Debt Limit - Paying for that which was already spent

Discussion in 'Budget & Taxes' started by Shiva_TD, Jul 27, 2011.

  1. Shiva_TD

    Shiva_TD Progressive Libertarian Past Donor

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    As noted the Social Security Trust fund is holding $2.5 trillion in Treasury notes. All the Treasury has to do is issue new notes on a dollar for dollar bases with those held by the Trust fund to redeem these notes and make payments. A dollar for dollar exchange of Treasury notes does not increase the national debt. Some might compare it to Check Kiting which is illegal for private citizens but when the government does it somehow its completely legal.
     
  2. Shiva_TD

    Shiva_TD Progressive Libertarian Past Donor

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    They need to be motivated and Warren Buffet provided a means for motivating them. While he cited a law in reality it would require a Constitutional amendment that would stipulate that any member of Congress would be ineligible for re-election if deficit spending exceeded 3% of GDP in any year while they are serving in Congress.

    Given a choice of deficit spending and being ineligible for re-election or balancing the budget so they can be re-elected we would be amazed at how fast the Congress would balance the budget.
     
  3. lww

    lww New Member

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    The "Debt Clock"is the most mileading,downright untruthful sign you will have the misfortune to encounter.Reason being--it shows the 'Gross Fed Debt". which includes money the federal government borrows from itself.-(-Intragovermmental Holdings otherwise knows as debt that we owe to ourselves--which stands at $6 trillion
    Gross Debt----minus "Intragovernmental Holdings,otherwise known as debt that we owe to ourselves(as the Treasury Securties held by the Social Security Administration--which become the Debt that the U.S. owes to itself. which is $6 trillion) .
    While the Gross Federal Debt is around $14 trillion, the "Net Debt" is only about $8 trillion--well below the debt ceiling (another mileading,untruthful gimmick).
    Sadly, Congress and the President do not understand that. So both parties bicker and injure our economy about something that isn't real.For their own selfish, political reasons, these politicians do more harm to America (then enemies that we are fighting in the wars).
    The United States--is "Monetarily Sovereignty Country--Prior to 1971, the U.S. was on a gold standard. It did not have the unlimited ability to create dollars. since every dollar needed to be backed by a fixed amount of gold. --No gold;no dollars.
    A Monetarily Sovereignty Country--can never go "Broke!!!
    Those,who do not understand the differences between "Monetary Sovereignty and monetary non-sovereignty,do not understand economics.--Our Congress and Senate
    do not understand this and they never will.
     
  4. Shiva_TD

    Shiva_TD Progressive Libertarian Past Donor

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    The fact remains that the federal government must redeem that debt (i.e. the "debt" it owes to itself) and the example is the Social Security Trust Fund. Social Security/Medicare is funded by taxation that can only be used for Social Security and Medicare. It cannot be expended on anything else. The national debt is serviced by general tax revenues. When, in the past, the Federal government borrowed from the Social Security Trust Fund it created an obligation to pay that money back on demand by the Social Security Adminstration. Today with Social Security/ Medicare requiring Trust Fund assets the government must come up with the cash to redeem those Treasury notes. It is a very real debt obligation as the money has been spent on general expendatures.
     
  5. bennyhill

    bennyhill New Member

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    If every American that could would buy American Bonds today, you could just say screw Wall Street! The japs have the same problems as America, but they have the advantage that their debt is held by small japanese families ie the middle class. So they dont owe America or China money, but themselfs. They cant shut down like America will on Tuesday.

    So hurry if you can, get on the net and bail out your country buy T-Bills now. Uncle Sam needs you!
     
  6. unrealist42

    unrealist42 New Member

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    The Treasury is obligated to send the SS checks, which will be deposited in banks who will then seek to redeem them from the Treasury for cash. This is where the Treasury's problem comes in. The Treasury will need to issue new Federal debt for this since it does not have enough cash at hand.

    If the Treasury cannot issue new debt it will be unable to honor these checks, i.e. they will bounce. This has made the banks very concerned that they will pay out on these SS checks but not be able to get money from the Treasury for them. Unless the debt ceiling is raised it is possible that the banks will refuse to cash SS checks or credit direct deposits.
     
  7. Shiva_TD

    Shiva_TD Progressive Libertarian Past Donor

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    The Treasury can issue new securities so long as those securities are used as a dollar for dollar redemption of securities currently in the Social Security Trust fund. Additionally FICA/Payroll tax revenues continue to be received by the Treasury and these revenues are dedicated for expenatures on Social Security/Medicare and cannot be used for any other purpose.

