Treasury Chief Warns on US Default

Associated Press ^ | 05/08/02 | JEANNINE AVERSA

[survivalforum.com]

05/08/2002 11:17 AM EDT

By JEANNINE AVERSA

WASHINGTON (AP) - Congress needs to extend the government's authority to borrow or risk an unprecedented default on the national debt, something that would cast a cloud over U.S. securities, Treasury Secretary Paul O'Neill warned Wednesday.

O'Neill made his latest pitch for swift congressional action on raising the debt ceiling in a speech to Republicans gathered at the Capitol Hill Club.

He has repeatedly asked Congress to boost the debt ceiling by $750 billion, but the request has become stuck in a political fight over the budget. The limit now stands at $5.95 trillion.

Treasury last week said it can shift some funds to avoid hitting the debt ceiling in mid-May. But those maneuvers won't be useful in late June, raising the prospect of a default on payments to bondholders.

"If we run into the ceiling that's really bad," O'Neill said in remarks to the Republican Main Street Partnership. "Because world capital markets will say they knew they needed to do it and they've know for six months that they needed to do it and they didn't do it and that casts a shadow on the good faith and credit of the United States."

If the government were to miss payments on debt coming due, it would be technically in default on the $5.95 trillion national debt, something that has never happened in the country's history. That would cast a cloud over U.S. securities, now considered the world's safest investment, and would mean the government would be forced to pay billions of dollars in higher interest payments on the national debt in future years.

Economists and other experts don't think that would happen because Congress is sure to eventually raise the debt ceiling.

O'Neill appeared to agree.

"It's not a question of whether we are going to do it or not. It's just a question of how close to the cliff we're going to run before we do what we know we need to do," he said.

[Dog Gone]

My point is that borrowing from the surpluses have masked the tremendous amount of wasteful spending we've seen over the last couple decades.

The sad thing is that "borrowing from the surplus" actually has some meaning in this context. In real life, that statement is ludicrous on its face. ;-)

[fhayek]

My thought on this is that whatever bank accepted these deposits would have to turn around and make loans and/or investments to someone else (in order to make interest payments to the government). There would be no corresponding increase in credit-worthy borrowers to go along with this influx of money into the system, thereby creating more defaults and potential bank failures that the government would then have to clean up. No free lunch.

[Paladin2]

My view on this is that if the gub'ment spends an amount of money equal to that which it "borrows" in a given year on items that represent a real investment that will return to the country returns greater than the cost of borrowing (including depreciation/amortization of what ever they "bought"), this is not necessarily a bad idea as long as they are not suddenly increasing this type of spending.

If we are buying an aircraft carrier (haven't some of those turned out to be a good value lately!), why not borrow and let those who benefit over the years of operation help to pay for the benefit.

Borrowing to spend on short term items (** cough** welfare ** cough ***) with minimal (or negative) return is not a recommended long term strategy for improvements in society. Accounting for all this is tough. Most politicians don't understand it and even if they do, find it difficult to follow and remain in office. From a practical viewpoint it's probably best to hold politician's feet to the fire and not let them spend their way to continued feeding at the public trough. The point is gub'ment borrowing is not theoretically bad, but in practice must be closely monitored and limited.

[Almondjoy]

Agree.. many economists would certainly say there is too much debt but many if not all would say we should have some debt.. besides Bonds beeing the most secure investment you could ever have.

[B. A. Conservative]

At 4.5% interest, that is $733,561,643.84 per day, each and every day in interest with no provision for repaying the principle.

If we were to decide to pay down the principle at one billion per day ignoring the interest, it would take 16.3 years to pay it off. If we were to amortize the debt over exactly 100 years making daily payments with a fixed rate of 4.5%, the daily payment would be $751,595,843.25. How's that for perspective?

For a better perspective on what can be done

[savedbygrace]

You show the "income" of all U. S. residents, businesses, and corporations, and compare it to the debt balance that's been generated by the federal government.

Your analogy would be closer to accuracy if you showed the "income" of the federal government, which is about $2 trillion, and compared THAT to the debt.

Even so, you haven't mentioned anything that justifies government debt.

[Dog Gone]

Read the rest of the thread.

[DennisR]

Unfortunately, our Congressmen and -women do not see much difference between "one" and "two," as in "one trillion" or "two trillion." After all, the mathematical difference is only "one," isn't it? And it's easy to say, so it can't be that much money.

We should pass a law that would disallow Congress from rounding off numbers to the nearest million, billion, or trillion. They would always have to say something like "one trillion, nine-hundred-and-fifty billion, four-hundred-and-sixty-two million, seven-hundred-and-five thousand, three-hundred-and-twenty-nine dollars." They would spend so much time just saying the number that they would (1) want to reduce the debt to zero; (2) get so tired they would go home and not pass any more idiotic laws or spend any more money on idiotic programs; or (3) get a chronic brain cramp because most of them are not mathematicians or engineers, so they really do not appreciate or understand the magnitude of such numbers.

[DennisR]

I believe we were running a "surplus" in the sense that government was taking in ("taking away," actually) more than it was spending for that one particular year. Apart from that there was still the $6,000,000,000,000 debt that no one seems to want to address or do anything about. About $28,000 for every man, woman, and child in the country. That's what I call bankruptcy numbers, folks.

[DennisR]

"Yeah, but looking at it on a per capita basis is kind of silly . . ."

Not really, because that is the only way it can be understood. It has to become personalized in order to address it, and discussing it on a per capita basis does just that.

[DennisR]

". . . just maybe the feds could quite spending money like it was growing on trees . . ."

This will never, ever happen. A Congressman/woman has one goal: bring home as much money as I can to my district. They truly do not care about the big picture. This is why Sen. Robert Byrd and others like him are such a pariah.

[mjaneangels@aolcom]

Does this mean that we can no longer afford our UN dues? Ok with me, if that is the case.

[sneakypete]

Maybe Bubba Bush and his RINO pals could solve this problem by simply spending less? How about just cut out the hundreds of billions of dollars they will be giving corporate farms? That alone should do it for the time being,as well as maybe save us from being forced to run ethanol in our cars.

Ooops! I forgot Bubba Bush's full name,Bubba "Pander" Bush. Out-Dimming the Dims and buying votes with taxpayer money is all a part of his secret plan to win reelection.

[Humidston]

wow..... Thanks. I think. Caused me to bookmark this thread, btw. Heavy stuff!

[snopercod]

On what does "the good faith and credit of the United States" depend?

Us serfs, of course...

[snopercod]

Gray Davis for SecTreas!

[AmericaUnited]

A trillion here and a trillion there and next thing you know, you've got a hefty amount of debt...

[Politically Correct]

Borrowing to spend on short term items (** cough** welfare ** cough ***) with minimal (or negative) return is not a recommended long term strategy for improvements in society. Accounting for all this is tough. Most politicians don't understand it and even if they do, find it difficult to follow and remain in office. From a practical viewpoint it's probably best to hold politician's feet to the fire and not let them spend their way to continued feeding at the public trough. The point is gub'ment borrowing is not theoretically bad, but in practice must be closely monitored and limited.

Maybe I've got it wrong. And I'm sure someone here will correct me.
But the big budget items are:
Medicare
Social Security
Defense
Payments on the Debt

Everything else is chump change.
But note that two of those items are unconstitutional and the last wouldn't be necessary if it weren't for the first two.

Remember when you're whining about "welfare" that your really whining about is Social Security and Medicare.