The Terrible, Awful Truth About The Debt Ceiling
You don't need to know any economics or public choice theory to know this, all you need to do is look at this pic:
Somehow this poor woman has been convinced that the essence of the problem is this deal. I can't tell if this photo is staged for a photographer standing behind her or she thinks she's testing Congressmen with giant Zener cards, but she clearly wants this to be about relationships and non-partisan debate and unity and pride. Somehow she has been convinced that what makes the U.S. different from Greece is this vote; that what confounded the Greeks was really whether or not to raise their debt ceiling. "Come on guys, just work it out!"
She doesn't appear to know how to read, or see, so whatever she thinks she knows came inevitably from the news media, the one that is now using her as a symbol of something. So with no other information you can assume the opposite and trade accordingly. (Get out by Sept 20.)
In this case, it's easy to deduce the real issue, which has no deadline. The popular phrasing of the real issue is "America's in debt, we spend more than we take in," but a more meaningful understanding of that sentence is this: we're all on the federal dole, one way or another.
Debt ceilings are accounting tricks. Whether you make the minimum monthly payment by August 2 only affects the books; as long as you make that payment you look ok on paper and so does Visa.
So it is inevitable that a deal will be struck by August 2, because that deal doesn't actually mean anything. This a is husband and wife arguing about rebalancing the household budget, each pretending they aren't going to pay the electric until he's agreed to cut back on beer and she's agreed not to be such a bitch. Whether they do it or not is irrelevant, the electric's still getting paid. The electric always gets paid, it has to, we need it for the chairs.
Not to mention that no politician wants to be remembered as the guy who made his constituency go unpaid. Public choice theory will save you by August 2, even as it wrecks you all the other times.
So when you get the temporary reprieve tomorrow-- and it is temporary-- you should do whatever you have to to get off the dole; you are getting off of it anyway.
Because one of these days we won't be able to even make the minimum monthly payment, and, keeping to the household budget analogy, in those circumstances what happens isn't that the family goes bankrupt, what happens is that the couple gets divorced. Pray on this.
II.
There's a game you should play, and it is analogous to Bloody Mary, where you and your Tiger Beat reading friends are at a slumber party, and they tell you to go into the bathroom and hold a candle and look into the mirror, and exactly at midnight if you say "Bloody Mary" three times a bloody face will appear. And you do it and it works, and you're like, "what the... did that really just happen?" Then you climb back in bed only to discover your friends put a tarantula in it.
The game is you take a major population-grabbing news story and ask, "what's going while I'm focused on this moronity?"
You can try it with Casey Anthony and get Greek austerity and Britain union protests and the commonplace use of the phrase, "the end of the euro"; but the lead story doesn't have to be frivolous for the game to be instructive. 9/11 was pretty real but if it weren't for that we might have learned how entangled the California and Federal governments were with Enron and energy suppliers in general, and the complicity of Arthur Anderson in asset price inflation and bubbles all over the world. Instead, we didn't.
Neither is it necessarily a conspiracy or a cover-up, it is simply related to the fact of finite human waking hours. Unless you're chronically running 20 hours a day, to the likely detriment of your body and silent deterioration of your sanity, just so you can do things other people don't have time for like look up the references in the introductions of research papers or watch Susan Sarandon's naked granddaughter act annoying(ly) in Joe, you're simply not going to get to everything. There's just no time, your mind can only handle one lead story a week. "But I do like to get in depth and hear both sides of the issue." That's why you subscribe to The Atlantic.
It's also fun to play "what's the lead in other countries, where this story isn't?" or "what's the lead for men/women if this story is the lead for women/men?" because it tells you what the rest of the world cares about while you're hearing both sides of the J-Lo divorce.
