U.S. debt ceiling

[Amie]

I've googled around and I haven't been able to grasp this concept. I heard someone say that the "debt ceiling" is different than a "credit limit" because the money is already there -- that confused me a whole bunch. And then, I don't understand how getting into more debt will get us out of debt.... and that could be because I'm minus any clues as to understanding this anyhow. Are any of you willing to help me understand this?

Amie

[Me Again]

Well, the real problem is debt in the first place. Every dime that the Federal Reserve "loans" to other banks, which is then loaned out to us is basically non-existent until the "money" is "loaned." IOW, when somebody tells you that the banks NEED to charge interest because you are "using their money" it's bullcrap. Prior to you borrowing the money, it didn't exist. It's nothing like if you had $100 and loaned it to me with my promise that I would pay back $110 in a year. That $100 that you loaned me existed (in your pocket or bank account). When the Federal Reserve "loans" money to the Federal Government, the money is created at that moment. It's a sham by private bankers to control the government AND make themselves millions off the backs of the American citizenry - including the rich (non-bankers). With that said, let me share with you some of the things I think Pres. Obama could do here (some are better than others - which I will give my opinion on - *SHOCKER*).

First, the president could work out some kind of a deal that would allow the debt limit to be raised. This is highly unlikely because the moderates from both parties (and I include Obama in this group) want a compromise, but the extremists from both parties (Tea Partiers and Harry Reid) want only what they want. That is why this thing could be potentially dangerous. Of course, if a deal is not reached, then we have the issue of "what really will happen?" Perhaps we can't pay our bills and there'll be widespread panic (and riots). OR, perhaps nothing catastrophic will happen and then the bankers will be exposed as the lying sacks of excrement that they are. (Sorry...although I'm trying to clean up my language, I'm still not there in the whole "God loves bankers too" thingy).

Secondly, President Obama could, by executive order, take over the monetary policy of our government (not good constitutionally, but...), and raise the ceiling himself. Thanks to former Pres. Bush (that would be W), he has that power. But this would basically neuter Congress - as I understand it - which might not be a bad thing (I don't think, at this point, raising the debt ceiling is the end of the world...sure we need to rein in spending, and likely raise taxes somewhere [or at least reform our tax system], but a little more debt on top of the astronomical amount isn't going to kill us, imho).

The third thing he could do (and the one I like best) is to order the printing of GREENBACKS. These are debt-free U.S. Dollars, first introduced by Ben Franklin to help fund the Revolution. Then Lincoln ordered them printed to fund the Civil War (and most likely was assassinated for doing so). These Greenbacks would be created out of thin air (like the Federal Reserve Notes) but would not have to be paid back OR paid interest on. They would be DEBT-FREE. We could fully fund the current budget and even print enough to start creating jobs to rebuild infrastructure (rebuilding rails, roads, new parks, libraries, etc.). Dennis Kucinich (D-OH) has suggested this very thing, but has sadly been ignored. China is currently doing something like this...

According to Ellen H. Brown, in her book "Web of Debt," China is "borrowing" money from its central bank without any intention of paying it back NOR even paying the interest on it. It's how they are funding their economic expansion.

Ellen Brown's book explains some of these Greenback ideas, but she is more concerned with switching from the international private banking interests (of the Federal Reserve) to public banks in each and every state like North Dakota; who has the lowest unemployment rate, a balanced state budget, and NO INCOME TAX. ND has no debt either, as their public bank (Bank of ND) loans them money at no interest for public works projects, and as these projects generate income for the state (like user fees), the "loan" is paid off. No long term debt at all.

However the real dude for info on the Greenback is Stephen Zarlenga, author of "The Science of Money." He is the guy who is giving Kucinich his ideas for money.

I know in the past I have advocated for a gold standard but no longer, although we may need, at some point, a silver standard but the Greenbacks are a national version of the move toward "community money," like Berkshares (in Massachusetts) and Bay Bucks (here in Traverse City). These ideas come from Fritz Schumacher, author of "Small is Beautiful" and "The Good Work."

[Paige]

Very interesting, Ed. I see a "deal" has been reached. What do you think? Like Amie, I feel kind of clueless. There seem to be battling economic philosophies out there, and each one claims to have the absolute truth. What a Keynesian thinks, what an Austrian thinks, what a Goldbug thinks etc., is all very different, and hard to decipher IMO.

[Amie]

Here's an article I found that explains it in simple terms for folks like me:


Raising the National Debt Ceiling – Definition & What It Means for Us
by Kalen Smith

It’s a simple fact: Every year the United States government spends more money than it brings in revenue. To fund many national programs, the government borrows money by issuing Treasuries. In a given year, 40 to 50% of U.S. expenditures are made with borrowed money.

