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August 2 deadline. U.S. Budget by 2.5
Started on: 07-13-2011 09:27 AM
Replies: 14
Last post by: 2.5 on 07-18-2011 02:25 PM
2.5
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Report this Post07-13-2011 09:27 AM Click Here to See the Profile for 2.5Send a Private Message to 2.5Direct Link to This Post

A compromise between the budget proposals being batted around by President Obama and House Speaker John Boehner will, hopefully, be reached before the federal government defaults on any debt.
But what if the August 2 deadline to raise the debt ceiling comes and goes without a compromise? The effects of a government default are usually described in general terms: It’ll be bad, say most economists, really bad. Or in abstract terms: Investors are likely to lose confidence in the U.S. The dollar will lose its “special status.”
But how would the average American be affected if the U.S. government ran out of cash to pay its bills? While it’s only speculation, most economists generally agree about the immediate consequences. Here’s what we ought to expect.

1. Interest rates on Treasury bonds would rise
The first thing to expect is also the most certain outcome. If the government defaults, credit rating agencies would downgrade Treasury bonds, so the U.S. would be forced to pay more to attract investors.

2. Government payments would be suspended
Paychecks for government workers, vendors and state and local governments would likely be withheld or not paid in their normal timely manner, says Vincent Reinhart of the American Enterprise Institute. The Treasury might also decide to prioritize payments. Social Security recipients, who often rely on their check for daily living expenses, would probably be among the first in line. But so would bond holders: The government would likely do everything it could to protect its credit rating.

3. The stock market would drop
The stock market would almost certainly take a big hit. How big? Dean Baker, co-director at the Center of Economic and Policy Research likens that possibility to the worst times of the recession, when the stock market dropped 10 percent in a single day. A memo titled “The Dominoes of Default” circulating around Congress from the think tank Third Way cites estimates that the S&P 500 would lose 6 to 9 percent of its value in a matter of months.
James Horney, vice president for Federal Fiscal Affairs at the Center on Budget Policy Priorities, agrees that the market would see adverse affects, but doubts they would be long-term.
How would retirement accounts be affected? It depends on your allocations, of course, but some economists estimate that all of the gains from 2010 could be wiped out, while Third Way estimates that 401(k)s would lose an average of $8,816.

4. Mortgage rates could increase
As the cost of government borrowing increases, it’s likely to trickle down into the housing sector. “If the U.S. gets downgraded, everybody has to pay higher interest rates,” says Reinhart. Both bond and mortgage rates tend to travel together, and Third Way estimates that American homeowners would, on average, be forced to pay an additional $20,000 over the lifetime of their mortgages.

5. Job losses, possibly by the hundreds of thousands
In the worst months of the Great Recession, the U.S. was losing hundreds of thousands of jobs each month. Those kinds of job losses could recur, says Baker, if a freeze-up of the financial system and an increase in interest rates spooks companies again. Third Way estimated a loss of 650,000 jobs as a result of rising the interest rates alone.
All of these are, of course, speculations. But it’s clear that a government default would have at least some serious consequences for the U.S. economy at a time when the recovery is, at best, stumbling.

http://moneyland.time.com/2...ld-affect-consumers/
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Report this Post07-13-2011 09:42 AM Click Here to See the Profile for newfSend a Private Message to newfDirect Link to This Post
Yes but more importantly, if they don't get a deal done who gets the blame? (sarcasm....duhhhhh <<< even more sarcasm )

[This message has been edited by newf (edited 07-13-2011).]

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maryjane
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Report this Post07-13-2011 10:32 AM Click Here to See the Profile for maryjaneSend a Private Message to maryjaneDirect Link to This Post
No--the worst immediately felt offshoot of this is that oil (and fuel prices at the pump) will spike upwards, and of course as a lesser ill effect, , as people around the world flee US treasury notes, precious metals will go up. It's all pretty moot, as most agree that some sort of agreement will be reached, a compromise that leaves no one really happy, and we will play the whole thing out again sometime between now and 2012, as the new debt limit will again be breached sometime that year. Few people realize just how much we have to borrow each month, and fewer still realize how much of that borrowed money is spent simply to pay the yeilds (int) on the debt we currently have. China has already said, that they feel we are already in default, as projected gdp and tax revenues versus spending don't really address our deficit, and their offical stance is that they are willing to take less in treasury note payments IF we get our deficit spending under control. IOW, they are getting set up to be our Germany in a debt restructuring bailout.

Not much has been heard out of the Federal Reserve and it's chairman, but the fact that they ended QE2 with no announced plan to replace it with a new program indicates they are getting ready to steel themselves for a devaluation in our currency and an eventual downgrade in our credit rating.

I would advise all to do whatever is needed to get a cash cushion to lay your sleepy little heads on for awhile. And for gawd's sake, watch the financial news in the event the banking industry shows signs of runs on your bank.

