Posted by Have Wheels Will Travel - ΑΩ on Wed, May 28, 2014, at 8:54 AM:
"Until everyone realizes that lowering spending means giving up something they like, "debt reduction" will remain nothing but a political talking point with no meaning."
Yes, I remember when I had to give up the notion of buying a new Rolls Royce Ghost... my banker said I couldn't afford it. I explained I was retired and had a guaranteed income.
He suggested I look for a used Ford Pinto.
Replies (49)
Wheels, Did the banker say anything about staying out of the casino? :)
There are a lot of things government spends on that is not needed. And it wouldn't be necessary to spend a bunch of money to find those things.
-- Posted by Old John on Wed, May 28, 2014, at 9:08 AM
One concern here is the cost of financing the debt, particularly if/when interest rates increase towards more historical levels...
-- Posted by fxpwt on Wed, May 28, 2014, at 9:09 AM
Wheels, Did the banker say anything about staying out of the casino? :)
There are a lot of things government spends on that is not needed. And it wouldn't be necessary to spend a bunch of money to find those things.
-- Posted by Old John on Wed, May 28, 2014, at 9:08 AM
No, but he did say something about living within my means.
I told him I didn't come to see him for advice, I came to see him for money.
He said well, you might as well take the advice because you aren't getting the money.
Hmmmmm.... wonder if there could be some kind of a lesson in there for the Spendthrifts in Washington, maybe their bankers/taxpayers should send them that message.
-- Posted by Have Wheels Will Travel - ΑΩ on Wed, May 28, 2014, at 9:17 AM
Wheels, A good government banker would have let you borrow against your grandchild's college fund.
-- Posted by Old John on Wed, May 28, 2014, at 9:34 AM
Wheels, A good government banker would have let you borrow against your grandchild's college fund.
-- Posted by Old John on Wed, May 28, 2014, at 9:34 AM
Yeah Old John, there was money there too because my daughter has been putting money in their fund since they were born... but that is nearly spent as the oldest will graduate next year and the Granddaughter will be in her third year, so hers is half gone.
Maybe I better check the youngest set of grandkids, they aren't in high school yet, there could be something there for me to borrow.
-- Posted by Have Wheels Will Travel - ΑΩ on Wed, May 28, 2014, at 9:44 AM
"There are a lot of things government spends on that is not needed."
But it sure brings in the money and carrots on sticks to buy votes with.
-- Posted by We Regret To Inform U on Wed, May 28, 2014, at 10:17 AM
Most (R)'s love the warfare state. They get jobs in the military, or they're defense contractors, or they run a business catering to those on the military installation...you get the idea.
Most (D)'s love the welfare state. They get jobs in the SNAP or TANF or WIC office, or they're contractors for redistribution schemes (doctors, nurses, and hospitals taking Medicare and Medicaid are included), or they run a business catering to those receiving the benefits.
All of it is predicated on the 800 pound gorilla with the power to tax and print money (guess who! Right--the central government) allowing some of that revenue to trickle down to them.
Legislators are utterly brazen about courting the vote with hand-outs. The people have forgotten the "Thou shalt not steal" commandment.
-- Posted by Givemeliberty on Wed, May 28, 2014, at 12:24 PM
Most people think those who spend all day in online forums are part of the debt problem. Want to know how to deal with the issue, get off your entitlement behinds and earn a living.
-- Posted by survivalist on Wed, May 28, 2014, at 1:24 PM
Nice thing about anonymous forums, you can be anything you claim. Not buying what you are selling.
-- Posted by survivalist on Wed, May 28, 2014, at 2:03 PM
miccheck, according to the repubs, the most important issue seems to be BENGHAZI..BENGHAZI..BENGHAZI.
-- Posted by left turn on Wed, May 28, 2014, at 2:14 PM
"I think most people would agree. However, the identity of the things we don't need is the dispute. Some people would say we don't need new battleships or aircraft carriers; some people would say we don't need food stamps; some people would say we don't need scientific research."
The Constitution says we need a Navy. It doesn't say a thing about Food Stamps.
-- Posted by Shapley Hunter on Wed, May 28, 2014, at 3:05 PM
Here's where the spending goes. If you want to take a slice out of the pie, it makes the most sense to take it out of the biggest pieces.
It is a curious anomaly of our system that "mandatory spending" is generally those things the government isn't constitutionally authorized to do, while "discretionary spending" covers most of those things it is supposed to be doing.
