So we hit the debt limit...

[Neil]

When the US defaults early next month what happens next? 

Interest rates for the federal government will rise dramatically.  As a result, the US will descend into a death spiral of insolvency and the attendant political extremism.

We already have the political extremism, that's why things can't get done.

You have gridlock.  Political extremism will be when the crazies stop having protests and start building private armies.

[Razgovory]

I had no idea you were a Saudi Prince.

Explain what I'd get out of a Norwegian style socialist system that I don't already have.

Don't know your life style, prince.

[Berkut]

But is 65% of the GDP net indebtedness (from the Economist, who characterizes that level as "perfectly affordable) really that point in time? And if you care about the deficit so mortally, why does "no increase in revenue at all" become the line in the sand?

GOP House members would have to go back on their pledges not to increase taxes.  IIRC, doing so hurt a certain GOP politician back in the early 90s.  Not to mention that tax increases are likely to fall disproportionately (or exclusively) on the backs of the more productive elements of society, and that's not exactly a smart way to get the economy back on track.

Spending is a much bigger part of the problem IMO, and until I see the Dems being serious about serious cuts in spending, I'd rather the GOP keep tax increases off the table.  We could eliminate the deficit without any tax increases (the outstanding debt is another issue, of course).

I realize that a tax increase of some sort may be necessary as a long-term solution to pay down debt.  But short-term, I don't want the GOP to budge in the current battle.  Get spending under control, and then we'll talk taxes.

But it seems rather unlikely democrats in congress and the President will agree to massive cuts in spending unless packaged together with some tax increases.

"Give me what I want now, and we'll talk about what you want later" is rarely an effective negotiating strategy.

Indeed. It is so rarely successful, that one has to question the sincerity of those proposing it in fact.

[OttoVonBismarck]

When the US defaults early next month what happens next? 

Default means we stop making payments on our debts. My numbers above show we will not be in danger of doing that, so we will not default. If I lose my job and my unemployment check still allows me to pay my mortgage but means I can no longer pay for a premium cable TV package you can't say I'm "defaulting" on my debts, I'm no longer in great financial shape but I'm still meeting my obligations.

What would happen is we would pay the debt servicing, Medicare & Medicaid, Social Security, Active Duty Military Pay, Food Stamps, and a few other things on that list and the rest would shut down. The $30bn we owe Defense Vendors would not be paid immediately and those companies would probably have to go through some lean times (layoffs potentially, almost definitely factories would shut down temporarily.) Because we would not be able to take out any more debt, the debt would decrease because we would make payments on our debts throughout August but not get new debt. That means that come September we will no longer be at the debt ceiling and we'd be able to issue 30 bn or so more in new debt and we'd hit the ceiling again.

It would continue indefinitely, but it wouldn't because that whole time most of the Federal government would be shut down and while the scaremongering about seniors not getting SSA checks or unemployment not being paid or food stamps not being issued are (as I've shown above) unlikely, people won't stand for a government shut down for very long.

[OttoVonBismarck]

To a degree Glen Beck is right that it won't be the catastrophe being predicted. Where he's wrong is that it will mean we lose our sterling credit rating, which more than just meaning higher interest payments means a great loss in confidence, that's at the heart of serious economic problems. Most great recession and the great depression itself were obviously caused by "real" problems, but their scope and depth typically was because of a dramatic loss of investor confidence because of the more material issues. So we would be at serious risk of entering a second major recession over this thing.

[sbr]

To a degree Glen Beck is right

[MadImmortalMan]

But is 65% of the GDP net indebtedness (from the Economist, who characterizes that level as "perfectly affordable) really that point in time? And if you care about the deficit so mortally, why does "no increase in revenue at all" become the line in the sand?

GOP House members would have to go back on their pledges not to increase taxes.  IIRC, doing so hurt a certain GOP politician back in the early 90s.  Not to mention that tax increases are likely to fall disproportionately (or exclusively) on the backs of the more productive elements of society, and that's not exactly a smart way to get the economy back on track.

Spending is a much bigger part of the problem IMO, and until I see the Dems being serious about serious cuts in spending, I'd rather the GOP keep tax increases off the table.  We could eliminate the deficit without any tax increases (the outstanding debt is another issue, of course).

I realize that a tax increase of some sort may be necessary as a long-term solution to pay down debt.  But short-term, I don't want the GOP to budge in the current battle.  Get spending under control, and then we'll talk taxes.

But it seems rather unlikely democrats in congress and the President will agree to massive cuts in spending unless packaged together with some tax increases.

"Give me what I want now, and we'll talk about what you want later" is rarely an effective negotiating strategy.

Indeed. It is so rarely successful, that one has to question the sincerity of those proposing it in fact.

I suspect there is a threshold of spending cuts that will be so attractive that the GOP leaders will feel compelled to accept tax increases with it. It's just that it's a high bar to reach. From their perspective, they got elected specifically to do what they are doing now. Their "mandate" is not to raise the debt ceiling.

