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Subject: My proposed balanced budget amendment rss

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Eric "Shippy McShipperson" Mowrer
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Jorge Montero
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First, tax revenues don't happen evenly throughout the year, and neither do expenditures. Therefore, even in wonderfulmagicland, while you can get pretty close between expenses and budget. you cannot make expenses and revenues match.

Now, even if you simplify your requirements to make that problem a non-factor, all you have accomplised is to make government spending cyclical. If we didn't change tax rates in the middle of a year, in a recession, you'd lay off a crapton of government workers, whether you needed them or not. Sorry retirees, your social security income could dip to almost nothing next months, depending on government whims! Given that no government that wants to be reelected would ever shoot themselves in the head for the next election like that, reality says that no government will cut social security, or the military, or anything that affected voters. Fail!

Now, option number two is to try to raise taxes in a recession very quickly, to make sure that revenues don't fall. I wonder how much fun would it be to live in a country that, at the time where unemployment rises, happens to raise taxes on people?

So, in essence, the problem is that your proposal forces the government to make recessions worse, while tempting said government to binge on spending on good times. You'd have people calling for a change in the laws within 3 years at the worst.
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Jorge Montero
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Oh, yet another way of looking at the issue: If your government had no debt to start with, what you define is a government that can have neither debt nor savings.

How would any economy work without debt or savings?
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Marshall P.
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Why do you hate the economy Brian?
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Ken
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pwn3d wrote:
Total spending cannot ever exceed income in any fiscal year.


This alone makes it a non-starter. What about a time of war? A financial crisis? A natural disaster that causes 80% of the country west of the Rockies to sink into the ocean?

Government occasionally needs to run deficits to meet pressing public needs. If you don't allow that to happen, then you dramatically weaken our ability to react to the unexpected.

Besides, a balanced budget amendment isn't what we actually need. What we need is a serious discussion of what services we want government to provide and how much we're willing to pay for them. Preferably throw in a good discussion on which levels of government will provide what. Until you have that, the budget is a special interest football that's going to largely follow the desires of the 55+ crowd since the vote in numbers that usually dwarf all other demographics.

But it's nice to dream...
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Ken
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pwn3d wrote:
Yeah I mentioned war. What do you mean by "time of war". The last time the US officially declared war was back in WWII. Otherwise it seems we have constantly been at War since WWII.


Well, whatever you'd call it, I think both Iraq and Afghanistan qualify. Congressional authorization, troops on the ground. It's as close as we get today.

And while you mention it, your solution isn't quite realistic since it calls for repayment the following fiscal year. We've been in Afghanistan 10 and Iraq coming up on 9. Does the bill just get pushed out? Or is it always the following year? Neither work particularly well, mind you.

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Ok tomorrow , AIG takes 200 billion to Vegas bets it on all red and busts out?


That's not a financial crisis, that's corporate malfeasance. But it probably wouldn't be out of line to consider assistance to the companies that could get dragged under by AIG's failure.

Or go replay the last financial meltdown. Credit literally froze in this country and around the world. Some form of stimulus was a positive necessity (though some will disagree, I'm sure). Otherwise, what we got wasn't even particularly close to the worst case scenario.

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I agree. I just want a line drawn somewhere. Do you think the US can carry 30 trillion in debt?


That depends. What GDP are we comparing that against? What's the condition of the economy and current budget balance look like.

We absolutely can carry a massive debt. I don't think that's wise (I'd like to see it no more than 20-30% of GDP, personally), but it is doable. Have you looked at our debt servicing costs?

By the way, for all the talk about China, they don't even come close to holding a majority of our debt. I don't think they even break 5%.

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And its a real scummy thing to do, to rack up a giant debt for our kids to pay.


Not that I don't love my kids, but I'm far more selfish. I'd like not to have to pay off a monstrous debt as I'm looking to retire.
 
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Ken
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pwn3d wrote:
But how can you start a war and then not increase taxes?


