt slaves of the current and future generations while inflation(probably hyper-inflation) would destroy the savings and capital of the current generations and the young people and the future generations would start their working lives and savings in a new revalued currency.  Of course, all of us will be living in much reduced circumstances but that is inescapable when our energy situation is considered.  The only way to have a fresh start is to default the unpayable debt in the system and face our reduced circumstances squarely and begin to deal with it with our eyes wide open.  I do hope we will get a bit more time to prepare however.

                                                                                 Kevin

idoctor's picture
idoctor
Status: Diamond Member (Offline)
Joined: Oct 4 2008
Posts: 1731
Re: In The Dark Of Night - Debt Limit To Be Increased

lawmakers are considering boosting it by as much as $1.9 trillion in one fell swoop with the hope (fingers crossed) that nobody will notice if they do it over the holidays.

Hum...let me see if I have this straight?? Too BIG to fail is their mind set & they have proven this strategy has obviously worked...just look at the BIG banks right now (LOL). So the bigger the numbers the better it all works......we must be too BIG to failMoney mouthCoolSmile!

Here a trillion there a trillion....yippie de do da I have to do some more Xmas shopping to help this old Gov. out....1st on the list is more Gold!

To keep my sanity with all this sad reality I have to laugh with Tim Hawkins.

ckessel's picture
ckessel
Status: Martenson Brigade Member (Offline)
Joined: Nov 12 2008
Posts: 480
Re: In The Dark Of Night - Debt Limit To Be Increased
JAG wrote:

In "The Fourth Turning" , Howe and Strauss speculate about several possible triggers for the next crisis, one of them being a battle over the raising of the debt ceiling.

Imagine an impasse over the federal budget reaches a stalemate. The President and Congress both refuse to back down, triggering a near total government shut down. The President declares Emergency Powers, Congress rescinds his authority. Dollar and bond prices plummet. The President threatens to stop Social Security checks. Congress refuses to raise the debt ceiling. Default looms. Wall Street panics.

This was written in 1995. 

Its time to get the boomer generation out of political office, and take care of business.

Viva Gen X! (OK, this point you should know that I'm joking)

This is a bit late on the uptake here but I wanted to comment on Jags post regarding a possible scenario on how things could play out.  IMHO I think that congress, wall street and the executive branch are all being paid by the same employer.......the central banks who also are the stockholders of the Fed.  How things are "played out " on the big cinema of MSM is simply contrived to keep the sheeple entertained and gulled into thinking that there is still a level of governance going on at Capital Hill.  Congress has zero huevos to to anything about anything.

The next step is simply to decide who will push the toast down. The "darkness" is set to maximum!  I trust my instincts.... it is going to come out BLACK with possibly some yellow flames at the edges.  Preparation is everything but will it be enough?

Coop

Bogdan's picture
Bogdan
Status: Member (Offline)
Joined: Dec 14 2009
Posts: 13
Re: In The Dark Of Night - Debt Limit To Be Increased

Hi,

Looking at this graphic (http://upload.wikimedia.org/wikipedia/commons/3/3b/USDebt.png) it seems it was far worse during the 40s than it is now (as a fraction of GDP). I think I might be missing something, but I'm not sure what. Was the GDP being calculated differently back then?

Thanks,

Bogdan.

Tommy01's picture
Tommy01
Status: Member (Offline)
Joined: Dec 14 2009
Posts: 1
Re: In The Dark Of Night - Debt Limit To Be Increased

Of course we're furious.  However, what exactly is anybody expecting when we prop up failed models?

 

http://freedomguerrilla.com/

 

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: In the dark of night - Debt Limit to be Increased
Nichoman wrote:

Does anyone know (with data) how the USA government spending imbalance(s) compare with other countries?

Seen a couple of charts in the past month that show the combination of: 1.)  Our rate of increase; and 2.) Percentage debt to GDP, is the highest of all major OECD countries.   In other words, were going over the cliff faster than all others.   One was on Glenn Beck this past week, other can't recall.