IF an agreement isn't reached, the whole thing will likely be either thrown into courts as a constitutional issue and fast tracked to SCOTUS and/or far reaching emergency powers by exec decree will be put into place.

[This message has been edited by maryjane (edited 07-13-2011).]

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Report this Post07-13-2011 10:41 AM Click Here to See the Profile for 2.5Send a Private Message to 2.5Direct Link to This Post
 
quote
Originally posted by maryjane:

It's all pretty moot, as most agree that some sort of agreement will be reached, a compromise that leaves no one really happy, and we will play the whole thing out again sometime between now and 2012, as the new debt limit will again be breached sometime that year. Few people realize just how much we have to borrow each month, and fewer still realize how much of that borrowed money is spent simply to pay the yeilds (int) on the debt we currently have. .


This sure does show how much the Gov is (was) living paycheck to paycheck. Instead for the last who knows how long living by racking up what is essentially credit card bills.

So do you think our gasoline costs would shoot up to the price in other parts of the world, (minus the heavier tax on it in other parts of the world? What would that be, about $7 gal at the pump?
Or maybe adding those taxes will be the budget plan.
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Report this Post07-13-2011 11:02 AM Click Here to See the Profile for PyrthianClick Here to Email PyrthianSend a Private Message to PyrthianDirect Link to This Post
restructure "welfare" programs with hard limits
get the Pentagon back into reasonable costs
return to reasonable tax rates
re-investigate old "earmarks" & special interest programs

most the problem is, the endless tug of war has stretched the extreme ends, and let the middle fall out
there is PLENTY of room for "dealing", if ANY of these elected azzhats gave a $hit about our nation.

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Report this Post07-13-2011 11:45 AM Click Here to See the Profile for 2.5Send a Private Message to 2.5Direct Link to This Post
GOP Senate leader McConnell suddenly proposes giving Obama new powers to raise debt limit


"David Espo, AP Special Correspondent, On Tuesday July 12, 2011, 9:23 pm EDT
WASHINGTON (AP) --

"The government reached its current $14.3 trillion borrowing limit several weeks ago, and Treasury officials have been relying on accounting maneuvers to continue to pay the nation's bills without additional borrowing.
...Officials have said that the government normally borrows about $125 billion a month to finance operations, meaning Obama could avoid a default for a brief period of time simply by asking for it.

...

With compromise talks at a vituperative standstill, Senate Republicans unexpectedly offered Tuesday to hand President Barack Obama new powers to avert a first-ever government default threatened for Aug. 2.

Under a proposal outlined by Sen. Mitch McConnell of Kentucky, Obama could request -- and likely secure -- increases of up to $2.5 trillion in the government's borrowing authority in three separate installments over the next year, as long as he simultaneously proposed spending cuts of greater size.

The debt limit increases would take effect unless blocked by Congress under special rules that would require speedy action -- and even then Obama could exercise his authority to veto such legislation. Significantly, the president's spending cuts would be debated under normal procedures, with no guarantee they ever come to a final vote.

McConnell made his proposal public a few hours before Obama presided over his third meeting in as many days with congressional leaders searching for a way to avoid a default and possible financial crisis.

Democratic officials who participated in the session said Obama did not reject the Senate Republican leader's suggestion, but stressed it was not his preferred approach...."

http://finance.yahoo.com/ne...-apf-725560.html?x=0

[This message has been edited by 2.5 (edited 07-13-2011).]

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Report this Post07-13-2011 11:47 AM Click Here to See the Profile for maryjaneSend a Private Message to maryjaneDirect Link to This Post
 
quote
Originally posted by 2.5:


This sure does show how much the Gov is (was) living paycheck to paycheck. Instead for the last who knows how long living by racking up what is essentially credit card bills.

So do you think our gasoline costs would shoot up to the price in other parts of the world, (minus the heavier tax on it in other parts of the world? What would that be, about $7 gal at the pump?
Or maybe adding those taxes will be the budget plan.


There are 2 schools of thought on this.
1. A default would drag the already devasted economy down further, decreasing production in the manufactoring sector and increasing unemployment in both industry and consumer sectors, thus resulting in a lesser demand for fuel. This "should" cause prices to drop, but as in any volatile market economy, fear will play a part and how much of a part is yet unknown.

2. As demand elsewhere is increased due to a drop in our demand for goods and services, global market crude prices will jump--probably back up to the highs of last year--near $4/gal--maybe more.

The bull in the China shop of course, is "what will become the global currency?"