Personally, I think we should avoid starting war more. But that's me.

Why avoid raising taxes during war? Because it can and does have negative effects on the economy, which you don't want during war.

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This site says we are at 58%.


It's very likely ignoring the amount of debt that the government owes itself. The Social Security Trust Fund is a bit of a shell game because it holds all of it's funds in US government bonds. Other government entities do as well to the tune of around $5.5 billion.

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Do you mean the interest on the debt? I am reading that it is growing pretty fast.


Whoever is telling you that doesn't know what they're talking about. Our effective interest rate on the debt is around 1.1% right now. It might get as high as about 2% in the next decade. Now since it's trillions of debt, that's billions of dollars, but it's really quite manageable.

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They hold 10%


You're more right than I am. They hold around $1.1 trillion or so, which is a bit shy of 10%.
 
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Mac Mcleod
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perfalbion wrote:
pwn3d wrote:
But how can you start a war and then not increase taxes?


Personally, I think we should avoid starting war more. But that's me.

Why avoid raising taxes during war? Because it can and does have negative effects on the economy, which you don't want during war.

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This site says we are at 58%.


It's very likely ignoring the amount of debt that the government owes itself. The Social Security Trust Fund is a bit of a shell game because it holds all of it's funds in US government bonds. Other government entities do as well to the tune of around $5.5 billion.

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Do you mean the interest on the debt? I am reading that it is growing pretty fast.


Whoever is telling you that doesn't know what they're talking about. Our effective interest rate on the debt is around 1.1% right now. It might get as high as about 2% in the next decade. Now since it's trillions of debt, that's billions of dollars, but it's really quite manageable.

Quote:
They hold 10%


You're more right than I am. They hold around $1.1 trillion or so, which is a bit shy of 10%.


One one of the programs I listen to, they raise the risk that the interest rate could go as high as 3%. Part of the reason it is low now is that we are sort of printing money to buy our own debt with to hold down rates. So I'm going into debt 101% to hold interest rates down to 1.1%. That's not a position you can sustain forever.

But I don't think they are shooting for forever. I think they are just trying to get the plane over land for a hard landing instead of crashing into the ocean.

QE2 ends in June. Things could get hairy then. QE3-- if it is passed at all-- is likely to be much weaker than QE2 was.

A lot of this debt becomes much less burdensome with a few years of inflation and I think that's their ultimate game plan.

---

On balancing the budget. It won't happen. The "rabid" tea partiers were only able to get 60 billion in cuts. That's pathetic. I think we went deeper into debt than that while they discussed cutting that amount. We need serious cuts in social security, medicare and defense.

Pretty much 10% across the board. I'd start the social security cuts on the amounts which bring people's income over $50,000 a year (maybe even $45,000). You can live well retired if you are making $45,000. Not everyone can work to 70 tho. And we shouldn't cut for people who only have social security and are getting buy on less than $15,000 a year.
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MGK
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bjlillo wrote:
I think that's very insightful. The question on this for me is, how long can we keep the Chinese convinced to exchange the fruits of their labor for pieces of green paper that are ultimately going to be worthless when we print ourselves out of this?


For all the worrying about China, it's worth repeating, again: they really don't own that much US debt. They own about seven to eight percent of it.

And if the Chinese want to continue to have an export-based economy - and for the foreseeable future they do - then they're going to have to accept reasonable measures to keep the nations that import their goods stable. Losing money on their public debt ownership is really a quibble compared to the benefits of keeping their export engine going.
 
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Ken
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maxo-texas wrote:
One one of the programs I listen to, they raise the risk that the interest rate could go as high as 3%. Part of the reason it is low now is that we are sort of printing money to buy our own debt with to hold down rates. So I'm going into debt 101% to hold interest rates down to 1.1%. That's not a position you can sustain forever.


