the Constitutiution and the debt ceiling

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The original article is better:

http://www.washingtonpost.com/business/ ... story.html

According to that article, Obama is on board with huge cuts to Medicare and Social Security, and would announce them today.

However, Obama didn't actually announce any such cuts:

http://online.wsj.com/article/SB1000142 ... _US_News_3

Looks like a possible false alarm.

The Republicans did state a willingness to close tax loopholes, as I said, though:

How so? I haven't seen any historical evidence that this is the case. Decreased government spending means more people must be laid off which leads to even fiercer competition for limited private sector jobs and greater downward pressure on wages. It seems republicans want a race to the bottom.

Corporations are already making record profits, and it hasn't done s**t for job growth.

What do you guys think of Ron Paul's idea to have the Federal Reserve to simply forgive the debt owed to it by the US Treasury? It's money we essentially owe to our selves. The Fed owns like 1.7 trillion dollars in treasury bonds and if we told to to rip em up, that'd be 1.7 trillion off of our national debt right there. We wouldn't even have to raise the debt limit.

Exactly my point. Those profits result in generation of capital - increases in the amounts of money in peoples' retirement accounts from payments of dividends and such - but since all the extra capital is being sucked up in financing of government debt, it's not available for productive job creation. Cut federal spending, and we'll see the unemployment rate start to come down.


Very bad idea. Right now the money supply is much too large for a stable economy. If we ever have an economic recovery, the federal reserve will need to start selling off those bonds or the recovery will be choked off by inflation. Until then, the fact that it stays on the books as government debt doesn't hurt anything, and keeps us honest.

^ Non sequitur.

I think the problem is that would be equivalent to eliminating the debt by printing 1.7 trillion dollars. It would make our currency worthless in the eyes of bond holders. Besides, there are countries with roughly twice the debt-to-GDP ratio (Japan, etc...) that aren't on the brink of total collapse. I'm not saying that we should let our situation get as bad as Japan's. You just have to weigh the consequences of actions appropriately.

Ummm, then what will be the value of US currency?

Have a look at the Federal Reserve's Balance Sheet. The federal reserve's assets are, primarily, US Government debt, and market investment positions. As of July 6, the Fed held $2.874 trillion in assets, of which $1.625 trillion are US Treasury securities. That leaves $1.249 trillion in other assets. If the debt is wiped off the asset side of the sheet, then a corresponding amount must come of the liability and equity side.

Against these assets are $2.822 trillion in liabilities, of which $991 billion is circulating currency. The Federal Reserve holds $1.741 trillion in deposits--how do you propose that the Fed will be able to honour withdrawal of those deposits if there are no longer any assets to secure them?

This is not money that you essentially owe to yourselves--this is money owed to the depositors to the Federal Reserve. Stiff them at your peril.

How does a Fed chairman target inflation? He creates unemployment. He makes sure that the unemployment rate does not fall below the NAIRU target. So there is an unemployment target, that is the NAIRU. The way in which a Central Bank chairman lowers inflation and to manage it is to create unemployment. That's the official method though the evidence shows that NAIRU is total nonsense and accelerated inflation does not take place when unemployment falls below it. Still, that's how it's done in this Neoliberal Age. Before, there were things like Incomes Policies like happened in the 1970s Britain under Wilson and Callaghan.

Someone claimed that the Crowding Out effect is destroying economic growth because of the federal spending and cutting that spending will free capital, blah blah blah. Crowding Out is another zombie lie. If Crowding Out was true interest rates would be increasing and increasing. They are not! When the feds spend, new money is created in the private sector that otherwise would not have existed so this is not competition for a fixed amount of money.

Crowding Out and NAIRU are two evil zombies that have been killed by evidence but naturally never really die because they're too useful to the very wealthy and they're devouring the middle class and anyone who isn't in the top 2%...

The ultimate would be having one worker make all the cars in America.

ruveyn

You really want to see a double-dip depression don't you? It will be like 1937. Laying off government workers will hurt the economy just as much as laying off private sector workers would. I'd rather base my assessment on what real economists have to say, not right-wing propagandists.

What it is now...ZERO.

I don't want to re-open the "what is money" discussion, but when America was on the gold standard, our currency was the best in the world and we had economic power. If there wasn't enough gold for the volume of currency needed, we should have added in some other valuable (silver, platinum, palladium, etc.) to back the new currency.

To print more money without more "X" backing it, you devalue the currency. When we went to a fiat-based currency (backed by nothing but a promise to honor it for payment), we tossed the value of the currency out the window. In fact, for some time, it was ILLEGAL to own gold bullion in America. I'm not sure why they undid that as it's insane to take worthless paper in exchange for anything of real value.

The problem with "let's make paper notes our currency and back it with nothing" is that currency must have a tangible value. The joke goes that only the government could put ink on paper and make it worth less than it was as plain paper. If we had an ironclad standard that "a US dollar is the value of one quart of whole milk" that could never change, then in a sense, you could print all the money you want because the value of the currency remains forever fixed. When currency was based on a long-life commodity (like gold), a dollar was valued at X amount of gold and people knew what they would generally trade for that value in gold.

Fiat currency has dumped any such standard, and we've been forced to do trade on the illusion that it is worth anything. The Federal Reserve Bank used to report several figures, and one of them was for ALL THE CURRENCY in circulation...both tangible and intangible (printed/coined and existing solely on bank ledgers). About 5-6 years ago, the FED stopped reporting that figure, and before they stopped reporting on it, it was going up at near exponential rates.

In short, if you are running the printing presses and cranking out paper notes like crazy (or zapping it into existence on a ledger sheet), what is the currency really worth? How does this unfairly benefit those with the power to "create" currency as they can foist that currency on a public still willing to trade real goods and services for paper made from nothing.

We prosecute counterfeiters as criminals because they claim to print fake money disrupts confidence in the national money supply and it allows a person to ill gain real goods for fake notes. How is allowing a handful of people the power to create new notes from NOTHING any different except that they allegedly do it under the color of law?

You say you don't want to discuss what money is but then you launch into an ill-informed rant about intrinsic value.

The value of shiny rocks is elastic.

At the moment, the market value of shiny yellow rocks is badly overinflated, and people who are heavily invested in it stand to lose a lot of value.

Taxes keep coming in after we hit the cap. Federal tax collection is more than our payments on our current debt.

Taxes coming in are not enough to keep up with SPENDING. After the cap we can not take out new loans to keep up with our spending.

Spending is not debt.

So when we hit the cap the government will have to decide where to spend the taxes collected. We are able to pay our debts, and the currency does not have to default. The problem is, do you think we will use our limited tax collections to pay debts, or will we use them on spending?

Given that the spending is already a matter of law, I expect we will spend.