If you wish to see what default on soveriegn debt results in, go to
http://www.reuters.com/arti...dUSTRE7691HM20110713

Ireland's debt was downgraded last week to junk status and their intrest rates on insuring that debt have now risen to 14.1%. Greece is in the same boat, as is Italy. Don't know how much more support Germany can extend, and it looks like they have had about enough themselves of bailing out govts that over extended themselves.
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Report this Post07-13-2011 11:52 AM Click Here to See the Profile for maryjaneSend a Private Message to maryjaneDirect Link to This Post

maryjane

65979 posts
Member since Apr 2001
 
quote
Originally posted by 2.5:

GOP Senate leader McConnell suddenly proposes giving Obama new powers to raise debt limit


"David Espo, AP Special Correspondent, On Tuesday July 12, 2011, 9:23 pm EDT
WASHINGTON (AP) --

"The government reached its current $14.3 trillion borrowing limit several weeks ago, and Treasury officials have been relying on accounting maneuvers to continue to pay the nation's bills without additional borrowing.
...Officials have said that the government normally borrows about $125 billion a month to finance operations, meaning Obama could avoid a default for a brief period of time simply by asking for it.

...

With compromise talks at a vituperative standstill, Senate Republicans unexpectedly offered Tuesday to hand President Barack Obama new powers to avert a first-ever government default threatened for Aug. 2.

Under a proposal outlined by Sen. Mitch McConnell of Kentucky, Obama could request -- and likely secure -- increases of up to $2.5 trillion in the government's borrowing authority in three separate installments over the next year, as long as he simultaneously proposed spending cuts of greater size.

The debt limit increases would take effect unless blocked by Congress under special rules that would require speedy action -- and even then Obama could exercise his authority to veto such legislation. Significantly, the president's spending cuts would be debated under normal procedures, with no guarantee they ever come to a final vote.

McConnell made his proposal public a few hours before Obama presided over his third meeting in as many days with congressional leaders searching for a way to avoid a default and possible financial crisis.

Democratic officials who participated in the session said Obama did not reject the Senate Republican leader's suggestion, but stressed it was not his preferred approach...."

http://finance.yahoo.com/ne...-apf-725560.html?x=0



A political move, to put the blame of a rising debt ceiling on the executive branch, which again would be a constitutional issue. Borrowing $ and repaying debt is spelled out in the constitution as a responsibility of the legislative branch, and few in congress would probably vote to change that. IMO, that bill would be doa, and would likely require a change in the amendment that stipulates who can authorize us to borrow $ and pay debts.

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Report this Post07-13-2011 12:56 PM Click Here to See the Profile for 2.5Send a Private Message to 2.5Direct Link to This Post
 
quote
Originally posted by newf:

Yes but more importantly, if they don't get a deal done who gets the blame? (sarcasm....duhhhhh <<< even more sarcasm )



Hey so far so civil in this thread

Any non partisan bickering thoughts on the subject welcome.
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Report this Post07-13-2011 08:24 PM Click Here to See the Profile for newfSend a Private Message to newfDirect Link to This Post
 
quote
Originally posted by 2.5:


Hey so far so civil in this thread

Any non partisan bickering thoughts on the subject welcome.


Yes, it's very impressive to be honest.
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Report this Post07-13-2011 08:34 PM Click Here to See the Profile for ryan.hessClick Here to Email ryan.hessSend a Private Message to ryan.hessDirect Link to This Post
 
quote
Originally posted by Pyrthian:
restructure "welfare" programs with hard limits
get the Pentagon back into reasonable costs
return to reasonable tax rates
re-investigate old "earmarks" & special interest programs


You forgot one:

AUDIT EVERYTHING.

Audit the Federal Reserve.

Audit the Pentagon
(Did you know the Pentagon "lost" 2.3 TRILLION DOLLARS?)

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Report this Post07-13-2011 08:46 PM Click Here to See the Profile for Hulki U. My-BFFClick Here to Email Hulki U. My-BFFSend a Private Message to Hulki U. My-BFFDirect Link to This Post
 
quote
Originally posted by 2.5:

But how would the average American be affected if the U.S. government ran out of cash to pay its bills?


The government would not be able to pay me for my enlistment contract, therefore breaking the contract. Thereby allowing me to pursue civil action and attain 'Millionaire Status' within a few months.

Hey, I can dream, can't I?
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Report this Post07-13-2011 09:00 PM Click Here to See the Profile for pontiackid86Click Here to Email pontiackid86Send a Private Message to pontiackid86Direct Link to This Post
see this is why i hate paying taxes..... cuz i know I'm just throwing money into a deep dark hole.
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Report this Post07-18-2011 02:05 PM Click Here to See the Profile for 2.5Send a Private Message to 2.5Direct Link to This Post
Public radio is talking about this subject at the moment.
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Report this Post07-18-2011 02:25 PM Click Here to See the Profile for 2.5Send a Private Message to 2.5Direct Link to This Post
Minnesota Public radio has a better program

you can listen online here
http://minnesota.publicradio.org/features/

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