Tuesday, July 26, 2011

Maybe you don't realize how serious this is

It occurred to me that maybe most people don't actually realize just how serious the fiscal situation in the U.S. is. They have some idea that August 2 is not really a hard deadline, that there are some games that can be played with the books and delaying social security payments and whatnot. If you think this, if you are not seriously worried, you need to listen up because you do not understand the situation.

It is not the case that on August 2 the U.S. hits its debt limit ceiling. The U.S. hit its debt limit ceiling back in May. Since then we've been running on cash reserves. What happens on August 2 is that the United States of America runs out of cash. In the absence of at least some additional short-term borrowing, a default is inevitable. Yes, in the aggregate, there is more than enough money coming in to service the debt, but the timing is wrong. Tax revenues are not a steady stream, they come in sporadically, and the next big batch of revenue is not expected until after the next round of debt payments are due. The U.S. is quite literally living paycheck-to-paycheck, and on August 2 we hit the wall hard.

I hope I do not have to point out the obvious, that if we do hit the wall hard, the result will be that even the sporadic tax revenues will shrink because we will be immediately embroiled in Great Depression II, which will make the first one look like a cake walk by comparison. The actual bankruptcy of the United States of America, that is, a situation where total tax revenues are not enough to cover the debt even in the aggregate, is not out of the question.

On August 3, if Congress does not get its act together, there are going to be a whole lot of folks who will wake up and find themselves with no job, no cash, and very shortly thereafter, no home and no prospects, and they will say, "What the fuck just happened?" Now you know. Tell your friends. Call your senators and congresscritters, ESPECIALLY if they are tea partiers. This is serious, serious shit, folks, and time is running out.

[See my follow-up here.]


Anonymous said...

I guess know everything will find out what all those FEMA camps are all about.

Anonymous said...

The end is nigh!

Let's be serious, you are full of shit. There are plenty of options available before a default occurs, most of which are extremely harmful in the short term and none of which is a long term solution. It's not the end of the line, just a steep decline.

Ron said...

> There are plenty of options available before a default occurs

Of course there are options. But they all involve additional borrowing, at least for the short term.

Anonymous said...

How's about we just stop building bridges to nowhere and paying farmers not to farm?

fra said...

You have to borrow the right persons. Figures for France, but this certainly applies to U.S. too.

Anonymous said...

Relax. If needed, Obama can raise the debt ceiling without anyone's permission.

Ron said...


typhonic said...

I'm not excited about August 2, not because I don't understand the gravity of the situation, but because I understand that our government is already in a downhill spiral from which it will not peacefully recover. No, I am not arming myself.

Morrissimo said...

Want to talk about "serious, serious shit"? How's this: regardless of what we do in the immediate term with the much-ballyhooed debt ceiling, the sovereign credit rating of the United States is going to get downgraded. Which means we will have to offer higher interest rates on our debt instruments just to get people to buy them. Which means we pay more towards interest. Which means more of the budget is eaten up on "throwaway spending" - i.e., interest payments.

So what happens when we hit the debt ceiling again? Raise it? OK, what about the next time? Eventually you run out of suckers to buy your debt, even if you manage to keep finagling your way through our Congress.

The "debt ceiling" debacle is just the latest and greatest political bread-and-circuses to keep us distracted from the real story: the United States ponzi economy is out of time. Nearly 60% of the federal budget in 2009 was spent on entitlements: medicare, medicaid, Social Security, or some other form of "income transfer" program - more commonly called "welfare". Over $1.5T a year is being spent on endless adventuring in Iraq and Afghanistan with nothing to show for it. Our metastasizing Homeland Security cancer is busily chipping away at what remains of our Bill of Rights.

We have a massive disconnect between what we want and what we can afford, and the mathematics behind it all doesn't give two fluffy shits what social programs liberals think are indispensable or how vital conservatives think it is that we maintain our foreign empire - or even how much Grandma needs her Social Security and Medicare. The day of reckoning is coming, whether it's this August 2nd or not - in fact, the sooner the better: the further down the road we kick the can, the worse we make the already inevitably severe pain.

Government spending makes up nearly 12% of the economy right now - remove that, and GDP contracts by at least 12%. Which, by the way, is the commonly accepted economic definition of a depression. Guess what else it means? It means we're already in a depression, but the government has papered over realization of that fact by "printing" more money and throwing it into the wind.

As has become popular of late to say, it's definitely time we "eat our peas". Unfortunately, too many people like you think you understand what's at stake and that if we can just kick the can ONE MORE TIME we'll get the magical economy unicorn to crap out a few more handfuls of Skittles. Reality is going to bite all of us on the ass - but for those of you who think all we need to do is more of the same economic claptrap that's levered us up over the past 40 years, that bite is going to smart a bit more.

Morrissimo said...

Econ blogger Karl Denninger saying pretty much what I just did, but with hard (and scary) numbers: The Road To Hell Directly Before Us

Anonymous said...

I'm not American, so I don't have an overview of your economy, but wouldn't raising taxes for those who belong in the top 1% help?

Additionally I suspect that there are a lot of government organizations related to millitary and intelligence that could be streamlined. There's bound to be lots of redundancies between agencies. Perhaps you would even gain efficency and a better defence from concentrating efforts instead of relying on multiple agencies to share information with eachother?

You could also benefit from switching to a welfare system like some European countries (Germany, Scandinavian countries etc.). They actually provide more welfare per individual for less money then your system.

Some guy said...

> wouldn't raising taxes for those who belong in the top 1% help?

That's a great idea and would certainly help! However, a vast majority of the conservative representatives in our government have absolutely NO interest in this and are unshakably against it. They are taking the side of cutting public programs to help reduce the impact of the problem.