Perhaps the first thing we ought to do to fix the problem is to change that line of thinking.
-- Posted by Shapley Hunter on Wed, May 28, 2014, at 3:17 PM
Constitution was written when? (Rhetorical question. Google it if you don't know what that means.)
The one constant, everything changes. Why shouldn't the constitution?
-- Posted by scheuwlfz on Wed, May 28, 2014, at 3:33 PM
Everything changes except the need to have limits on central government.
Shapley, That chart surprised me. I would have though agriculture to be bigger.
" If you want to take a slice out of the pie, it makes the most sense to take it out of the biggest pieces."
How about a smaller pie? :)
-- Posted by Old John on Wed, May 28, 2014, at 3:53 PM
The one constant, everything changes. Why shouldn't the constitution?
-- Posted by gone-fishing on Wed, May 28, 2014, at 3:33 PM
Because it's the law of the land. Period, end of story.
I guess if you would like to change it, you need to go through the proper channels to make an amendment...Good luck with that gone-fishing.
-- Posted by BonScott on Wed, May 28, 2014, at 5:50 PM
BP, "liberals" want to change it or ignore it so it will fit their agenda.
-- Posted by BonScott on Wed, May 28, 2014, at 6:16 PM
Perhaps that's OK and sustainable in the world of current economics - but in my 'old school' or otherwise warped and deluded perspective, seems to be a waste of 12-13% of total revenues, paying again and again for stuff already bought, without an exit strategy - that being a plan to pay down or pay off.
-- Posted by fxpwt on Thu, May 29, 2014, at 7:37 AM
" which suggests the interest expenses on the debt is currently running at about a $400 billion per year pace."
A result of the Fed's zero interest rate policy: keep the interest rate low to keep the cost of servicing the debt low. They tell you it is to control inflation, but it's the federal budget they are trying to keep deflated.
Another result is that the banks, which borrow money from the Fed at near-zero rates, don't need your money or mine, so your savings are all but useless as an investment mechanism - you're losing money if you put it in the bank because inflation and other factors eat consume more than interest earns.
I remember a time when the government encouraged us to save by offering decent rates on Savings Bonds. Now, they'd rather you not invest in them because they're just a nuisance - they want the debt funded by foreign governments buying by the billions, not U.S. citizens buying debt a hundred dollars at a time. Our investments are too much of a hassle.
-- Posted by Shapley Hunter on Thu, May 29, 2014, at 2:47 PM
leftie: You are correct we do need answers on the Benghazi situation all we have been told is lies after lies which is common with this administration.
Benghazi is not going to go away I know a lot of you libs want it to disappear but it is not until true answers are brought forward and people are held accountable for what happen here same thing with the IRS, NSA, GSA, VA and no telling how many more scandals this bunch has stacked up since they have been in office. Corruption at it's finest. I can tell you one thing this is not the democratic party I was born and raised up in.
-- Posted by swampeastmissouri on Thu, May 29, 2014, at 4:34 PM
swamp, would the truth to you be what you want to hear? It's going on 2 years now and you would think if the truth is hiding, someone would get a set on them and spill the beans. Why haven't the repubs subpoened everyone in the White House? Surely they would stumble on someone who maybe knows something. But, I doubt it. This select committee is to try and make Hillary look bad and all it's going to do is make her stronger and then you guys on here can complain until at least what Jan 20, 2025?
-- Posted by left turn on Thu, May 29, 2014, at 6:42 PM
"I've never heard anyone say low interest rates are meant to control inflation. In fact, quite the opposite, rising inflation is something the Fed keeps a close eye on and would start raising interest rates to control inflation."
Your post indicates that you think the only way to control inflation is from the upper end, i.e., forcing it down. Not so:
"Contrary to popular belief, excessive economic growth can in fact be very detrimental. At one extreme, an economy that is growing too fast can experience hyperinflation, resulting in the problems we mentioned earlier. At the other extreme, an economy with no inflation has essentially stagnated. The right level of economic growth, and thus inflation, is somewhere in the middle. It's the Fed's job to maintain that delicate balance. A tightening, or rate increase, attempts to head off future inflation. An easing, or rate decrease, aims to spur on economic growth."
-- Posted by Shapley Hunter on Thu, May 29, 2014, at 7:22 PM
"The savings bonds issued at the beginning of the month disagree with you"
You consider .05% for series EE bonds a good rate?