[mongers]

To a degree Glen Beck is right that it won't be the catastrophe being predicted. Where he's wrong is that it will mean we lose our sterling credit rating, which more than just meaning higher interest payments means a great loss in confidence, that's at the heart of serious economic problems. Most great recession and the great depression itself were obviously caused by "real" problems, but their scope and depth typically was because of a dramatic loss of investor confidence because of the more material issues. So we would be at serious risk of entering a second major recession over this thing.

Looks like America is preparing to hand on the baton to the Peoples Republic of China. 

[citizen k]

Looks like America is preparing to hand on the baton to the Peoples Republic of China. 

Oh yeah, you can be real confident in the PRC.

[alfred russel]

I suspect there is a threshold of spending cuts that will be so attractive that the GOP leaders will feel compelled to accept tax increases with it. It's just that it's a high bar to reach. From their perspective, they got elected specifically to do what they are doing now. Their "mandate" is not to raise the debt ceiling.

Maybe, maybe not. It seems as though Obama has put some very serious spending cuts on the table--including to entitlements--in return for relatively minor (maybe you could even say symbolic) tax cuts. If I wanted to be really cynical, I would say that the Republicans don't want to really address the deficit problem because making a deal with Obama to do that could take off the table the biggest criticism against him (excessive spending).

[Josephus]

To a degree Glen Beck is right that it won't be the catastrophe being predicted. Where he's . So we would be at serious risk of entering a second major recession over this thing.

And you haven't exactly recovered from the first. And that's a huge problem.

[MadImmortalMan]

I suspect there is a threshold of spending cuts that will be so attractive that the GOP leaders will feel compelled to accept tax increases with it. It's just that it's a high bar to reach. From their perspective, they got elected specifically to do what they are doing now. Their "mandate" is not to raise the debt ceiling.

Maybe, maybe not. It seems as though Obama has put some very serious spending cuts on the table--including to entitlements--in return for relatively minor (maybe you could even say symbolic) tax cuts. If I wanted to be really cynical, I would say that the Republicans don't want to really address the deficit problem because making a deal with Obama to do that could take off the table the biggest criticism against him (excessive spending).

Honestly, I think the cuts are also very minor, and the entitlements thing hasn't actually been proposed, just mentioned in passing verbally. The highest number I've seen is 4T over ten years in reductions, with most of that back-loaded to later years (meaning it's unlikely to happen at all). I'm not impressed at all by these cuts. They're paltry.

Maybe I'd be more enthusiastic if you hadn't pointed out the actual budget to me. 

[alfred russel]

Honestly, I think the cuts are also very minor, and the entitlements thing hasn't actually been proposed, just mentioned in passing verbally. The highest number I've seen is 4T over ten years in reductions, with most of that back-loaded to later years (meaning it's unlikely to happen at all). I'm not impressed at all by these cuts. They're paltry.

Maybe I'd be more enthusiastic if you hadn't pointed out the actual budget to me. 

I hear what you are saying about whether or not the cuts will materialize if they are backloaded, but practically speaking that is the only way to do it. First, we are in a period of economic downturn, so you don't want to cut too much right now. Second, the government is a huge entity and it takes time to downsize.

$4 trillion isn't chump change. Say in 10 years that is $500 billion a year in cuts (since it is backloaded). I think the projected deficit is a bit over $1 trillion that far out. So we are almost cutting it in half, and a deficit of $500 billion or so isn't going to break us.  Also, this isn't the last time budget cuts can be discussed. If you want to balance the budget, you don't have to do so in the next two weeks before we are supposed to default.

[MadImmortalMan]

Well, the gauntlet will be thrown tomorrow.

Leader Cantor Statement in Support of Cut, Cap and Balance

WASHINGTON, D.C. – House Majority Leader Eric Cantor (R-VA) today issued the following statement regarding the White House's veto threat against the Cut, Cap and Balance Act:

"Tomorrow, the House will vote on Cut, Cap and Balance, a common sense proposal that will cut and cap federal spending to ensure that Washington begins to live within its means and put in place a Constitutional balanced budget amendment that will make balancing our budget the rule, not the exception. No one wants to default on our debt, and that is why House Republicans are bringing forth this plan to meet the President's request for a debt limit increase with the necessary safeguards to make sure that we don't continue to kick the can down the road. With millions of Americans out of work, we need to get the economy growing again and control spending here in Washington, and Cut, Cap and Balance is a path forward to do just that. As President Obama has not put forth a plan that can garner 218 votes in the House, I'd caution him against so hastily dismissing Cut, Cap and Balance."

[LaCroix]

Cut, Cap and Balance

catchy. right now there are thousands of letters on their way to d.c. crying out "CUT CPA BALLANCE OR WE FIRE U"