    As I recall the US government is the largest single owner of US debt currently based upon the Social Security trust fund. It can sell those Treasury notes held by Social Security Trust fund to the private sector to fund Social Security without a net increase in the national debt. Of course that only works until the Trust fund runs out of securities to sell.
     
  8. unrealist42

    unrealist42 New Member

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    You are confused. It is SS Trust that holds the Treasury notes, not the government, and they are a special class that can only be redeemed at the Treasury, they cannot be sold on the markets. The Treasury would need to sell other securities to meet its SS obligations. It may be possible for the Treasury to engineer a simultaneous swap somehow, but that is a tricky accounting problem that may be beyond their statutory authority.
     
  9. Shiva_TD

    Shiva_TD Progressive Libertarian Past Donor

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    The Social Security Trust fund is a government fund. The US government both owns the notes and the obligation to redeem them. I am very much aware of the fact that they are special Treasury securities which can be replaced with T-Bills that redeem these securities on a dollar for dollar basis without increasing the national debt.

    The Federal government and the Trust fund are no different than me and my savings and checking account. I occationally borrow from my own savings to spend using my checking account. I repay that money to my savings account because I'm making a short term loan to myself. The borrowing from theTrust fund is included in the $14.3 trillion national debt and, while I don't charge myself interest when borrowing from myself, I could take out a loan to repay my own borrowing from myself and my financial debt would not change. Whether I owe myself based upon borrowing from my savings or I owe a bank I still owe the same amount of money. My financial obligations do not change whether I'm repaying myself or a bank for money I've spent.
     
  10. unrealist42

    unrealist42 New Member

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    You are still confused. The Treasury issues the SS checks. It needs cash to do so. The SS notes are just notes, not cash.

    It is more like this using your analogy of a checking and savings account. SS has a savings account and a checking account at the treasury from which it directs the treasury to make the payments. If the SS checking account does not have enough money for all the checks the treasury takes the rest from the SS savings account, which has no actual cash in it, just some notes from the treasury. It can make the bookkeeping change but still needs to come up with the cash.

    This is not like you moving money from your savings account to your checking account, it is more like your bank needing to come up with the cash to cover the transfer. Do you see the difference?
     
  11. Shiva_TD

    Shiva_TD Progressive Libertarian Past Donor

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    The public sale of a T-bill provides cash and replaces the Treasury security held in the Trust Fund by the US government. Both the T-bill and the Trust Fund security are notes and the only difference is that the government holds the note in the Trust Fund whereas a private entity would hold the note if it was a T-Bill. There isn't an increase in the national debt regardless of whether the Trust Fund holds the note or the public holds the note. Who holds the note is irrelevant to the US government's obligation to pay the note.
     
  12. lww

    lww New Member

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    The very use of the term “Trust fund” when applied to federal trust funds like Social Security, Medicare
    and others, is misleading. As the government itself puts it. “The Federal Budget meaning of the term
    ‘Trust” differs significantly from its “Private Sector usage). In the private sector, the beneficiary of a trust
    owns the income generated by the trust and usually it assets. A trustee, acting as a fiduciary, manages the
    trust’s assets on behalf of the beneficiary. The trustee is required to follow the stipulations of the trust,
    which he cannot change unilaterally. Incontrast, the Federal Government owns the assets and earnings
    of all Federal Trust funds, and it can raise or lower future trust fund collections and payments, or
    change the purpose, for which the collections are used, by changing existing law.

    A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence— (the government is both Principal owner and the Fiduciary
    for the Social Security Trust Fund-(and not us the Public and especially the Middle Class)

    The question is: Why do so many not want to face the facts about Social Security Trust Fund?
    The reason is what we’ve been lied to by politicians of both parties, and by politicians both conservative
    and liberal. Politicians are still lying to us. The sham of the trust fund is an indication of the failure of
    Government and politicians of all parties do not want to admit this.

    We must realize that no matter how bad the behavior of past politicians, the reality of Social Security Trust
    Fund is the hand we’ve been dealt, and the basis on which decisions about the future must be made. The
    continuing refusal by most politicians and both parties, to accept this reality is harmful and is an obstacle to
    forging a solution

    For the last week or so—everyone has focus on the debt ceiling –and I would say most have forgotten a lot that
    Has been published in the news and on TV—(getting back to social trust fund again)

    Not sure of the date—but either was 12th or 13th July—Our President made a statement to the
    The nation—He said that he could not guarantee that “Social Security Checks would go out on 3rd of August
    If the Debt Ceiling has not been resolved.(Because there may simply not be no money in the Coffers to pay
    Social security benefits.---He was preferring to the “Trust Fund”—even if the debt ceiling is not approve by Congress—
    Our government still have could cash in some of those Treasury Securities—(held in the suppose Trust Fund)-to
    Pay benefits—the answer is: Of course the government could not do it—the money represented by those securities
    In the trust fund has already been spent-(So when the president made that speech about no money in the coffer
    He did tell the truth to the nation—(that there is no such Trust Fund for the nation for Social Security)

    coffers, a treasury; funds: The coffers of the organization were rapidly filled by the contributions






    .
     