As we continue to borrow money without paying back the debt, the federal deficit continues to increase. To keep government debt from getting “out of control,” Congress has limited spending through a national debt ceiling. As our deficit has reached this alarming maximum, the debate rages: Should we increase the debt ceiling or change our spending policies?

Debt Ceiling Defined

Simply put, the debt ceiling is a cap on the amount of money that the U.S. government is allowed to owe. It includes both public and private debt.

Since 1917, Congress has agreed on a limit of how much debt the U.S. can owe without risking default, and legislators raise the limit when they feel we need to borrow more money to sustain the economy. The legislature has raised the debt ceiling 74 times in the past 50 years, and about ten times since 2001. At this point, some voters and leaders feel that it doesn’t even make sense to have a debt ceiling, since Congress has the option to raise it virtually any time.

Currently, we have reached the $14.3 million debt ceiling. There is now intense debate as to whether this ceiling should be raised, and what kind of expenditure cuts must be made by the government to reduce this deficit over the long term.

Arguments for Raising the Debt Ceiling

Many economists are mortified by the debt we’re facing, but still advocate for raising the ceiling. They feel that if we don’t raise the limit, the nation could face an economic catastrophe. Potential consequences that Congress will consider are:

1.Cuts to nonessential programs. Programs like the National Parks Service would be shut down because Congress wouldn’t have the money to pay them.

2.Government shutdown and sending home federal employees. Washington would have to place nonessential government employees on leave, sending millions of federal workers home until the debt situation is resolved.

3.Default on existing debt. The government starts out in deficit before it can even pay interest on current Treasuries or pay for the bonds as they reach maturity. That means that the U.S. has to borrow more money just to pay off existing debts, and without raising the ceiling, the government would default on most of its existing debt obligations. Some people have gone so far as to describe the U.S. economy as a giant Ponzi scheme, and if the instability were exposed, citizens and other governments would quickly lose faith in the U.S. government. China and many other nations holding our debt are already afraid that we’re about to default. Lack of trust would make lenders less likely to provide funds in the future, seriously damaging our trading position with the rest of the world. Interest rates would skyrocket if the nation’s credit rating dropped.

4.Economic repercussions. If the government’s cash flow got cut off, then Congress would have to either double taxes or slash the budget by more than half. Either choice would have a devastating effect on the economy, undoing the recent recovery efforts. In addition to rising interest rates, we’d face a damaged stock market and higher unemployment, sending a shock wave of economic turmoil through the rest of the world.

Cautions about Raising the Debt Ceiling

These ramifications are so serious and certain that it is almost certain that Congress will raise the debt ceiling again. Doing so seems essential to the survival of our country, but this short-term fix comes with long-term potential problems. Experts who are apprehensive about raising the ceiling have a variety of valid reasons, including:

1.Responsibility. Yet another increase in the debt ceiling will just tempt our government to continue borrowing money and spending beyond its means. It’s like a credit card company raising your limit when you’ve maxed out and consistently missed payments. The government will lose sight of the immediate and long-term problems that we are facing and continue to fail to address the deficit.

2.Collapsing dollar. Raising the debt ceiling devalues the dollar. Our currency becomes riskier and less stable as we become more likely to default on our existing debts. This declining value weakens our purchasing power and could cause the dollar to lose its position as the world reserve currency. Inflation has already increased substantially and the rising price of food and oil are starting to get out of control.

3.Futility. The U.S. is already having more trouble than ever finding investors to borrow our debt. Last year, the Federal Reserve only had to purchase 10% of available U.S. treasuries. Today, they are purchasing close to 70%. As interest rates have dropped to record lows (about a .25% for a one-year bill), investors don’t see any point in investing in them. With countries like China unloading their current holdings in U.S. treasuries, we’re starting to lose our market for foreign investors. With the country risking default, Standard and Poor’s has already threatened to lower our AAA bond rating. If S&P drops the rating and major companies won’t buy our debt, it may simply be too late for an increase in the debt ceiling to solve the problem.

4.Sending a message. Deciding not to raise the debt ceiling could signal to international community that we’re serious about controlling our situation. Providing that sign just might be the best move we could make. The rest of the world is looking for assurances that we are going to work at getting our spending under control. Rather making than another last-ditch effort that might not work, if Congress maintains the current debt ceiling and focuses on making drastic cuts and structuring a healthier economy, we’d be giving the world, especially major nations that hold our debt, the message that they want to hear.

What Will Happen to the Debt Ceiling?

