National Debt limit debate

National Debt limit debate

Nat
Joined: January 1st, 1970, 12:00 am

July 27th, 2011, 2:03 pm #1

Can't believe we aren't discussing the talk of the country- what to do about raising the Debt limit.
A band of radical new congressmen (the "Tea-partyers") has turned a routine administrative procedure into a international crisis.
So what do you think?
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Bob
Bob

July 27th, 2011, 4:38 pm #2

that it is still going on this close to the deadline. I did comment below that I thought the matter (increasing the debt limit) would be solved with some late grandstanding and each siding proclaiming victory. I think if Boehner had his way, it would get resolved this week. But the "Tea Party" Republicans like Bachman are vowing to reject any proposal that includes tax increases, and that seems to be the sticking point. I still have hope that the thing will get resolved before default occurs (I heard that likely wouldn't happen until after August 2nd, due to the collection of tax revenues having exceeded the govt's projection, though it still won't buy much additional time).

On the one hand, I've thought that maybe it might be a painful, but necessary, desperation move for the U.S. to default. With an individual or a company, there is a limit on how much debt they can accumulate, But with the U.S. Federal govt, they just keep voting to increase the debt limit and digging the hole deeper. If U.S. did default, that could FORCE us to live within our means . . or at least make it more costly to keep running up more deficits. But, the reality of that would be traumatic for the American public, so I actually prefer that we not default and yet still take needed steps toward reducing our debt.
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Nat
Joined: January 1st, 1970, 12:00 am

July 27th, 2011, 5:58 pm #3

Well the irony is that the increased interest rates that would result from a default would cost us far more just serving the debt we have now- whats more- increased interest-rates would ripple through the entire economy killing any chance of a recovery.

Of course, there are some who think this is just their goal- to wreck the economy so bad Obama will be defeated in 2012. But this is like burning down the house to gain ownership- any Republican would be a fool to want to inherent the ashes that would be left.

I've been saying we were heading downhill to a second-rate country status- but this is like taking a turn right over the cliff.
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Joined: May 9th, 2005, 12:05 pm

July 28th, 2011, 10:38 am #4

Wouldn't it be funny if they raised the debt limit but no one would loan us any more money?

I also understand how higher interest rates would cost more but when we bought our first house, interest rates for a home mortgage were over ten percent. Anyhow, higher interest rates are a good thing is you're trying to save money.
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Nat
Joined: January 1st, 1970, 12:00 am

July 28th, 2011, 12:43 pm #5

The government doesn't BUY bonds- it SELLS them- so there is no way higher interest rates would be "a good thing" for the government or the country as a whole.
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Bob
Bob

July 28th, 2011, 1:51 pm #6

Well the irony is that the increased interest rates that would result from a default would cost us far more just serving the debt we have now- whats more- increased interest-rates would ripple through the entire economy killing any chance of a recovery.

Of course, there are some who think this is just their goal- to wreck the economy so bad Obama will be defeated in 2012. But this is like burning down the house to gain ownership- any Republican would be a fool to want to inherent the ashes that would be left.

I've been saying we were heading downhill to a second-rate country status- but this is like taking a turn right over the cliff.
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It does appear that government over-spending is handled much differently than individual or family over-spending. With the former, agreeing to keep going further into debt results in BETTER terms for borrowing than if govt insists upon living within its means and avoiding additional debt. If an individual or family keeps going further into debt, the point comes where they either cannot borrow additional money (not a good risk) or the terms for going further into debt would be a higher rate of interest on additional amounts borrowed (again, reflecting their being a bad risk).

Thus, govt seems to be encouraged, even locked-in, to continuous rounds of borrowing and deepening debt, while an individual/family is punished or prevented from pusuing deeper debt. I too wish that no one would loan U.S. any more money, so that we could not go deeper in debt. I think we need to be forced to live within our means, as we don't seem capable of choosing to do that on our own. Instead, we seem to be in an inevitable slide to greater debt levels and at some point we might not be able to come back from it. As the TV ad says, "Pay me now, or pay me later" (and the later it gets, the more painful the payment).
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Joined: May 9th, 2005, 12:05 pm

July 28th, 2011, 1:57 pm #7

The government doesn't BUY bonds- it SELLS them- so there is no way higher interest rates would be "a good thing" for the government or the country as a whole.
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What is good for the government or for the country as a whole may not necessarily be good for me as an individual.
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Nat
Joined: January 1st, 1970, 12:00 am

July 28th, 2011, 2:34 pm #8

You're looking at this in a very myopic view. Back in the early '80s I was making a killing on bonds- I had some paying 14-15%. Great huh? Not really- because at the same time the inflation rate was running 14% so I was making nothing!- and actually losing money on my older bonds. Overall- you will never make more than a couple percent on bonds because whenever interest rates go up so does inflation- reducing the value of the money you get/have.

The best investment long term are mid to large-cap stocks- because their price tracks inflation long-term- and most pay dividends so even if when the price is static you're still making some money. But you better be prepared for huge fluctuations in short-term values. It's no place for liquidity.
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Joined: May 9th, 2005, 12:05 pm

July 28th, 2011, 3:33 pm #9

I understand what you're saying and we're out of bonds at the moment. Still, a next-to-nothing interest rate is a disincentive to save. Might as well put it in your mattress.
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Nat
Joined: January 1st, 1970, 12:00 am

July 28th, 2011, 4:14 pm #10

Well mattress money loses value every day.

But Nokia has a divident yield of 9.52%, Courier Corp 8.43%, CenturyLink Inc. 7.71%. These are solid companies.

You won't find bonds over 3% now- and any bonds you buy now will drop like a rock as rates rise.
The only bonds I hold are TIPS- treasury Inflation-protected securities. Their rate adjust up as interest rate rise. You can buy them direct over the net with no brokerage fees. But I wouldn't buy even these right now.

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