These seem to be two key metrics to our fate..  

If charts I've seen are true, this should seal the fate of the dollar (and our country)...both overall and relative to other countries.

Can anyone elaborate on this (confirm/deny) as accurate, and cite data sources to monitor as we ride this roller coaster of folly?  

Thanks,

 

Nichoman

Don't know if this helps don't have a chart handy but www.usdebtclock.org has the numbers for the math on GDP to debt. Gets really interesting when you add in the off balance debt.

kemosavvy's picture
kemosavvy
Status: Martenson Brigade Member (Offline)
Joined: Oct 13 2008
Posts: 254
Re: In The Dark Of Night - Debt Limit To Be Increased

Bogdan,

The debt increased during the WWII wartime effort, it was widely seen as a temporary episode as businesses were converted towards a single focus, winning the war. The debt outpaced the underlying economy at that time but the most interesting point in that graph is not immediately revealed:

The debt never went down after WWII as you would assume from the chart. What actually happened was that the economy outpaced the debt (remember that this chart is debt divided by GDP). Watch my videos on the subject.

Steve

memorrison's picture
memorrison
Status: Bronze Member (Offline)
Joined: Apr 16 2008
Posts: 90
Re: In The Dark Of Night - Debt Limit To Be Increased

This article goes hand in hand with Adjustable rate Nation.  Raising the debt limit is the first step, but we still need to figure out how to pay for it.  That is the step Congress keeps forgetting!  Like the theme in the Crash Course, things just keep spinning quicker and quicker.  IMHO, I think it is past fixing and those of us paying attention are left trying to position ourselves to be prepared for the inevatible collapse of the fiat money system.  Everything we grew up believing in and trusting in is being ripped up from under us.  TRUST is gone and I am not sure how we can earn that back.  I just can not see how this can be propped up for the next several years.  Our government does not seem to even care right now.  Opinion polls are dropping like a rock and not one of the politicians seems to care.  Elections are less than one year away and Washington just keeps moving forward like business as usual.  Maybe they see it coming to a head in the near future and they are not concerned about next November??

kemosavvy's picture
kemosavvy
Status: Martenson Brigade Member (Offline)
Joined: Oct 13 2008
Posts: 254
Re: In The Dark Of Night - Debt Limit To Be Increased

My thoughts on Chris' post is that I thought he would at least mention that the US (and most other countries with a central bank) possess an exponential money system. Don't you think that it would be completely natural for the debt to have shorter and shorter doubling times?

I'm going to recommend that Chris watch the Crash Course by this great philospher Dr. Chris Martenson. He could learn something from that guy.

By the way... the tongue is completely in the cheek...

Steve

machinehead's picture
machinehead
Status: Diamond Member (Offline)
Joined: Mar 18 2008
Posts: 1077
Re: In The Dark Of Night - Debt Limit To Be Increased
ckessel wrote:

IMHO I think that congress, wall street and the executive branch are all being paid by the same employer.......the central banks who also are the stockholders of the Fed.  How things are "played out " on the big cinema of MSM is simply contrived to keep the sheeple entertained and gulled into thinking that there is still a level of governance going on at Capital Hill.  Congress has zero huevos to to anything about anything.

Quite agree, my man. We live in a managed democracy. Elections aren't going to change anything, as long as the only parties running are the Democrats and Republicans. Both of them are just errand boys for the banksters.

Here's a simple litmus test. By any rational measure, the United States cannot afford its overseas military empire. It can't afford NATO. It can't afford bases in Japan and Korea. It can't afford occupations in Iraq and Afghanistan.

As long as the firehose of useless military spending continues, debt will continue to metastasize in exponential fashion. It makes no difference whatsoever who is in office. The forces driving us down this road to ruin aren't public officials anyway. Politicians are their servants.

Supposedly the average American has about 14 years of formal education. It isn't working. People who can't figure out that we're going backrupt, after forgetting to demobilize for 64 years after the world war ended, are functionally retarded. And such a discussion is not even on the political radar screen.