In the end, Congress almost certainly feels as though it has no choice but to raise the debt ceiling. Along partisan lines, it seems that the Republican majority in the House has come to accept this opinion, but members are threatening to not cooperate unless the Democratic Party listens to its demands for changing the fiscal budget.

Ultimately, the two sides need to come together on a compromise and decide which programs they need to cut and whether taxes should be increased. Without an amicable, effective resolution, Congress may have to withhold payments to federal employees and programs, and the government may temporarily shut down. Moreover, the US is at risk of a credit downgrade, which could send ripples throughout the world economy and lead to an intense recession.

Final Word

Clearly, Washington needs to settle the debt ceiling debate very soon. Though this isn’t the first time that the topic has come up or sparked heated discussion, this is the most alarming situation we’ve faced.

As our country continues to get itself deeper into debt, we have to come to the conclusion that we are going to have to start changing the way we manage our economy. We cannot forever depend on short-term solutions that get us into deeper debt. Sooner or later, we will have to accept that we are going to have to change taxes, reduce spending, and start resolving our debt situation before we continue to borrow more money. This next debate may be a turning point for our country and we will see where it takes us.

What are your predictions for Congressional decisions about the debt ceiling? What would you do if you were sitting in the House or Senate?


Source: http://www.moneycrashers.com/raising-national-federal-debt-ceiling-definition/

Now I'm going to reread Ed's post...

[Me Again]

Here's how we do business in the US (actually around the world). The government wants to spend money they don't have. They "sell bonds" (IOW, somebody, usually the Federal Reserve, buys the bonds). When the Fed, or some other central bank (perhaps from another country) buys the bond, they create the money out of thin air. It is often argued that we need to pay usury because we are "borrowing their money." This is not entirely true. The money did not exist before we (the government - or even private individuals) borrow it. When they create that money, they do not create the money needed to pay the interest. SO, somewhere in America someone else has to borrow money, OR the government needs to borrow more money...OR the government needs to raise taxes, or cut spending, in order to simply pay the interest (ever notice how our federal debt NEVER goes down - in fact, from the time GWBush took office until today, we've doubled the federal debt - imagine how bad it will be in a few short years). NO AMOUNT OF SPENDING CUTS OR TAX HIKES WILL FIX THIS PROBLEM. The only reason that these shysters are doing this whole fiasco is to cover up the Ponzi Scheme that the banks have foisted upon our unsuspecting masses. The politicians don't care because they'll get their money - they are on top of the food chain with the bankers. The rest of us are not.

The ONLY answer, in my opinion, is for the Treasury to print Greenbacks. They could entirely pay off the Federal Debt with these Greenbacks (probably over several years). They could fully fund universal health care, and education. They could fully fund research for alternative energy. They could build new infrastructure - parks, libraries, museums, recreational areas, open spaces, village greens, bridges to somewhere, new roads, repair old roads, build dams, etc. It is believed that none of this would cause inflation because each of these expenditures would be creating something (productivity, which offsets the growth of the money supply). With the Greenbacks, they could eliminate the Income Tax (which largely goes to pay the Federal debt interest payments), and in my Georgist view, all other taxes and replace them with one single tax - a Land Value Tax.

In the recent past I have advocated a Citizen's Dividend (CD), paid out of the revenues of oil drilling, etc. HOWEVER, I like the idea of the Greenbacks funding a Basic Income Grant (BIG - same as CD) where every American receives a basic income. This would eliminate welfare, social security, food stamps, disability, rent assistance, child care assistance, etc. With all of the additional work being created, along with every American having a basic income, there should be no need for anyone to work more than 2 or 3 days a week...unless one wants the additional income.

Let me give you a few links to look over if you're interested in learning more:

American Monetary Institute (Greenbacks) (http://www.monetary.org/)
Henry George Institute (Land Value Tax) (http://www.henrygeorge.org/)
Huffington Post (Greening the Dollar) (http://www.huffingtonpost.com/stephen-zarlenga/greening-the-dollar_b_897727.html)

[Me Again]

Paige, I half-way answered your question about the "deal" in my other post but let me say here that I am glad they are raising the debt ceiling, but not happy they are cutting spending at this point...I know, in the past I have advocated for just such a thing, but since being unemployed, and seeing all the people in my neighborhood who are unemployed, I see how heartless this system is.

As I think I pointed out earlier, China borrows but does not repay its central bank. This has not hampered them one bit. Were we to default, I don't think the world would end. In fact, I think it's better for us to default at some point - if we aren't going to print Greenbacks. What I'd love to see is the Government tell the Federal Reserve "screw you, no more interest payments. We'll borrow but won't repay..." It would have the same effect as printing Greenbacks, in essence, but long term, the bankers would find a way to screw us even more.