  13. bennyhill

    bennyhill New Member

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    I disagree with Shiva_TD

    In Germany we have a law making it illegal to make too much debt. Dont know the details, but it sounds similiar to Shiva_TD 3% deal and their are exceptions, which Im not informed about. It is designed to act as a break on over spending.

    I ask myself why do german politicians need this law in the first place. Are they the ones that have a majority in parliment and make the laws in the first place?
     
  14. Joe Six-pack

    Joe Six-pack Banned

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    That's true. Money is never created out of thin air, it always has costs and consequence.

    Debt, the risk of hyperinflation, the risk of default are among them.
     
  15. unrealist42

    unrealist42 New Member

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    Money has been created out of thin air since the first banker figured out he could loan more money than he had in deposits. Not all consequences of creating money out of thin air are negative and the costs of not doing so can have significant consequences, like the American Revolution.
     
  16. Joe Six-pack

    Joe Six-pack Banned

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    The US prints money and "creates" it with the FED through Treasury bonds and securities and such.

    What you were describing was an accounting balancing act.
    That's true, I never said otherwise.

    But, at the same time, there are always negative consequences.
    The American Revolution was one of the greatest events in human history.
     
  17. unrealist42

    unrealist42 New Member

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    So, what the Fed and the Treasury do is not?
    Do they outweigh the benefits?

    Before the revolution much of the economic activity and growth in the colonies was funded by script, privately issued promissory notes which became a sort of currency, freely exchangeable at varying discounts depending on the perceived reliability of the issuer, distance, etc. This came about due to the the severe shortage of specie (gold and silver coin) in the colonies. Taxes and duties, everything was payable in these notes.

    This was casually mentioned at the King's Court by a visiting colonist as the means by which the colonies had become so economically dynamic. The Crown moved quickly to stamp out this "illegal money" by requiring all taxes, duties and fees to be paid only in specie. The Stamp Act was but one of these acts.

    The consequence was severe as prices collapsed while everyone scrambled to get their hands on gold or silver to pay their taxes. It was a precipitous cause of the revolution, a grievance that the King had impoverished the colonies and removed from the colonists a means of trade they had developed on their own in the circumstance of having not enough gold and silver to trade amongst themselves let alone to pay taxes with.

    This is rarely talked about today.

    The American revolution was precipitated by the imposition of the gold standard on an economy dependent on specie money. Which side is today's Tea Party taking? Certainly not that of the Patriots they so style themselves to be.
     
  18. Joe Six-pack

    Joe Six-pack Banned

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    When abused, yes.

    The debt issue is going to lead to eventual default and a currency collapse will be short behind.
    There were bills of credit in the colonial days. Additionally, the first American Government, the Continental Congress even had Bills of Credit which it defaulted on. Because of this people went back to Trade and Barter, eventually readopting the gold standard. This is rarely talked about. Even in financial circles.

    Either the fact that the first US Government failed or the fact that we have defaulted on our currency before.
     
  19. unrealist42

    unrealist42 New Member

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    Only if the Tea Party makes it a self fulfilling prophecy with their crackpot ideology of no government funding at all, much like the Articles of Confederation that gave the Federal government no way to raise funds but saddled it with the debt of the war, guaranteeing a default. This was resolved in the Constitution which gave the Federal Government the authority to issue debt and the ability to collect revenues to pay for it.

    No, the people went back to privately issued script, which was the currency of the nation until the Civil War. Specie, which was what the Treasury issued, was always scarce and never enough for internal economic growth since most of it went to pay for imports. The dissolution of the First and Second National Banks of the United States was caused by the clamor of frontier bankers upset that these banks demanded "real money" for the script they presented for redemption.

    You should read the book "A Nation of Counterfeiters" if you want to learn about the nature of money in the US from its founding to the Civil War.
     
  20. liberalminority

    liberalminority Well-Known Member

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    the debt issue will eventually be solved by raising taxes because entitlements have been in the fabric of this society for too long.

    it is a radical assumption to state currency will collapse and no lawmaker will let the debt issue be the cause of this.

    at this point in American history due to the economy being heavily structured around the use of currency trade and barter is primitive and the American economy would not be able to function on this medium of exchange due to its complex nature, therefore this theory is not even worth entertaining as it is an extremist outlook..
     
  21. Not Amused

    Not Amused New Member

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    We are a lot closer to a tipping point than you think.