So let's play that out now, what's the lead story if the Debt Ceiling isn't? That one's easy:
Throw in the pic of the protestors:
and observe that in contrast to Revolution Facebook, none of those signs are in English-- and sprinkle in a little "Gunmen attack Sinai Gas Pipeline" and "Dozens Killed As Syrian Forces Storm Cities" and you have everything that would have previously driven Bush to "illegally" send the troops and Cheney to "accidentally" shoot his lawyer. The US may have the luxury of employing "watchful waiting" while Sideways Glasses Guy retweets his Time Magazine cover and plans on voting in the upcoming elections, but the guy above doesn't look like he's going to wait for anything. Especially elections.Right or wrong I have no idea, I only know that when the Debt Ceiling Crisis is averted the Egypt problem will still be exactly the same and, unsurprisingly, so will the debt. I'm not suggesting the radicalization of the Egyptian protests are more important than our debt, I am simply reminding you that both the cause of the debt and the cause of the radicalization of the protests are more important than the "debt ceiling crisis." If anyone knows Obama's or Boehner's twitter addresses, send them a tweet.
----
3 Things Wrong With the Egyptian Revolution
The Terrible, Awful Truth About The Tax Cuts
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July 31, 2011 5:38 PM | Posted by : | Reply
Stick to psychiatry. The "household (credit card) debt" analogy falls apart on several points.
First, the average household debt is not measured in a currency owned and controlled by that household. This is a HUGE difference.
Secondly, the average Visa card (your example) has an interest rate of 16.43%. The US is currently borrowing money at 2.954%. Another HUGE difference. This is far less than we were paying on debt accumulated by President Reagan when he tripled the national debt in the 80s. Heck, this is a hair lower than we paid on war bonds following WW2 when, as a percentage of GDP, we were in more debt than we are now. We paid that off, BTW.
Third, a great big chunk of this problem was caused by the Bush Administration's decision to dramatically cut taxes on the wealthy. In the past 20 years, the top 400 income earners have seen their income quadruple, while their tax burden has been cut by more than a third. As a percentage of gross income, janitors on Wall St pay more in taxes than the executives.
So, lets deal with the problem where it began and have the tax rates return to that dark, horrible decade of the 90s (you know, the one we ended with a surplus), get our asses out of these stupid wars, tell the TEA Party to STFU already. THEN we can talk about our long-term debt problems.
Score: -4 (108 votes cast)
July 31, 2011 6:10 PM | Posted by : | Reply
"First, the average household debt is not measured in a currency owned and controlled by that household. This is a HUGE difference."
Ahem.
You are implicitly suggesting that the US can get out of its debt problem by making the dollar worthless via inflation. And this will affect the rest of us how?
"The US is currently borrowing money at 2.954%."
Which it will no longer do if the US decides to inflate away the currency. Remember what interest rates were back in the late 1970s?
Besides, you have missed our host's point, which is: The media is deciding to concentrate our limited attention on a fundamentally secondary concern. This happens all the time. You may think you are well informed, but unless you have direct, personal experience in the matter—or, being generous, unless you have done extensive reading on the subject, of books etc. which are not being specifically hawked by the media (the way that Thomas Friedman books are, for example)—then you only know what the media WANTS you to know.
This need not be a deliberate conspiracy, or the result of malice. It is the inevitable consequence of having an intermediary tell us what to pay attention to, no matter how potentially benign.
Score: 43 (55 votes cast)
July 31, 2011 6:29 PM | Posted by : | Reply
Just knew you were going to do a "TATA" post about the debt ceiling.
Score: 0 (2 votes cast)
July 31, 2011 6:37 PM | Posted, in reply to , by : | Reply
Matiff,
Please take Econ 1. When the Federal govt prints more money and spends, you do not get much inflation when there is massive unemployment. The extra $ the government prints and distributes is spent, increasing demand for goods and services. If the govt then KEEPS increasing the money supply, THEN you get inflation.
Score: -19 (43 votes cast)
July 31, 2011 7:40 PM | Posted by : | Reply
so...how exactly does a psychiatrist go off the public dole? so much medicare/aid money is tied closely.
Score: 8 (10 votes cast)
July 31, 2011 9:27 PM | Posted by : | Reply
How am I on the government dole and how do I get off?