One can only conclude that humans retain more pack animal characteristics than we thought. Individually, humans can split the atom; sequence the genome; design microprocessors. But as a political pack, they turn ape-stupid. Congress cannot be fixed; it can only be closed. Here's to anarchy!

 

 

bluebird's picture
bluebird
Status: Bronze Member (Offline)
Joined: Sep 4 2008
Posts: 75
Re: In The Dark Of Night - Debt Limit To Be Increased

@machinehead - Agree. We've got to get the lobbyists and money out of the elections. The politicians are bought to enact laws to benefit the wealthy. Bring back government of the people, by the people, for the people. Our entire voting process needs to be changed.

Perhaps select our Representatives and Senators by jury-lottery. Everyone's social security number is in the lottery (similar to PowerBall). Balls are selected from each of 9 containers. The 1st ball is the 1st digit of the SS#...9th ball is the 9th digit of SS#. This will give a random pool of SS numbers to select the candidate. Specific criteria could be used to discard potential candidates, such as too young, too old, moved, died, etc. Eventually, the candidate is chosen and serves for the position he/she was selected for.

This will not happen in my lifetime, maybe in my kids, most likely during my little grandbabies lifetime.

rhare's picture
rhare
Status: Diamond Member (Offline)
Joined: Mar 30 2009
Posts: 1325
Re: In The Dark Of Night - Debt Limit To Be Increased

I don't think are election process needs to change.  If you want to get the lobbyists and money out of elections, shrink the government.  If there is no money for the politicians to give away, then there is no reason for lobbyists or the corruption we see now. 

TechGuy's picture
TechGuy
Status: Gold Member (Offline)
Joined: Oct 13 2008
Posts: 419
Re: In The Dark Of Night - Debt Limit To Be Increased

Chris Wrote:

the true federal deficit is far larger than is being reported

 

From Treasure "Debt to the penny" Webpage: http://www.treasurydirect.gov/NP/BPDLogin?application=np

Date             Public Debt                        Inter-gov't Debt                Total Debt
09/29/2008 5,774,962,168,083.97    4,170,616,063,897.62     9,945,578,231,981.59
09/29/2009 7,460,136,852,988.81    4,315,975,995,667.36   11,776,112,848,656.17
Difference:   1,685,174,684,905.00                                                 1,830,534,616,675.00

Why does the gov't insist that during FY2008 that the gov't only lost 1.4 Trillion? We can clearly see that the outstanding public debt rose by nearly $1.7 Trillion or $285 Billion more than publically stated.

Another gov't statistic snafu, is the GDP figures for 2008. I believe the annual GDP decline for 2008 was about 8.8%, while federal tax receipts declined by 27% for 2008. The difference between these two figures raises red flags. How could the GDP only fallen about 8.8% when the gov't collected 27% less in taxes for the year? I believe the median tax revenue declines for states also declined by 27%.  I suppose the increased gov't expenditure of about $1 Trillion would have closed some of that gap. It would be nice to see what private sector GDP figures are (excludiing gov't deficit spending) to get a real understanding of the GDP, but I know thats a pipe dream!

"Two-thirds of Americans say they have an unfavorable view of financial executives. More than half say big financial companies, which are expected to pay record yearend bonuses, are out only to enrich themselves and also should not have received government aid."

A prudent action would be to bailout 85 to 90 cents on the dollar on bonds held by failed finanical business so that investors take a loss so that they realize there are real risks to investing in risky investments.  If they permitted the value to fall to market prices it would have collapsed the economy.

As of today, the gov't has a blanket guarentee on any investments by the big banks. You can't lose because the gov't will pay 100 cents on the dollar for any bad loans, plus interest! The second thing would be to break up the big banks into much smaller banks. The big banks are simply too big and use thier influence to push the riskiest investments since investors know that they are "too big to fail".