There is no push on the part of the government to have citizens buy new bonds. They do, however, encourage them to buy them with their tax refunds, which is to say, they want you to trade existing government debt to you for more government debt to you.
-- Posted by Shapley Hunter on Thu, May 29, 2014, at 7:28 PM
That's a new one for me, excessive economic growth, that is.
When and how was a standard for economic growth established and what determines excessive?
-- Posted by Old John on Thu, May 29, 2014, at 8:05 PM
We got too much consuming going on! ?
-- Posted by Old John on Thu, May 29, 2014, at 8:06 PM
"When and how was a standard for economic growth established and what determines excessive?"
Presumably, when we established the Federal Reserve and gave them the authority to determine the desired rate of economic growth and inflation.
-- Posted by Shapley Hunter on Thu, May 29, 2014, at 8:18 PM
Shapley, Does economic growth necessarily mean inflation?
-- Posted by Old John on Thu, May 29, 2014, at 8:27 PM
The interest rate cannot stay low forever. When it goes up the government will be in the same situation as people that that took that low ARM rates for 5 years.
There is no way we will be able to service out debt with the 6.23% of taxes used presently unless somehow we can come up with a way to use 35%+ of the tax dollar to service the current debt when the rate regains normalcy of about 5% to 6%. Sooner or later this will happen.
-- Posted by We Regret To Inform U on Thu, May 29, 2014, at 10:23 PM
There is no way we will be able to service out debt with the 6.23% of taxes used presently unless somehow we can come up with a way to use 35%+ of the tax dollar to service the current debt when the rate regains normalcy of about 5% to 6%. Sooner or later this will happen.
-- Posted by We Regret To Inform U on Thu, May 29, 2014, at 10:23 PM
Regrets,
That is not going to happen during Obama's term, they are going to let the next poor devil work his/her way out of Obama's mess. Might serve Hilary Clinton right if she did get the job.
-- Posted by Have Wheels Will Travel - ΑΩ on Thu, May 29, 2014, at 11:44 PM
Barack and Hillary met today to discuss it.
-- Posted by Old John on Fri, May 30, 2014, at 12:01 AM
I said "control" inflation, not "reduce", "contain", "suppress", or "prevent", so it confirms what I said. Your argument appears to be that the only means of control is suppression. Low interest rates are claimed to be neceassry for preventing stagnation and deflation, which is to say controlling inflation by spurring it.
-- Posted by Shapley Hunter on Fri, May 30, 2014, at 6:59 AM
I also did not say it was to "fight" inflation. You are (as usual) arguing against something I did not say.
One controls a horse as much by yelling "git ye up!" As by yelling "whoa!".
-- Posted by Shapley Hunter on Fri, May 30, 2014, at 7:03 AM
The Fed targets an inflation rate of approximately two to three percent. The tools they use for controlling this are the money supply and interest rates.
My point is the Fed has shifted its focus (in my humble opinion) from controlling inflation to protect the debt from ballooning.
-- Posted by Shapley Hunter on Fri, May 30, 2014, at 7:11 AM
-- Posted by miccheck on Fri, May 30, 2014, at 7:43 AM
Your argument is way too simplified and glaringly ignores the continued quantitative easing that has been going on for years now.
This should help educate you:
"The Fed Is Not Printing Money, It's Doing Something Much Worse"
"The imposition of QE can only take place when the White House and Treasury support such a move, the latter support speaks to a desire on the part of the White House and Treasury to devalue the unit of account (the dollar), and as investors are buying future dollar income streams when they invest, QE acts as an investment deterrent."
-- Posted by not_sorry on Fri, May 30, 2014, at 8:03 AM
" If the Fed wanted to increase inflation (which is the control it would exercise if inflation is too low), it would normally lower interest rates, making out debt even cheaper."
Or tighten the money supply. It does neither, permitting the economy to languish rather than risk raising the cost to service the debt.
Debt is about as cheap as it can get without killing the economy: there is ample money available to lend but little demand on the part of borrowers to increase debt. That is to say, we have an overabundance of supply.
But, as per the title of your thread, "Most people think Washington needs to deal with the debt issue", and that presumably includes the Fed, who is working to keep the cost of servicing the debt low, to the detriment of the economy (in my humble opinion).
Mr. Obama, for his part, is trying to spur more borrowing: pushing for refinancing of mortgages and, of course, for more student loans. Some Democrats, such as Elizabeth Warren, think students ought to be able to borrow at the same rate as banks, but I've not seen an explanation from them as to why they think banks would be willing to lend money at the same rate as that which they borrow, nor whether they mean the Fed should be going directly into the student loan business.