Score: -3 (7 votes cast)
July 31, 2011 9:54 PM | Posted by : | Reply
You're right, of course.
They money-printers are fools. It never, ever works. Everybody tries it and it never works.
This country is so boned. Well, it could be a lot worse: Essentially none of us will die of it. Be glad you don't live in Japan. But life's likely to get to be a real drag pretty soon, and stay that way for quite some time. All you fools throwing a fit about wanting "free" MRIs from the government that (magically) nobody has to pay for, soon enough you'll be happy to have a roof over your head.
Score: -3 (21 votes cast)
July 31, 2011 11:11 PM | Posted, in reply to , by : | Reply
[blockquote]All you fools throwing a fit about wanting "free" MRIs from the government that (magically) nobody has to pay for, soon enough you'll be happy to have a roof over your head. [/blockquote]
I know right, instead, MRI Technicians should be knocked down to minimum wage, and they should survive off tips.
Because the tip system works, right?
Right?
Score: 1 (19 votes cast)
July 31, 2011 11:17 PM | Posted by : | Reply
Wait. Muslim counties in the Middle East are full of right-wing religious extremists that oppress women and homosexuals? Progressives have been so silent about that. I thought Israel was an uneducated backward right wing country surrounded by a sea of Boulder Colorados. You only get "radical" street cred for criticizing Israel. The Muslim protester makes the Tea Party look like the Green Party, but pointing this out makes you a Islamophobe? Sort of like how it used to make you a racist to criticize Obama. Remember those days Paul Krugman? We'll keep going down as a country as long as we keep importing poverty and the Democrats bribe voters with entitlements.
Score: -1 (35 votes cast)
July 31, 2011 11:41 PM | Posted by : | Reply
They protested, they got military rule. theyr protesting again, so what is the major change they'll institute, an anarchist utopia?
they r just pissed off and yelling about it. nibbed. if the US had cause to be worried, theyd invade
Score: 0 (6 votes cast)
August 1, 2011 12:31 AM | Posted, in reply to , by : | Reply
Mastiff,
I enjoyed how you presumed my statement about how we control the currency in which our debt is enumerated means I want to cause hyper-inflation. Well, it also means the comparison to a typical household (and Greece) is invalid because they don't have a similar level of control of their currency.
Oh, and a huge chunk of the planet doesn't back its economy in average household treasury bonds, either. Or Greek treasury bonds, for that matter.
I also enjoyed how you utilized your earlier presumption to disregard the simple truth of my statement that there's a big difference between interest rates of consumer credit card debt and the US public debt. Not to mention how you soared right by my comparison to debt generated during WW2 and the Reagan Administration.
It was absolutely charming to see you completely ignore my observation that the way we got into this mess indicates a clear pathway out. Now, why were you thinking I was advocating hyper-inflation?
Unlike the premise of the article, I don't think this is a secondary news issue. A faction of our government has decided defaulting on our public debt is a good way to force us to pay for tax cuts for wealthy people and wars by savaging Social Security, Medicare, and Medicaid. That's a huge front-page story.
However deliberately contrived the crisis is, it is nonetheless very serious and worthy of front-page news. In fact, I suggest such a default would serve to further destabilize the areas in the Middle East that seem to so frighten our dear Last Psychiatrist. He really should stick to psychiatry.
Ladies and gentlemen, I anticipate your negative opinion score as a badge of high honor.
Score: 6 (40 votes cast)
August 1, 2011 3:16 AM | Posted, in reply to , by : | Reply
What roof?
- Big from Katrina
Score: 3 (5 votes cast)
August 1, 2011 6:30 AM | Posted by : | Reply
As your effective student, I'll ask how come you're never deconstructing your own lens? Isn't that supposed to be the point of deconstructing, which is what you're doing? Shouldn't it be a clinical imperative to mirror-neuron enough empathy to be able to sense yourself in whatever pathology you're trying to correct. Accepted that it's a distasteful act to have to reflexively taste your tongue, but you're your own best model of the mind, naturally.