It also is hardly a comprehensive analysis of why our interest rate is so low. Unless you hear the words "shifting their reserve currency" for lots and lots of countries, it's very unlikely that our interest rates will grow dramatically. Despite the size of our debt, US treasuries are still among the most stable and reliable of investments, which makes them incredibly attractive to lots of investors. Until that confidence vanishes, our rates will remain low.

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QE2 ends in June. Things could get hairy then. QE3-- if it is passed at all-- is likely to be much weaker than QE2 was.


QE2 had almost zero to do with interest rates and everything to do with maintaining liquidity in capital markets.

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On balancing the budget.


Why the hell not? End the wars in Iraq and Afghanistan, let the Bush tax cuts expire, and watch the stimulus fall off the books and you'll have closed north of 70% of the current deficit. I think we can come up with $400 or so billion in cuts or new revenue, myself.

People keep looking at the current deficit and presuming it's all structural. It's not. A huge portion of it is temporary in nature if we get the gumption to go back to the Clinton tax rates.
 
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MGK
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bjlillo wrote:
When did $1,000,000,000,000+ become "not that much"?


When it became a relatively small fraction of fourteen trillion. Please stop this "oh it's all big numbers" thing when we're comparing one big number to a much bigger number. It's nothing more than a distraction.
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Ken
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bjlillo wrote:
mightygodking wrote:
For all the worrying about China, it's worth repeating, again: they really don't own that much US debt. They own about seven to eight percent of it.

And if the Chinese want to continue to have an export-based economy - and for the foreseeable future they do - then they're going to have to accept reasonable measures to keep the nations that import their goods stable. Losing money on their public debt ownership is really a quibble compared to the benefits of keeping their export engine going.


When did $1,000,000,000,000+ become "not that much"?


Compare it to your choice of either the debt or GDP. Against either, it's not that much.

Proportion is important, not raw amount.

Edit: MGK beat me.
 
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Ken
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bjlillo wrote:
So 1/14th of our very large amount of debt


Our debt is not that large. Indeed, as a percentage of GDP, it's not even the largest it's ever been. We survived when it was larger quite nicely.
 
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Ken
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bjlillo wrote:
Do we have to pay back the proportion or the raw amount? Either way, that's a lot of debt to owe to one country.


You would appear to be acting obtuse on purpose. I currently have debts that are roughly 120% of my annual income when you throw my mortgage into the equation. That's worse than the federal debt load, yet I'm at no risk of defaulting.

Can we stop playing the "But trillions are really big numbers! Really they are! Really really really big!"

It's almost like you're doing a "Carl Sagan as an economist" impression.
 
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Ken
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bjlillo wrote:
The Federal Government doesn't get to take the GDP as its income.


Except there is no analysis of any national economy that doesn't use GDP as its basis since it's the figure that represents the actual economic power of the nation.

But I think I'm through with this little tete a tete. Despite the alarmism, our debt is actually quite manageable if we bother to do a bit of work on the budget. That this doesn't jibe with your view of the world is unfortunate, but no less true.
 
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What if the current debt is manageable at the current interest rates?

If we're continuing to spend more and more while interest rates are likely to increase then I don't see much value in the purely academic question of whether what we owe today is manageable or not. The questions I would rather have answered is:
If we continue spending and going in debt at our current levels how much longer will it be manageable?
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MGK
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jarredscott78 wrote:
If we continue spending and going in debt at our current levels how much longer will it be manageable?


"A while" is the only answer. You can't be specific, because you can never be specific about that question. But definitely a good long while yet; reserve currencies aren't going to shift anytime soon.
 
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Ken
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jarredscott78 wrote:
The questions I would rather have answered is:
If we continue spending and going in debt at our current levels how much longer will it be manageable?


I'll give a slightly different answer: We don't know because the interest rate is not really the important factor. The effective interest rate (interest rate - inflation rate) is what we really care about. If the effective interest rates are low (whether because real interest rates are low or inflation is higher), then the size of the debt remains manageable for a longer period of time.