The fact is, student loans are unsecured mortgages, and carry a high risk. Granted, the government underwrites that risk, which is the primary reason banks are willing to make those loans in the first place, but I don't think having the government, nor the semi-governmental Fed, supplanting private banking in such enterprises.
As for my argument, it is quite simple: the Fed, whose supposed purpose is to control the money supply and interest rates in order to control economic activity though the control of borrowing and inflation, has supplanted that mission with one of keeping the cost of servicing the federal debt low.
For one who argues that I am pedantic, you've decided to nit-pick the concept of controlling inflation. As I understand your point, you claim the control inflation when they raise rates but control economic activity when they lower them. I say they are the same thing, but it is really immaterial to the discussion at hand, which point you ignored completely.
-- Posted by Shapley Hunter on Fri, May 30, 2014, at 8:29 AM
"We still control our own money supply, so we can always print money to pay off debts, so default shouldn't be a major concern."
In theory, but what happens if creditors refuse to accept the valueless currency? Under terms of contracted debt, the currency is legal tender for the repayment thereof, but if the value of the currency is nil, or approaching nil, the likelihood that creditors will continue lending with the currency as tender is rather slim.
-- Posted by Shapley Hunter on Fri, May 30, 2014, at 8:39 AM
"They can't. The debt is to be paid in U.S. dollars; creditors can't just change their mind about that."
I said that, but they can refuse to incur more debt using them as the basis.
-- Posted by Shapley Hunter on Fri, May 30, 2014, at 8:49 AM
"If I'm understanding you correctly, you are saying they are keeping interest rates low to keep the cost of the debt low, right?"
Yes. I said that in my first post on the subject:
"A result of the Fed's zero interest rate policy: keep the interest rate low to keep the cost of servicing the debt low."
-- Posted by Shapley Hunter on Fri, May 30, 2014, at 8:51 AM
"The debt is to be paid in U.S. dollars;"
They are obligated to accept the currency in payment for current debt, they are not obligated to keep creating debt under those terms.
-- Posted by Shapley Hunter on Fri, May 30, 2014, at 8:52 AM
"Higher interest rates would control inflation by raising it. Using the Fed's typical theory, what affect would that have on economic growth?"
In theory, it would reduce it. The question would hinge on which is the cause and which is the effect. That is to say, if high interest rates reduce inflation then low interest rates would theoretically spur it. And thus, I argue, the fed manipulates interest rates because of their effect on inflation, which in turn drives economic activity. Others argue that the Fed's move drives economic activity which drives inflation, and that the Fed seeks to control economic activity, not inflation.
Your argument, as I read it, seems to suggest the fed controls inflation when it raises rates but controls economic activity when it lowers them, which I find to be a strange argument. If interest rate manipulation is used to control inflation at the high end, then it is also controls it at the low end.
That's why I chose the word "control", which carries no directional implication, as opposed to other words, such as your word "fight", which implies they are always opposed to inflation. A healthy dose of inflation is a necessary component of growth.
-- Posted by Shapley Hunter on Fri, May 30, 2014, at 9:12 AM
"Given that, and today's economic climate, what makes you think the Fed is keeping interest rates low to lower the cost of the US debt rather than to prevent economic slowdown?"
Because they are absurdly low, to the point that they are stifling personal savings (the traditional vehicle for banks' obtaining of financing). The drag on the economy created by lowered interest income is evident, and yet the Fed has thus far reduced calls to abandon its zero-interest-rate policy. Economists are starting to question whether the motivation is something else.
That's not to suggest it is "sinister", as Bloomberg notes, but there is no question that deficit-reduction gets a boost from a lowered cost of debt servicing. Inflation can be a good thing, and a necessary one. Also, the loss of interest income has a negative effect on overall personal income, to the detriment of consumer activity.
Surely the Fed isn't blind to the fact that many citizens, notably retirees, survive on the interest income earned by their savings. They can ill-afford to move their income to riskier venues in order to boost their return, but many are doing do (which explains, in part, the record stock market levels even as the economy appears to languish). If the Fed's goal were to boost economic activity, it could start by permitting those who rely on interest income to actually start earning it.