[Paige]

I'm all for not paying anymore interest on our own money too.

[Amie]

Ed,

I turned to youtube to grasp what you were saying about the Federal Reserve. Now I don't understand how dollars can be created from thin air and be debt-free. I thought that the "thin air" was actually representative of a promise of security. Do you know how that works?

After listening to some youtube videos, I feel like "we the people" don't matter. Decisions are made to protect large corporations, old money, politicians, and banks. We have a president scaring the public about taking money from the elderly and the poor if the debt ceiling weren't raised, and not mentioning any cuts in the lifetime retirement the higher up politicians get for serving a single term. No mention of stopping kick backs to oil companies, no mention of stopping billion dollar lifestyles (public servants as millionares??!!), no mention of charging the senate a single dime for their health insurance -- nothing like that. Rather we can cut education while they keep crappin' on their gold plated toilets? Frankly - they could give a damn. The entire point of political decisions that afford us crumbs is to make us believe that something is being done so we don't actually freak out.. "Crowd control".

You are right, debt is the problem. So is the reality that what we think doesn't matter. (Aren't I somethin'? Lol!)

Amie

[Me Again]

As long as the banks control the money supply, nothing we do will matter. The whole point of the international bankers is to destroy economies and bring them under the power of the Corporate Socialists of the global corporations. I know it sounds very conspiratorial, and it is; but it's very real. America has been losing at the economics game for years. We have been able to continue on the path to destruction because the banks are all too happy to loan us more and more money. We buy everything on credit now- houses, cars, washers and dryers, TVs, etc. What we don't buy on credit, we buy from overseas manufacturers (the global corporations producing it in Bangladesh, for god's sake). Microwaves, vacuum cleaners, DVD players, etc. are all being made in China, Bangladesh, Malaysia, India, etc.

Most of what we still produce here in the US is food. But that is becoming more tentative as well. Go to any Walmart Superstore, or any other large chain supermarket, and certain times a year you'll find "Product of Chile," "Product of Mexico," etc. But generally, our food supply, including that which is bottled and canned, fresh or frozen, is made here in the US. But wages tend to be depressed in the food industry - think Restaurant, Grocery Store, etc. (I use etc. a lot, don't I?).

Money that is created out of thin air and debt-free would be based on the "worth of the community," IOW, the general worth of America: Our land, our natural resources, our people, our productivity, even our general goodwill towards one another.

Switching to a "greenback" model would not eliminate banking or debt. It would be heavily regulated. Maximum interest rates could be imposed (e.g., 6-8%), but generally, most people should be able to pay cash for most things. Anything still bought on credit would have its loan terms shortened (e.g., 5-15 years for mortgages rather than 30; 1-2 for cars, rather than 5). CREDIT CARDS WOULD BE OUTLAWED. Debit cards would virtually become a necessity, as it saves money from physically printing all those greenbacks.

I found more links that I could share if you'd like to read about this stuff. I will say PAIGE, this is the stuff that movie you asked about ages ago was talking about, and I dismissed it due to my support for a gold standard. That support has waned, I now see the problems of a gold standard (concentrated wealth, bankers' manipulation of the gold markets). I believe this greenback idea has found its place in history to totally save a nation...and hopefully to save other nations as well.

[Amie]

Ed,

I agree with you per the banks. And I understand what you're saying per the rest (just so you know it isn't going over my head this time, lol!). Yes, I'm interested in reading over whatever links you share.

I think that we need to have a global image in mind when it comes to economy. We're all becoming more and more linked (via better technology). On one hand, to be a force in a global economy, we might have to be more defined (as in "made in the USA"), however on the other, I don't see an issue with USA based corporations in other countries (like "Coca Cola and McDonald's") and having other country based corporations here as well.

Amie

[Me Again]

yeah, I don't have a beef with US corporations being in other countries; nor do I have a beef with corporations from other countries being in ours. The last 3 years of my working in the auto industry dealt mostly with Honda, Mazda, Isuzu. Prior to that, I did work for Nissan, Toyota - of course the entire time I also worked with GM, Jeep, Ford.

on this page (http://www.michaeljournal.org/articles.htm), you have to scroll down and click on articles about all categories of Social Credit, Poverty, and Monetary Reform. Their spiritual teachings scare me to death (Romanist, futurist).

Three of the articles at the previous link were written by Richard C. Cook. His website is found here (http://www.globalresearch.ca/index.php?context=viewArticle&code=COO20070511&articleId=5615)