The third thing would be for the Fed to supply cheap credit to the banks with the best loan balances on their books, since these banks well managed their loan risks. The gov't needs to reward the good banks and banish the bad ones, but they did just the opposite.

 

Davos's picture
Davos
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: In The Dark Of Night - Debt Limit To Be Increased
machinehead wrote:

Supposedly the average American has about 14 years of formal education. It isn't working. People who can't figure out that we're going backrupt, after forgetting to demobilize for 64 years after the world war ended, are functionally retarded. And such a discussion is not even on the political radar screen.

One can only conclude that humans retain more pack animal characteristics than we thought. Individually, humans can split the atom; sequence the genome; design microprocessors. But as a political pack, they turn ape-stupid.

HYSTERICAL and sadly true.

Headless's picture
Headless
Status: Gold Member (Offline)
Joined: Oct 28 2008
Posts: 363
Re: In The Dark Of Night - Debt Limit To Be Increased

"She's come undone
She didn't know what she was headed for
And when I [the middle class) found what she was headed for
It was too late..."

I guess I'm glad there are people out there like you all who think voting could somehow turn things around; I wish I believed that--and that it were possible.  But IMO, of course, the American middle class was an artificial creation, the by-product of the spoils taken from The World by a monarchy unrecognized; it's over. Chinese slave meet American slave, also known as your ex-master...

Even if all the wealth (which, in most cases, is simply a line of 1s and 0s on a chip somewhere)  that the thieving kings have excised from the corpse of the planet were to be retaken; were we to "vote out" every senator and congressman, replace them with honest Citizens,  institute a retroactive effort to imprison everyone at 85 Broad and other such locations around the world, and claw back every cent, it would be of no avail, as the 3 decades that Reagan's legacy have had to undermine the spirit, intelligence, drive, and INDUSTRIAL FOUNDATION of America and Her Americans have rendered the effort an exercise for the contemplation of those who would be beheaded during the process; that is to say, only the dead kings would have time to ponder the hypothetical outcome.

Man what a ride! Those of us who have lived through the last 30 years as Americans have had it better than 99.999999999% of the people that have ever inhabited the planet. Bye bye. Get ready for reality.

On the plus side, I, for one, rid myself of almost all material goods some 19 years ago and have had a more interesting and rewarding life than I ever could have imagined back when I initially made the decision to do so (you, too, can live without all that shit). And I would have been just fine living like a pauper, but no, The Devil's Spawn on Wall Street took over what I thought were seriously flawed, but not homicidal egomaniacal gangs, otherwise known as the House and Senate, a pair that surely would have rivaled a Hitler-Stalin ticket; a pair which had all the right components and fragments to passively auto-coagulate in the heart of the nation. And now?  America, alone in a dark alley,  on her back and bleeding, her skirt torn and tossed aside, her panties soiled and pushed down to her knees; she's whispering through the spittle and blood, waving an  unseen hand in the putrid Wall Street alley... 

I could have happily lived out my life as a pauper, but they took my country...

Now I can't, in good conscience, be passive; we now know what passivity leads to. The cretan-kings have created a situation in which all our children will no longer, within a short time, be safe to walk the streets--in the daytime (watch a few videos of what's happening in some of the murder hot spots around the country).

We (the middle class) are all going to become much less well off (as far as velvet paintings of Elvis, Hummers, and other essentials that our egos require), but...uh...hell! There is no but. Given the ugly nature of the average American's perception of him/herself as entitled to...name it; given that he/she can do little of practical use as regards making, fixing, growing, or raising anything; given that only three or four days of hunger is capable of estranging the cerebellum from the cerebrum, given that There Will Be Hunger,--en masse,  the inevitable contraction is going to be ugly.

Those of us who have grandparents or parents that suffered through what will soon come to be known as the Good Ole' Great Depression know how it affected them (my grandmother kept every can, bottle, rubber band--you name it). Imagine what our children are going to be like (should they survive) when they come out the other side of whatever is coming at us in the next few years--and I hope it's years, not months or weeks...

