The debt ceiling

[fivepennies]

has been raised 74 times since 1962. Ever bigger. Ever more enslaving to each and every one of us. Do we imagine the current battle to up the limit "one more time" will be the last time? Do we imagine the next battle won't come with more austerity programs? How much more are we willing to give up before we say enough?

Or should we just keep kicking this rusty old can down the road while the contents within it become ever more poisonous to each successive generation?

[checks-n-balances]

1. So what do you propose? Default? Balanced budget?

[fivepennies]

2. I have no influence

but I think the Greeks and Icelanders have it all over on us.

How can you balance a budget until there is sufficient revenue? How does that work on a household budget? Does your bank ever say, "oh, you can't pay the interest on your loan so let us lend you some more money?"

Sooner or later reality has to hit.

[Igel]

5. I propose a budget that is fairly well in balance.

During times of distress, borrow. But if the times of distress last a decade, there's something wrong with the process.

Even then, borrowing has to follow one of two patterns.

The first is the kind of borrowing my family's doing. We're unemployed. We need to borrow to make ends meet and ensure that our cash reserves go for things like mortgage payments and minimum credit card payments--in other words, to prevent loss of credit or the kind of event that would cost far more money to accommodate. However, it also means that we don't buy *anything* that is not necessary for shelter or survival. The ideal is to cut purchases down to what is a need, not a want. We need food and eat meat, so we get chicken and ground beef to complement the stuff I'm growing in our garden and the milk and pasta we get at the store. The key is to minimize the debt even if nobody's happy about it. We don't just tack a new want or need onto how ongoing wants and needs are being satisfied.

The second is arguably Keynesian in some way: Recession stimulus to get the economy going. Even then that's to be short term and the budget brought back into balance as quickly as possible. And if the economy is broken in some more serious way through financial crisis or uncertainty, a Keynesian solution might not be practicable. Then, as before, you tough it out even though the sacrifice *isn't* shared to everybody's satisfaction.

Then you pay off the debt, or as much as possible, and you make debt payment a mild priority, certainly ranked below needs but also above a lot of wants. It's not just something you do with leftover money.

"Oh, gee hon, we didn't manage to spend all of our paychecks this month! What should we do with the money?"

"Well, how about we send some to the bank and actually make a payment against our mortgage's principle instead of just paying the interest?"

Sounds absurd when we say it about our own money. But talking about the federal government and somebody else's money, the idea of eternal interest sounds fine--just as our kid would be all too happy to say, "No, mommy and daddy, don't send it to the bank, let's go to Space Center Houston!"

On edit: It dawns on me that I didn't really address the current situation.

We're facing something like a $1.6 trillion deficit for 2011. After a $1.3 trillion deficit in 2010, after a $1.4 trillion deficit in 2009, with $800 billion of the 2009 being in addition to the regular budget and a chunk of the regular budget being a decent sized increase to the spending base in the last 1/2 of the year. $2.9 trillion in two years, more than $3.7 trillion since inauguration. Projections from last winter have the deficit being $1 trillion or so indefinitely, yet *'s deficits made me queasy, and not just when it was at the "unsustainable" $450 billion mark.

I'd like 3/4 of the workers paying some form of income tax. Short term I think a decent tax increase is in order, and not just for the rich. There'd also need to be some pretty good spending cuts. I'd want that deficit gradually reduced to $50 billion in 5 years--meaning more than $7.5 trillion in spending cuts/tax increases over 10 years, probably 1/3 tax increases and 2/3 cuts--beginning in f/y 2012. I'd want that deficit reduction "slope" to continue for another few years to pay off debt. Then pull back on some of the tax increases and relax the spending a bit, but unless there's another recession or a war in which we're attacked first keep the deficit at -$150 billion or less.

Of course, there's the other option. Flood the market with $10 trillion in cash and let inflation rise to 25% for 5 years. The upheaval would be immense, but the economy would probably recover and be reset to a dollar that's been devalued by a couple of orders of magnitude. Imported goods would skyrocket in price and we'd be a lot poorer for it. On the other hand, the magnitude of the debt would be vastly smaller, as well as the magnitude of savings and the worth of the SS "trust fund". The only drawback is that it teaches the populace to spend instead of saving, which is one of the things that got us into trouble in the first place--after all, if that $250 in your pocket you earned working at McDonald's today might only be worth $188 in a year you're going to spend it.

The third option is to continue to rack up debt until we're at 150% GDP and instead of $220 billion in interest per year we're paying $600 billion, more than to the DOD. At that point the next recession sends us into default anyway and either the first option is imposed on the federal government or we impose the second option on the world.

[abelenkpe]

3. Jubilee would be preferable

[fivepennies]

4. How are we going to make that happen?

I've suggested elsewhere that we could always take all our credit cards etc. down to the village square and burn them into cinders. If we don't borrow, who creates money?