    Just to balance the federal budget today requires doubling payroll and income tax. Not on the rich, but everyone.

    As the baby boomers enter retirement, federal income will fall by hundreds of billions. Their draw on SSI & Medicare will increase expenses by hundreds of billions.

    Interest on the debt, already unrealistically low, will increase due to the US credit rating downgrade. Another hundred billion or so.

    Taxes will need to triple - 3 X 34%, gee the rich must pay over 100%.

    The Fed keeps creating money out of thin air, inflation increases, wages go up, bracket creep brings the poor into ever higher tax brackets.

    Many states have unfunded retirement programs for their government employees. State taxes will increase.

    You think this will be resolved by raising taxes?

    Shedding entitlements will be very painful, but less painful than paying the taxes required to maintain them.

    Their options?

    Don't underestimate the motivation of high tax rates and the minimal risk, due to a crippled government.
     
  22. Not Amused

    Not Amused New Member

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    The largest portion of the US debt is to retirees, either as T-bills bought to be redeemed in retirement, or the SSI and Medicare contributions converted to treasury notes, so the cash could be added to the general fund.

    Both will need to be paid for, with interest, from tax collections and more borrowing.

    Several years back California ran out of cash, and issued IOU's. For a while the banks treated them as cash. They stopped when it was clear California wasn't serious about getting its house in order. The end result, was 6 Republican's caved and raised taxes for 2 years.

    The voters were given to opportunity to extend that increase, and voted it down decisively, even in the very liberal districts.
     
  23. Shiva_TD

    Shiva_TD Progressive Libertarian Past Donor

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    We really should take note of who owns the US debt

    Hong Kong - $121.9 billion or 0.9%
    Caribbean Banking Centers - $148.3 billion or 1%
    Taiwan - $153.4 billion or 1.1%
    Brazil - $211.4 billion or 1.5%
    Oil Exporting Countries - $229.8 billion or 1.6%
    United Kingdom - $346.5 billion or 2.4%
    Japan - $912.4 billion or 6.4%
    China - $1.16 trillion or 8%

    Mutual Funds - $300.5 billion or 2%
    Commercial Banks - $301.8 billion or 2.1%
    State, Local, and Federal Retirement Funds - $320.9 billion or 2.2%
    Money Market Mutual Funds - $337.7 billion or 2.4%
    Private Pension Funds - $504.7 billion or 3.5%
    Private Pension Funds - $506.1 billion or 3.6%
    US Households - $959.4 billion or 6.6%
    The Federal Reserve - $1.63 trillion or 11.3%
    Social Security Trust Fund - $2.67 trillion or 19%


    In all, the Treasury owes foreigners and foreign governments $4.514 trillion dollars. But Americans own most of their own country's $14,342,909,569,328.74 of debt.

    Read more: http://www.businessinsider.com/who-...nments-4514-trillion-dollars-18#ixzz1ULf7BLfi

    A couple important notes on this.

    Over 31% of the interest payments on the US debt is being paid to foreign countries. If we assume a reasonable interest rate of about 4%-5%, and not the artificially low rate created by the Federal Reserve today, that results in about $200 billion in annual taxation being sent to foreign countries. This is equal to about 15% of all general tax revenues that pay the interest on the debt.

    The total interest on the current national debt would be over $645 billion, or almost 1/2 of all general taxation, based upon a 4.5% interest rate.

    Social Security Trust Fund holds $2.67 trillion in Treasury notes and not only does the interest have to be paid on this but the principle must also be repaid for every dollar where expendatures exceed revenues. Social Security/Medicare are currently running somewhere between a $400-$600 billion shortfall and that has to be made up for with general taxation (until the Trust Fund is exhausted and Social Security/Medicare go bankrupt).

    Finally, about $73 billion would be paid annually to the Federal Reserve banks as interest based upon a 4.5% interest rate but the Federal Reserve didn't actually loan money to the government but instead created it digitally which increased the money supply and the American people carry this cost because of inflationary increases in the costs of goods and services.
     
  24. liberalminority

    liberalminority Well-Known Member

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    it should be addressed why America is borrowing so much on credit from itself and foreigners when it can afford to pay its own bills.

    during republican administration this reason was hidden but under democratic leadership we can safely conclude that the wealthy corporations and Americans are not paying their fair share of Americas bills which force it to borrow from the middle class social security trust fund and overseas in Asian countries.
     
  25. Joe Six-pack

    Joe Six-pack Banned

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    When the wars ended and medical entitlements privatized, the problem will solve itself.

    The US needs to only spend money on things that contribute a substantial amount to the economy.

    Free gifts don't increase productivity.
     

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