There is no fix for the adjustment the American middle class is about to endure. There wil be blood.

Have a nice day.Smile

 

cwixom's picture
cwixom
Status: Bronze Member (Offline)
Joined: Aug 18 2008
Posts: 44
Re: In The Dark Of Night - Debt Limit To Be Increased

Some one said that if we hyper inflate that it will wipe out the savings of the current generation but that the rising generation would be able to build again on the newly inflated currency.  In other words that life would be good again. You should check out the history of nations that have chosen that path.  You will find few that didn't end in massive wars of distruction or generations third world (excuse me, to be PC "developing nation") status with poverty abounding.  You can not distroy the wealth of a nation to good effect.

 

A1B2C3D4's picture
A1B2C3D4
Status: Member (Offline)
Joined: Aug 24 2009
Posts: 24
Re: In The Dark Of Night - Debt Limit To Be Increased

www.campaignforliberty.com

This Campaign For Liberty's membership grew exponentially in its first year. I joined in August 2008 when membership was 6,000 and now it is 224,764 so it doubled and redoubled over five times.

Growth has slowed but keeps going up each hour of the day around the clock and worldwide!

I recruit at every opportunity face to face with friends and strangers. I tell them we believe the politicians in Washington, D.C. take an oath to preserve, uphold and defend the Constitution but have no idea what it would mean to do so.

We intend to replace them with those who will keep the oath. 

I think it is our only hope.

Join us! and pass the torch!

 

438miler's picture
438miler
Status: Member (Offline)
Joined: Jun 5 2009
Posts: 5
Re: In The Dark Of Night - Debt Limit To Be Increased

I thought Barack Obama was the guy who was going to solve all of these issues.

guardia's picture
guardia
Status: Platinum Member (Offline)
Joined: Jul 26 2009
Posts: 592
Re: In The Dark Of Night - Debt Limit To Be Increased
438miler wrote:

I thought Barack Obama was the guy who was going to solve all of these issues.

I think it's pretty obvious banks and the military now have more power than the president in the states... we were all deceived.. unfortunately, Obama is as brainwashed as anybody else

Robbrian's picture
Robbrian
Status: Member (Offline)
Joined: May 21 2009
Posts: 22
Re: In The Dark Of Night - Debt Limit To Be Increased

OK, tell me why the U.S. government can't do what the Fed is doing with one exception, the government does not charge itself interest. Fiat money is fiat money.  Come on people. We know the dollar is worth maybe a nickle.  We know that credit is created out of thin air using the fractional reserve lending system.  We know that the Federal Reserve is monetizing bank debt at zero interest rates. We know that the Plunge Protection Team is manipulating currency, gold and leading indicator stocks trying to make silk purses out of pigs asses.  We know the Fed's backdoor operations pushed $23.4 trillion into domestic and international banks in just the last 12 months through direct investment, guarantees, and loans.

We don't need to know how many angels can dance on the head of pin, or other comparative data.

We simply need to get Americans briefed on the crap that the Fed is doing and how it puts us all in the poor house today and forever.  Ellen Brown's "The Web of Debt", may not have all the answers, but it's a starting point. Clearly, if scrip and Greenbacks and JFKs Silver Certificates were viable alternatives in their time as replacements for debt currency, what makes those alternatives infeasible today?

A variant: We have 20 million unemployed/underemployed Americans and maybe millions more who don't report. The Administration needs to issue debt free dollars for public infrastructure rehab, greening projects, etc. to absorb these idle resources. If it takes a $trillion over ten years, that's what it takes.  At the same time the Fed will need to issue that trillion without charging interest. For that matter the Fed should be forced into a ten year moratorium on interest charged to the Federal Government.  We're talking about ledger entries made with mouse clicks. The Treasury can do this just as easily as the Fed.  The difference is the Fed has to pay its bondholders.  The Teasury doesn't

Simultaneously, as the Fed redeems debt it needs to liquidate those instruments and not roll them over as is current practice. Liquidating these instruments eliminates inflationary pressures.

