Fate of America

scotty · #1 07-14-2011, 12:23 PM

Let me start with some news pieces.

A startling warning came Wednesday when credit rating agency Moody's said the U.S. government's impeccable credit rating was under review for a potential downgrade. The agency said the ongoing stalemate increased the risk of a first-ever default on the governments debt.

Leaders from each side cited the announcement from Moody's, calling on the other to give ground for the sake of avoiding fiscal calamity. But the area of agreement between the two sides seems only to have gotten smaller in the past few days.

Cantor apparently tried to suggest negotiators strike a short-term deal considering the distance between the two sides, but Obama shut that idea down.

Obama said "enough is enough," arguing forcefully for revenue increases to achieve the deficit reduction sought by the GOP.

"I've reached my limit. This may bring my presidency down, but I will not yield on this," Obama said, before walking out.

Democrats have insisted on raising new revenues in any deal that would include deep spending cuts. But Republicans are adamantly opposed to any tax increases,

Read more: http://www.foxnews.com/politics/2011...#ixzz1S5xNZzz7

Taxes and other revenue only cover about 60 percent of what the government spends. It borrows--by issuing Treasury securities--to finance the other 40 percent or so. Economists are now running the numbers and trying to predict what will happen if the debt impasse continues and Washington has to stop borrowing.

There's a lot of talk about the government defaulting on its debt, but that's not likely to happen. The government collects about $200 billion per month in taxes and other revenue, and that cash would keep coming in.

If forced to choose, the government would almost certainly prioritize debt payments above other obligations, because welching on bonds considered the world's safest would sink financial markets everywhere and make American the world's biggest deadbeat.

Almost everything else the government pays for, however, would be vulnerable to sudden cutbacks. Here's who would feel the pain most abruptly:

Social Security recipients. The government is due to deliver $23 billion in Social Security payments on August 3, according to forecasting firm IHS Global Insight. If the government is forced to cut 40 percent of its spending, these Social Security checks may not arrive.Social Security recipients who depend on their checks to pay other bills could end up running behind, incurring costly late fees or damaging their own credit. And it's no guarantee that if stopped, the government's check-writing machinery will start up again without delays or snafus that hold up checks even longer.

Government employees. Everyone loves to bash government bureaucrats, but they're a meaningful chunk of the U.S. economy, amounting to 4.4 million workers, including the uniformed military. Many of them will stop getting paychecks, which at a minimum will slow spending and weaken the economy further.

The unemployed. Washington currently offers extended unemployment benefits to nearly four million people who have exhausted state-level benefits. Those checks could stop coming, too. One reason unemployment benefits are important is that recipients spend virtually all of the money, providing an immediate boost to the economy. A tighter crunch on the unemployed could also lead to more foreclosures and defaults on other types of consumer debt,

Investors. Nobody's sure exactly how a sharp cut in federal spending would affect stock and commodity markets--except it would be bad. Federal Reserve Chairman Ben Bernanke told Congress recently that a borrowing moratorium would generate "shock waves through the entire financial system." The U.S. government is the world's biggest spender, and the flow of money from Washington impacts virtually every financial market in the world, It's almost impossible to predict the daisy chain of events that would unfold as global investors reacted to the sudden upending of the world's financial order.

But a few general outcomes seem likely. First, a borrowing moratorium of more than a few days might be enough to tip the U.S. and even the global economy into a recession, so banks, employers and foreign governments would suddenly adjust their own spending and prepare for tough times. "Risk" assets like stocks would plunge in value, with safer assets like gold soaring. Investors may flee dollar-denominated assets and search for other safe-haven currencies, though it's hard to tell which ones, since the euro and yen aren't exactly appealing.

Even if the debt ceiling were lifted after a few days of pandemonium, there could still be lasting damage. "There would be massive dislocation in financial markets, because the recipients of government spending that fail to get priority, and do not get paid, will be unable in turn to meet their own obligations," says economist Nigel Gault of IHS. "Confidence in the ability of the U.S. government to fulfill its most basic responsibilities would be damaged."

If cut, those programs could see funding restored once the crisis passes. But if the big spending cuts happen, Americans will notice that a lot of things they don't necessarily associate with Washington are suddenly unavailable. The federal government is big, indeed. We may be about to find out just how big.

http://finance.yahoo.com/news/Who-Wi...33064.html?x=0

So. Without the usual bias one way or another, Republican or Democrat, no matter who needs to give a little and make ends meet................ what if this happens ? I know we never really think about it, normally we just sit back and watch because even in the last minute the government always finds a way. But what if they can't seal this in time ? What will it mean for our economy ? The general consensus seems to be that whatever happens will potentially sink the markets.

I have read history buffs who always point out that country's and governments have always had a cycle of rise and fall. Is America immune to this historical cycle ? Are we destined to be the great world leader forever (until the rapture anyway).

coadie · #2 07-14-2011, 12:51 PM

The SS checks are a bluff. Our montly Fed tax receipts oare 200 billion and spending is much more. The treasury will be unable to "borrow" from the SS trust fund. Our company tax deposits between now and august 3 will cover military payroll and SWS checks. Obama is mad. He has several august vacations of extravagance planned. He has to have his hundreds of support workers ready for his trips. It is not cool to announce the Roayl excursions durong this finance meltdown skirmish.

coadie · #3 07-14-2011, 03:17 PM

I looked at the budget. Our money to service Federal debt is over 200 billion a year. By 2018, it is scheduled to be 965 billion. Part of the drop in debt rating stems from the increased expense in servicing the debt.

Today it is bad. If interest rates go up very high, the amount of interest paid to reissue bonds could be much higher.

trialedbyfire · #4 07-14-2011, 04:07 PM

If we keep raising the devt cieling, there's no point of us having a debt cieling. Let's just stop lying to ourselves, and eliminate it all together. If we're going to spend like nuts we might as well enjoy it before it destroys so we can say we got something out of it when the empire falls.

coadie · #5 07-15-2011, 12:50 PM

Quote:

Originally Posted by trialedbyfire

If we keep raising the devt cieling, there's no point of us having a debt cieling. Let's just stop lying to ourselves, and eliminate it all together. If we're going to spend like nuts we might as well enjoy it before it destroys so we can say we got something out of it when the empire falls.

Quote:

Here is my bottom line. I strongly concur with Ann Coulter in her latest book titled, "Demonic." Coulter concluded that most of the left's agenda is rooted in a hatred or lack of belief in God.

In attention to the media, I was just reminded that Obama has not in this budget skirmish named a single dollar to be cut. Not one. Just a token like oleo instead of butter on Air Force One.