Granted, we can't make the government stop borrowing, but if we did, it would get somebody's attention. Better'n a protest with angry signs that no one ever sees.

[Igel]

6. Even if it doesn't happen, you're welcome to pretend that it does.

Impose the same practice on yourself, whether it's every 7 years or the 50th.

Keep in mind that only idiots provide anything but emergency charity loans in the years leading up to a year of release. You *know* the money's gone so you don't loan it. It means that 29 years before there are no 30 year mortgages. 10 years before there are only 9 year mortgages.

Every 7 years make for a remarkably debt-free society. You can get a five-year car loan in year 1 and perhaps early in year 2. Not in year 3, 4, 5, or 6. And certainly not 7. You want to buy a house? Well, you can maybe get a 5-year mortgage, meaning you have to have something like 90% down. I don't think it's a society that we'd recognize because it would effectively force the accumulation of money with no good way to have it grow (we like our interest). The entire idea worked nicely in an agrarian society in which city land didn't revert to clan ownership every 50 years and in which large-scale accumulation of capital wasn't possible. You have your family farm or your pottery shop in town, what's the likelihood of your suddenly tripling your income in times when it wouldn't be a moral offense (say, during a famine)? Not much: So you don't borrow much, you don't lend much, and your clan can't be alienated from your landholdings for more than 49 years. Yeah, society can be prosperous and income can be unequal, but it's not going to surge. And the kinds of loans necessary for building out a factory would be impossible to come by unless the rate of return was immense.


Change of topic.

If citizens don't really borrow money money can still be created even in an economy not based on specie, on precious metals. That horrible $14 trillion in loans that the Fed gave out? Sounds like a terrible idea, right? Bankers helping bankers? Nah. It's called inflation. They inflated the money supply because suddenly assets that had been borrowed against were pretty worthless, value had vanished. The result was a huge decrease not just in the money supply but, because of the economic downturn and fiscal insecurity, a probable decrease in the velocity of money itself (meaning that the Keynesian multiplier almost certainly decreased, not that anybody would like to talk about the entire underpinning of the stimulus everybody was calling for or the difficulty of actually quantifying such a number in the first place). The result of both decreases, money supply and velocity that would have been fairly catastrophic decline in the cost of goods. Those with cash make out like bandits, most others not so much. That loaf of bread costing $2.00 goes to 1.90, to 1.80, to 1.50 to 1.20. Sounds good, until you realize that the baker bought the ingredients assuming he'd sell it for $2.00 but only gets $1.20. He's lost money, and might well go belly-up. The car dealership would have $2 million in new cars that they owe $4 million for. Deflationary spirals are bad. The Depression was deflationary.

The inflation worked by having the Fed lend out lots of money to banks at 0% interest, or interest very close to 0%. It put money into circulation immediately, in a way--often it just provided liquidity since nobody was much borrowing, anyway. But it kept the interest rates down, helping to speed up money a bit more and multiply the effect of the money loaned to the banks. The intended target was business, not us. Even if they just borrow at the overnight rate for ultra-short term cash flow management, it's borrowing. Having the Fed buy up trillions in government debt also helped keep interest rates low and get money into circulation.

Egads, did I actually *learn* something in that horrible macroeconomics class I took 30 years ago? Argh. (I vaguely hope I didn't.)

[fivepennies]

7. You're talking about the system

as we know it and since we've never known anything else its an easy trap to fall into, particularly if you're a macroeconomics student, trained in the status quo.

What I'm talking about is an entirely new system in which we aren't dependent upon ONE single entity to "provide" our money and who is in such tight fisted control of who gets it. What we need is a currency that allows choices. Sure there are various banks, but they all filter up to the federal reserve and you can't NOT have corruption and collusion when one entity has that much power. In every instance, you have choices for whatever you want or need to buy. Only in the case of money do you not have a choice.

But I'm not talking about a money system that's backed by specie or any other commodity, but rather by the productivity of the people. Even gold and silver have to be mined and minted, which involves human labor. Every single thing that isn't naturally occurring has been brought into being by human labor and that should be the basis of a sound currency system and the balance of currency to productivity should be ruthlessly maintained.

Then there is the constitutional duty of congress to regulate the value of money - weights and measures, etc. but in 1913 they abdicated that authority and handed our futures and fortunes over to a private consortium of for-profit bankers who have raped us. Thats where we went wrong in the first place and warning bells were ringing all over the place at the time but no one listened. So here we are, in the soup. Congress could reclaim that authority with the stroke of a pen and give us a non debt bearing currency, value for value, but they are so sucked in by the age old debt system that has gone on for far too long but not one in a thousand of our leadership would be willing to take the hit in terms of favors and funding they currently receive.

God knows I'm not a scholar or an economist, but maybe somewhere in this jumbled mess of a post lies the basis for the kind of change we really need.