"Other economists, such as Carmen Reinhart, believe we may be seeing the beginning of what she calls "financial repression"--a deliberate government policy of holding down interest rates in order to make the federal debt more bearable. While this may help the federal government, it comes at the expense of consumers and perhaps economic growth as well."
-- Posted by Shapley Hunter on Fri, May 30, 2014, at 9:42 AM
"I've never heard of the argument that inflation is too low, so we need to lower interest rates.
I didn't actually say it like that, but that is, in essence, the theoretical method of maintaining the target rate of 2% to 3%.
Part of the goal of pushing for mortgages, for example, is to spur the housing market which will drive home prices higher. i.e., to create inflation in the housing market.
-- Posted by Shapley Hunter on Fri, May 30, 2014, at 9:46 AM
"While that is the effect, in any case I can think of, the Fed has lowered interest rates to control economic activity, with higher inflation being an effect (hopefully) of the higher economic activity."
Yet you argue that, on the other end, they raise rates to control inflation, which seems to make your argument duplicitous. Would you not say they raise rates to control economic activity, with lower inflation being an effect (hopefully) of the lowered economic activity? How can it be one at the one end another at the other end?
You seem to be saying both that the chicken precedes the egg when rates are high and that the egg precedes the chicken when rates are low.
-- Posted by Shapley Hunter on Fri, May 30, 2014, at 9:50 AM
"Because they are absurdly low, to the point that they are stifling personal savings"
People that counted on $500,00 in savings for their retirements are now struggling to get by. T amount hat will bring them maybe $5K a year or $10K if they have fount 2% somewhere that is safe. The only alternative is to spend their principle to get by. 30 years is a long time to survive on that amount.
-- Posted by We Regret To Inform U on Fri, May 30, 2014, at 10:00 AM
"If the Fed were to raise interest rates, it seems to me they would be, in effect, lowering the already super-low inflation rate, no?"
There is a point of diminished return. You can't lower the rates below zero and, as my links note, the impact lowered rates have on interest income begins to take a toll on the economy, such that at some point lowering them becomes detrimental to it.
Thus, the argument becomes that there must be another reason for continuing the policy in the face of the fact that it has not achieved the desired effect, unless they are simply blind to failure. My argument, which is simply the echo of those made by some economists, is that they fear the impact of raising the cost of debt-servicing more than they fear the reduction in economic activity.
Your thread title seems to confirm this, even though you seem reluctant to make the connection.
-- Posted by Shapley Hunter on Fri, May 30, 2014, at 10:11 AM
At $5.39 for ground beef, who believes that inflation is super low? Really do not care what the reason is.... we are experiencing inflation in the grocery story and it is not super low.
We are experiencing inflation at the pump and it is not low. Utility prices are climbing.
Food and fuel are two of our most needed essentials these days and the prices are increasing, no matter how Washington adjusts the numbers.
-- Posted by Have Wheels Will Travel - ΑΩ on Fri, May 30, 2014, at 10:13 AM
"If the Fed were to raise interest rates, it seems to me they would be, in effect, lowering the already super-low inflation rate, no?"
No. If the current rates are not spurring inflation, then it seems illogical to assume raising them will dampen them. As one of my links notes (I don't recall which one, and won't go back through them to find out), economists are concerned that traditional models of economic activity/inflation/interest rates are not working, so they are at a loss to know what effect changing one will have on the others. But one thing they do know is that lowered rates will reduce the cost of servicing the debt.
-- Posted by Shapley Hunter on Fri, May 30, 2014, at 10:14 AM
Wheels, We may be vegetarians on mo-peds before it's over. :)
-- Posted by Old John on Fri, May 30, 2014, at 10:23 AM
Wheels, We may be vegetarians on mo-peds before it's over. :)
-- Posted by Old John on Fri, May 30, 2014, at 10:23 AM
Old John,
Not going to be a vegetarian as long as it will make it as far as BC's place. He prepares a mean possum I understand.
-- Posted by Have Wheels Will Travel - ΑΩ on Fri, May 30, 2014, at 10:25 AM
Maybe generic Alpo is in the future.
-- Posted by We Regret To Inform U on Fri, May 30, 2014, at 10:34 AM
Menu
"Until everyone realizes that lowering spending means giving up something they like, "debt reduction" will remain nothing but a political talking point with no meaning."
Yes, I remember when I had to give up the notion of buying a new Rolls Royce Ghost... my banker said I couldn't afford it. I explained I was retired and had a guaranteed income.
He suggested I look for a used Ford Pinto.
Replies (49)