I'll say I really enjoy what you're doing. Psychiatry's cool, and I'm starting to do it too, but if you decide to unleash psychoanalysis on every thing, don't you at least have to acknowledge the "so-called" "performative contradiction"? I mean, doesn't being smart require it? Let's not ignore that we've all read some mean stuff. Implosion before avoidance, ignorance? And I guess of course the goal is to just think smarter. Psychiatry
Also, the debt dealing dance seems like it should be pretty discernible. The moves are just signal-waving, but I think us bunch of brains had a fairly open show of some pretty clear and jesus-important lessons about how shit works or doesn't in our hive queen's enteric nervous system. At least people are paying attention. Lessons are where you get them.
Score: 5 (11 votes cast)
August 1, 2011 6:36 AM | Posted, in reply to , by : | Reply
When Professor Keynes finishes grading your Econ 1 final, perhaps you might leaf through a newspaper—the financial pages, not the style section.
Helicopter Ben has deliberately flooded the world with $4.7 trillion in *excess* liquidity over the last 3 years. The shockingly unexpected result of this experiment with the world economy? Massive inflation in the price of food and energy (they’re not calculated in “core” inflation)—the two items people need most to survive and generate economic activity. Not to mention the price inflation of every other thing on earth that’s a store of value (and thus fair game for speculation)—including food staples. THAT is where the “excess liquidity” goes.
Alone is entirely correct to juxtapose a discussion of our financial ruin with the revolutions in the Arab world. Did you ever wonder why they all happened so suddenly? Why now? All these years those people were nothing but lumpy doormats for dictators to wipe their bloody boots on. What changed? Well, THEY ARE HUNGRY. Egypt? Half of them live on less than $2 a day. Food comprises almost half the country's CPI and much more than half of spending for the poorer half of the country. The rest of the Arabs are in similar straits. They produce little on their own, and now they’re priced out of world markets.
The inflation problems in China are a direct result of their currency peg to the dollar and consequent willingness to trade the piffle we print in return for the real goods they produce. But just wait. As soon as the Chinese central bank sucks it up and floats the yuan its purchasing power will increase and all the inflation we’ve exported to them will come rushing back on us like a tidal wave of rotting sushi.
If the government doesn’t pull itself together very soon, the day will come when Treasury holds an auction that fails. Things will happen very quickly after that.
Score: 15 (23 votes cast)
August 1, 2011 11:18 AM | Posted by : | Reply
L'enfant makes an excellent point which I think strongly supports that the first step out of the debt crisis is to put taxes back the way they were before Mr. Bush had his way.
Another way our national debt isn't like consumer credit card debt is an increase in inflation does not increase the interest rates agreed to previously. The 2.954% bond we sell today would still pay 2.954%. If tax policy is put right, there will be much less need to borrow in the future when inflation comes calling.
The disconnect of the yuan from the dollar would also cause Chinese manufacturing costs to increase rapidly, putting the brakes on their expansion. Such a move would cause enough unrest that the Chinese government would need to worry for its continued existence.
Score: 5 (7 votes cast)
August 1, 2011 3:58 PM | Posted by : | Reply
Here's a little exercise to get a glimpse of just how bad things are. The US government spent 3.5 trillion dollars last year. There are 235 million adults in the United States. To balance the budget, the IRS would have had to collect about $15,000.00 from each adult in the country. (Or $12,000, if you count corporate taxes, excises, etc.) How is that conceivably sustainable? Can you imagine writing a check that big every year to the government? You would have to ask yourself, Why am I spending this money? How is it being used? Is it worth it? I think that more and more people are asking themselves that fundamental question -- Is government worth it? Does it do what it purports to do (e.g., "promote the general welfare"? Or is it at best wasteful and at worst a criminal enterprise? Is it, as our Founders put it, a "necessary evil"? Unpack that phrase: Government is Evil. Best to have as little of it as possible. Cut every federal department's budget by 20% today and see if anyone notices. Allow people in their 20s to 50s to "opt out" of Social Security and Medicare. Disband the Marine Corps (redundant to the Army) and the Peace Corps (useless). Scrap Head Start (doesn't work) and agricultural subsidies. Encourage people to save for a rainy day by getting rid of unemployment "insurance." Let the rich subsidize orchestras and cultural events (ditch the NEA, and PBS, too). It was all nice while it lasted, but it's all over now. "Can't afford it, sorry," said the good father to his clamoring kids. Get used to hearing it.