That said, I'd say we've got 3-5 years to move the deficit significantly in the right direction or what's really going to hurt is that nations really will start abandoning the dollar as their reserve currency due to the implied risk of not getting our shit together. Then it gets much harder to roll over debt and the effective interest rate balloons.

Nobody thinks our deficits are sustainable. Many think the implied panic over our current debt is overblown.
 
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Eric "Shippy McShipperson" Mowrer
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perfalbion wrote:
bjlillo wrote:
So 1/14th of our very large amount of debt


Our debt is not that large. Indeed, as a percentage of GDP, it's not even the largest it's ever been. We survived when it was larger quite nicely.


Famous last words. I have a nice ARM to sell you.
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Ken
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ejmowrer wrote:
perfalbion wrote:
bjlillo wrote:
So 1/14th of our very large amount of debt


Our debt is not that large. Indeed, as a percentage of GDP, it's not even the largest it's ever been. We survived when it was larger quite nicely.


Famous last words. I have a nice ARM to sell you.


No, not really. Analysis.

ARMs weren't flawed in and of themselves. My Dad came out way ahead on the ARM that he & my mother signed. Sub-prime loans were a terrible idea, and those were almost always ARMs.

If you want to use mortgages as a background, go run the numbers for what your total debt load is if you actually spend 33% of your monthly income on a home for a 30 year note. If you include interest payments on a 30 year note, that's a 900%+ debt load. Work just on principal and it's around 440% at 6.5% annual interest.

Raw debt load is nearly meaningless. Debt load in relation to other things has meaning. That doesn't mean I think our debt is where it should be, just that I'm not about to set my hair on fire panicking about where it is.
 
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J
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perfalbion wrote:
...I'd say we've got 3-5 years to move the deficit significantly in the right direction...
Nobody thinks our deficits are sustainable.

Many think the implied panic over our current debt is overblown.

I've having trouble reconciling these statements against each other. If we are 3 to 5 years away from *really bad* then I would prefer we start panicking now. Anything less than crisis mode doesn't seem to move voters, and in turn, politicians.

The way they are handling the currently proposed federal budget reflects how little they are concerned, but as we all know, their primary concern is reelection.
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Ken
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jarredscott78 wrote:
I've having trouble reconciling these statements against each other. If we are 3 to 5 years away from *really bad* then I would prefer we start panicking now. Anything less than crisis mode doesn't seem to move voters, and in turn, politicians.


While I appreciate your opinion, I simply don't agree. We brought the deficit under control starting around 20 years ago without a panic. We can do so now. It requires our leaders acting like grown ups and working with each other, but it's achievable.

Quote:
The way they are handling the currently proposed federal budget reflects how little they are concerned, but as we all know, their primary concern is reelection.


No, it reflects the realities of politics. You don't make major changes by holding your breath until you turn blue or threatening to take your ball and go home. Which is what both sides seem to be taking turns doing right now. I actually expect there's backroom conversations going on that nobody wants to leak for fear of "pissing off the base" that involve more sober discussions.
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perfalbion wrote:
I actually expect there's backroom conversations going on that nobody wants to leak for fear of "pissing off the base" that involve more sober discussions.


We can only hope.
 
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J
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perfalbion wrote:
jarredscott78 wrote:
I've having trouble reconciling these statements against each other. If we are 3 to 5 years away from *really bad* then I would prefer we start panicking now. Anything less than crisis mode doesn't seem to move voters, and in turn, politicians.


While I appreciate your opinion, I simply don't agree. We brought the deficit under control starting around 20 years ago without a panic. We can do so now.

Hmmm. I'm under the impression that the way the budget was balanced was through our having a particularly and atypically successful economy, part of which was actually "artificial" in a sense and we are playing for it now. I don't think the spending habits we had even then would allow for a budget surplus most of the time.
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Jeff Brown
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I'm having trouble reconciling these two statements.
perfalbion wrote:
It requires our leaders acting like grown ups and working with each other,
Quote:
but it's achievable.


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