Davos,

Did you know N. Dakota is the only state with 2010 budget surplus attributed to its conservative monetary policy operating through its state owned bank, the BND?

Appears to be something other states would want to emulate. Since they can convert state assets to capitalize a bank and use fractional reserve principles to monetize state debt, buy local bonds, and collaborate with commercial banks to buy down interest rates on just about anything financed in the state.

 

 

 

kemosavvy's picture
kemosavvy
Status: Martenson Brigade Member (Offline)
Joined: Oct 13 2008
Posts: 254
Re: In The Dark Of Night - Debt Limit To Be Increased

Robbarian,

First off welcome to the CM website, somebody should have given you a gift basket and a warm welcome after your first post... but if they didn't oh well... its still a great community.

Your post was excellent and strikes a chord with alot of people around here... the key phrase being 'people around here'. very few people outside of this site are aware of what is going on and the unemployed and underemployed are blaming there problems on the symptoms, not the cause.

The national federal debt in 2003 was around $5.5T and in 2009 it is over $12T. It has more than doubled in the span of 6 years and is expected to double again in the next 5 years! The question we have to ask is will this matter? Will the system break? And if it does matter will the cause of the crisis (answer: an exponential monetary system) be diagnosed correctly or will it be blamed on some other country, person, or political party?

Does it really matter if you or I convince one other person of the importance of this issue? I don't think it will but it won't stop me from trying and I ask that you to do the same. Too many people on the internet are bangin' thier fist on the internet and not doing anything else, what good does that do? I say its a worthless effort...

My advice to you (since you seem very educated and 'you get it') is to get out and teach others. I am motivated by my children to get out there, find out what motivates you and do it.

Steve 

that1guy's picture
that1guy
Status: Gold Member (Offline)
Joined: Jan 11 2009
Posts: 333
Re: In The Dark Of Night - Debt Limit To Be Increased

raised on x-mas eve/day.........just like you guessed....good call Dr M, I guess it is no surprise though

that1guy's picture
that1guy
Status: Gold Member (Offline)
Joined: Jan 11 2009
Posts: 333
Re: In The Dark Of Night - Debt Limit To Be Increased

So, to raise it to 12.4T seems absolutly pointless, especially now that health care is being rammed through........what do you all think is the reason? I mean,right now we are at almost 12.2T right now. We are averaging 200Billion a month almost.

They will just need to raise it again in about 2 months.

 

Any thoughts?

rhare's picture
rhare
Status: Diamond Member (Offline)
Joined: Mar 30 2009
Posts: 1325
Re: In The Dark Of Night - Debt Limit To Be Increased
machinehead wrote:

Supposedly the average American has about 14 years of formal education. It isn't working. People who can't figure out that we're going backrupt, after forgetting to demobilize for 64 years after the world war ended, are functionally retarded. And such a discussion is not even on the political radar screen.

It's because we have had it so good, and even now most people have no clue about what's going on.  I was one of the oblivious masses until recently when I needed to rollover a 401K to and IRA and I started to do research on what to invest in.  I had seen a couple of links to Peter Schiff and started to reseach investments, read his book and really became alarmed.  For the next 6 months I did a huge amount of research into liberty issues, monetary issues, political issues, etc.  I was awake and terrified at what I was finding.  I was aimed at the "Crash Course"  by someone at a Ron Paul event.  Since then I have been trying to educate friends, family, neighbors, co-workers, business owners at business that I frequent.

I think people will surprise you once they awake.  Some will come around slowly, as the first step as Chris points out is denial. I have friends that after 6-8 months of thinking I was a complete lunatic have begun to take action.  You have to plant the seed, let it fester as they see headlines and begin to think about all those issues most of us have ignored and viewed as just a foot note in the latest news article (Fed, monetary policy, interest rates, ...).  I think Chris is right in that there will be a sudden "oh shit" moment when a vast number of people will realize the game and if you aren't prepared before then, you will be trampled in the stampede.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments