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A debt ceiling primer


As we approach another faux money crisis, this time over the debt ceiling, a few thoughts to help people understand what’s going on … and what isn’t going on:

1. Every year, the United States raises X amount of dollars through taxes and other means. At the same time, it places orders for goods and services, ranging from tanks to office supplies to Medicare payments, for Y amount of dollars. If X and Y are equal, the budget is balanced. If X is larger than Y, the budget is in surplus. If Y is larger than X, the budget is in deficit.

2. If the budget is in deficit, the US government has four choices in how to proceed. It can cut its orders (it can buy fewer tanks, office supplies, Medicare payments, etc.). It can raise its taxes to meet its orders. It can borrow money to cover the difference between tax receipts and orders. Or it can do some combination of all four. That’s it.

3. For most of the last 30 years, the budget has been in deficit. For most of that time, the United States has chosen to borrow money to cover the gap between taxes and orders, rather than raising taxes or cutting orders or both. 

4. Notably, the United States buys much of what it buys (Y) on what amounts to credit: vendors provide office products and other goods and services to the United States today in return for a US promise to pay for those goods later.

5. The constant borrowing of money year after year after year has left the United States with an accumulated debt of $16+ trillion. Which is a lot of money.

6. Some years ago, in an effort to shame itself into not borrowing money forever and ever amen, Congress passed a law creating something called the “debt ceiling.” This is the maximum amount of money the United States is to be allowed to borrow. The idea was that if the Congress had to explicitly vote to raise the debt ceiling, it would be embarrassed and would choose to cut spending or raise taxes or both in order to bring the United States’ budget into balance.

7. This attempted shaming into good economic behavior has never really worked, regardless of whether Democrats or Republicans are in charge. This is mostly because the programs the US spends its money on are actually pretty popular (for the most part), and so people don’t really want them cut even as they refuse to pay higher taxes to pay for these goods. As a reminder, the United States spends almost 80% of its entire budget on seven (7) things: defense (20%), Social Security (20%), Medicare (13%), Medicaid (7%), “welfare” (12%), retirement benefits for federal workers (5%), and interest on the debt (5%). Everything else—roads, schools, the FAA, the FDA, the National Parks, college loans, everything—comes out of the remainder. Chopping those programs is somewhere between hard and impossible. Rather than raise taxes or cut spending or both, the United States has generally just kept on borrowing and raising the debt ceiling as needed.

8. Recently, Republicans in Congress have decided that the vote to raise the debt ceiling affords them a chance to force the United States to reduce its spending. Essentially, they are refusing to allow the United State to borrow more money (which requires raising the debt ceiling) unless the United States reduces its purchases of goods and services. 

9. One problem with this Republican demand is that, per point 4, much of what the United States buys it buys on credit. Accordingly, vendors have already provided various goods and services to the United States and are awaiting payment … payment which will come only if the United States borrows money (and thus necessitates raising the debt ceiling). In other words, the United States has already received the good or service. The question is: will it pay for it? If the US fails to borrow money to pay for goods and services it has already received, no one will provide the US with any goods or services (or loans) on credit … which, given that we borrow 40% of the money we spend these days, means that we’d have to cut 40% of our budget instantly.

10. Another problem with this Republican demand relates to point 7: the programs that would be cut are quite popular, at least for the most part. While everyone imagines someone else’s program will be cut while theirs will be saved, as a practical matter that can’t happen if cutbacks happen in the 40% range. 

11. On the other hand, nothing else has worked to force political leaders and all the rest of us to accept that we either have to want less, or pay more taxes, or both. 

See? It’s easy. Just square the circle and solve all of America’s budget problems.

Have fun. And if you figure it out, please do let the rest of us know!

A summary of the fiscal cliff deal (and some snarky comments about it):


What’s in the fiscal cliff deal? From The National Journal:

  • Higher taxes on individuals earning $400,000 and on families making $450,000 or more. Under that threshold, the Bush-era tax cuts will be permanent for all but the wealthiest households. The $450,000 threshold for families is a significant increase from Democrats’ initial proposal to raise taxes on Americans making $250,000 or more, but it is lower than Republicans’ earlier proposal to raise taxes on households making $1 million or more.  
  • Higher tax rates on capital gains and dividends for wealthier households. Taxes on capital gains and dividends will be held at their current levels of 15 percent for individuals making less than $400,000 and households with income of less than $450,000. They will rise to 20 percent for individual taxpayers and for households above those thresholds.
  • Automatic spending cuts delayed for two months. The “sequester,” which would impose steep, across-the-board cuts to domestic and defense programs, will be delayed for two months.
  • One-year extension to unemployment insurance. Emergency unemployment benefits will be extended for a year. The extension was a priority for President Obama and congressional Democrats.
  • One-year “doc fix.” The measure will put off scheduled cuts in physician payments under Medicare. In the absence of an agreement, the payments were going to be reduced by 27 percent in January.
  • Nine-month farm bill extension. Breakfast lovers, rejoice: A much-feared spike in milk prices, dubbed the “dairy cliff” because it was also set to kick in abruptly on Jan. 1, will be averted through a nine-month extension of certain portions of the farm bill. 
  • Personal exemptions phased out for individuals making over $250,000. Personal exemptions will be phased out and itemized deductions will be limited for taxpayers making over $250,000 and families earning more than $300,000.
  • 40 percent estate tax. The estate tax will rise to 40 percent from its current 35 percent level, with the first $5 million in assets exempted. Democrats had earlier sought a higher increase to 45 percent and a lower exemption of $3.5 million.
  • Permanent fix to the Alternative Minimum Tax. The alternative minimum tax was levied to ensure the wealthiest Americans paid a fair share of taxes. It was not indexed for inflation but is usually “patched” annually to prevent an increasingly large swath of middle-class Americans from being caught in its net. As part of the fiscal deal, the AMT will be permanently indexed to inflation.
  • Tax breaks for working families. The deal includes five-year extensions of the American Opportunity Tax Credit, which can be claimed for college-related expenses; the Child Tax Credit; and the Earned Income Tax Credit, which is a refundable income-tax credit for low- to moderate income working Americans.
  • Business tax breaks. The Senate Finance Committee passed a package in August that tackled a variety of routinely expiring tax provisions known as extenders. These popular tax provisions include breaks for research and development. That package passed as part of the broader cliff deal.
  • Congressional pay freeze. President Obama recently authorized a congressional pay raise in a move that angered many congressional Republicans. Under the New Year’s cliff measure, members of Congress won’t see their pay increase.

By the way, this pretty much all proves no one’s really serious about “fixing” the debt … and why would they be? “Fixing” the debt means cutting benefits to real people (i.e., voters) TODAY. It means raising taxes on real people (i.e., voters) TODAY. All in return for a “fix” that may or may not happen a LONG TIME FROM NOW.

Does anyone take massive pain today in order to potentially gain something well in the future, especially when the pain you suffer today may well be fatal (to your political career)? At least, does any sane person do this?

Of course they don’t.

This deal almost certainly guarantees increases in the deficit going forward, not paying it off. The Bush tax cuts were, like so much of the Bush presidency, a disaster for America, and the fetishization of them today is moronic. But that didn’t stop lots of people from calling for making them “permanent” (whatever that means in DC) in this deal, did it?

See you at the next crisis (over the debt ceiling) in two months. Not a damn thing got settled with this deal … nor was there any intent to settle anything. The game continues.

Why Dave Ramsey is the Problem

My problem with Dave Ramsey is not with his straight-forward, old-fashioned financial advice applied within a specific context which makes perfect sense to me. Don’t spend beyond your means. Take manageable baby steps to get out of debt once you’re in it. It’s common sense. There’s nothing to oppose about it, but there’s nothing really earth-shattering or “Biblical” about it either, despite the fact that Ramsey parades out a series of truisms and platitudes from Proverbs.

Ramsey goes far beyond advice that is appropriate to individuals in debt to rearticulate the tired-out modernist claim that our society and economy are made up of free, autonomous individuals whose socioeconomic circumstances are always the consequences of their own choices rather than powers and principalities. Ramsey’s ideology is really a defense of Enlightenment-era individualism against postmodern skepticism.

One of his key points was to say, “You fix the economy when you fix the individuals.” He claimed that before the Great Depression, Western governments never meddled with the economy. It floored me that he could make such a brazenly historically false statement. Capitalism has never existed in the pure laissez-faire form that people like Ramsey fantasize about. 200+ years ago, most Western society was held together by feudalism in which the economy was very much a top-down affair. Even during the darkest days of the industrial revolution in Britain, the least socialist European country, there were poor laws and some recognition that the state should provide a workhouse for everyone who was willing to work but had no job and a pension for everyone who was incapacitated from working.

The other thing that blew my mind was when Ramsey equated “self-reliance” with “God-reliance,” putting both in contrast with “government reliance.” He all but said the familiar anti-gospel platitude that “God helps those who help themselves.” He did say, “The normative way that God provides for me is through the work ethic and ingenuity that he pours into me. He uses me to provides for me.” Notice how these words have been manipulated. Our work ethic and ingenuity are not derived from ourselves. We are taught these qualities by mentors and teachers in a community of people. To recognize God’s prevenient grace in our lives is to recognize that we have always relied on other people to help us along the way. We are in no way self-reliant. It is only by twisting up language that you can make reliance on God and self-reliance the same thing.

Why does it make a difference to recognize our lack of self-reliance? Because the delusion of self-reliance is precisely what makes us unmerciful, ungrateful people. The main financial attitude problem among American Christians right now is not a pervasive lack of responsibility but a lack of gratitude. When you’re grateful for what God has given you, you will use it responsibly for God’s glory. When you view your property as the product of your own responsible choices (and not God’s unmerited gift to you), then you will feel justified using it selfishly, giving perhaps the leftovers to God after you’ve saved for your kids’ education and retirement (or blown it all on cocaine as long as it doesn’t get addictive). The privatization of wealth is what makes irresponsible spending a conceivable choice.

(Source: azspot)


U.S. student loan debt has increased by 25% since 2008, according to the Federal Reserve Bank of New York.
From Justin Lahart:

Mortgage debt, home equity loans, credit card debt and auto loans are all down sharply — partly because people are being more careful, but also because many have defaulted.
But student loans are up sharply. There was $550 billion in student debt outstanding in the second quarter, up 25% from $440 billion in the third quarter of 2008.


U.S. student loan debt has increased by 25% since 2008, according to the Federal Reserve Bank of New York.

From Justin Lahart:

Mortgage debt, home equity loans, credit card debt and auto loans are all down sharply — partly because people are being more careful, but also because many have defaulted.

But student loans are up sharply. There was $550 billion in student debt outstanding in the second quarter, up 25% from $440 billion in the third quarter of 2008.

(via pantslessprogressive)

S&P Blames Republicans, MSM Fails to Report It



Have you seen, anywhere, in any media, or even heard reported or repeated on NPR, the following sentence? 

“We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act.”

It’s right there on Page 4 of the official Standard & Poor’s ”Research Update” — the actual report on what they did and why — published on August 5th as the explanation for why they believe Congress — and even the Gang of Twelve — will be unable to actually deal with the US debt crisis.   Perhaps it’s just lazy — the bullet points at the beginning of the report don’t mention the Republicans or taxes, but instead just say, for example (part of one of six quick bullet-points): 

“[T]he downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges”

In order to figure out that one of the reasons why is that “Republicans in the Congress continue to resist any measure that would raise revenues,” a hard-working reporter would have to read to page four of the eight-page report.

It’s just too much effort for most reporters? 

Although they do also mention this in the very first sentence of the report: “We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process.” (Italics mine)

Or could it be that many reporters — and virtually all of the television talking heads — are themselves relatively high income-earners who don’t relish the idea of higher taxes?

Or could it be that reporters are afraid that if they report the actual language of the S&P Research Report, then Republicans will punish them by denying them “access” — i.e. refusing to show up on their programs — which is the career and show kiss-of-death for radio and TV programs that rely on big-name politicians to work?

I don’t know the reason, but it’s fascinating to see all the huffing and puffing about the S&P downgrade of America’s debt that all seems to be working so hard to avoid mentioning that critical sentence.

Inquiring minds want to know”

Thom Hartman

Update: This is a pretty sloppy job by Thom Hartman and by me for reblogging it.

Several MSM outlets mention the Republican call-out by the S&P, as Richard Adams at the Guardian corrected me:





Shame on me for taking Thom at his word and the fact he doesn’t bother to cite specific MSM.

– We have lowered our long-term sovereign credit rating on the United States of America to ‘AA+’ from ‘AAA’ and affirmed the ‘A-1+’ short-term rating.

– We have also removed both the short- and long-term ratings from CreditWatch negative.

– The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.

– More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.

– Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government’s debt dynamics any time soon.

– The outlook on the long-term rating is negative. We could lower the long-term rating to ‘AA’ within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.

Excerpt from a press release by STANDARD & POOR’S, as published by the Wall Street Journal.

Members of both political parties should read that fifth para and lose fucking sleep over it until they’re out of fucking office.

Or they can stop dicking the fuck around and fix this fucking shit.

(via inothernews)

(via kileyrae)

Republicans — and even some Democrats — think that the Obama administration lives to collect revenue. The truth is closer to the opposite. Senior administration aides view the expiration of the Bush tax cuts as less of an opportunity than a chore. About four-fifths of the cuts go to households making less than $250,000 a year, and they don’t want to raise taxes on those folks. They don’t like the politics of the issue, either. It’s an article of faith among Democratic strategists that debates on taxes inevitably favor Republicans, allowing Democrats to be hammered from the right and undermined from the left. White House aides would rather focus on “win the future” issues like infrastructure, education and energy.

The White House’s strategy in the debt-ceiling negotiations has reflected its ambivalence, with Obama trying to extract either as much revenue as Republicans would allow or as little as Democrats would accept. Obama even offered Boehner a deal in which the Bush tax cuts would be extended right now, so Republicans wouldn’t have to fear a subsequent negotiation in which they lacked leverage. Boehner rejected that deal and, in doing, might have saved the safety net.