Score: 1 (19 votes cast)
August 1, 2011 5:04 PM | Posted, in reply to , by : | Reply
Yes, the interest rates on any individual bond are fixed. And rates are currently low. But if you look at our debt situation as a whole, we as a nation are spending on a card that can have its rates lifted at any time. See, since we run constant deficits, our debt always gets paid with more debt. In household terms (and yes, the household analogy is a pretty good one) we're paying off the Visa with the Amex. And when the Amex comes due we pay that one off with the Mastercard. When the Mastercard bill comes, we go back to Visa. We are rolling debt. And every time it rolls, our creditors get a chance to reset our rates. The average maturity of U.S. debt is only about 4 years.
The bond market could lift our rates tomorrow, and within a matter of only a year or two, a significant portion of our debt would have been rolled to that new rate. Not to mention that all new spending & debt would be financed at the higher rate too!
The current rates should not reassure you. They should scare you shitless. Because there's nowhere to go but up. If you think they won't, you're no smarter than the idiot who doesn't notice the word "introductory" in "0% introductory rate" on the credit card offer.
Score: 3 (5 votes cast)
August 1, 2011 5:40 PM | Posted, in reply to , by : | Reply
Right, like in Japan.
Score: 1 (1 votes cast)
August 1, 2011 7:57 PM | Posted, in reply to , by : | Reply
J Brown
The 90's were a time of huge growth, whether it was paper wealth or not, everyone was getting paid. A lot! The tax rate had nothing to do with the budget surplus, the surplus was created because overall revenue was far greater then during a recession.
Raising taxes on people who spend and create the most jobs when we are psychologically and financially vulnerable does not make any sense to me.
Score: -2 (14 votes cast)
August 1, 2011 8:30 PM | Posted, in reply to , by : | Reply
Tax raises are going to be inevitable at some point, I'm afraid, but so are spending cuts. Not trims, either. A massive rethink of what government should pay for. Example: retirement.
But even when we do all this the fact is there will be no going back to the 90s or even the 80s, not for us. And that part's actually not the government's fault. We can hardly blame them for what did or didn't go on in our bedrooms. That's the one part of our life they actually do stay out of: http://lenfant-le-plus-terrible.blogspot.com/2011/07/doing-it-like-greeks.html
Demographics is destiny.
Score: 1 (3 votes cast)
August 1, 2011 9:16 PM | Posted by : | Reply
Jesus, is capitalism going to collapse in our lifetime?
Score: -2 (8 votes cast)
August 2, 2011 1:57 AM | Posted, in reply to , by : | Reply
The next 50 years should be some of the most interesting ones in awhile.. technology, collapses, planet's health, Americanization effects, China... etc
It should be one hell of a ride.
At least that's what the narcissist in me wants to believe
Score: 0 (2 votes cast)
August 2, 2011 6:56 AM | Posted, in reply to , by : | Reply
No, it's the welfare state that's going down. That's Alone's point.
But done correctly this is an opportunity for "creative destruction": Once the government's out of the way civil society can get down to the business of providing services to the truly needy in its customary efficient and effective way. Privatizing the whole human services sector will be the work of lifetimes, but it can and will be done. We just have to make sure the transition is done slowly enough to prevent traumatic breaks in services to vulnerable groups.
Score: -4 (14 votes cast)
August 2, 2011 5:33 PM | Posted by : | Reply
I am simply reminding you that both the cause of the debt and the cause of the radicalization of the protests are more important than the "debt ceiling crisis."
This.
Score: 4 (4 votes cast)
August 2, 2011 5:46 PM | Posted by : |
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