Obama to Raise Debt Ceiling by About Two TRILLION.

[Big Orange]

Another policy the Democrats are sneaking through with comparatively little fanfare, when American families are straining through their big holiday breaks. I wonder if Obama is going to have one term like Bush Snr. did:

Dems to lift debt ceiling by $1.8 trillion, fear 2010 backlash

In a bold but risky year-end strategy, Democrats are preparing to raise the federal debt ceiling by as much as $1.8 trillion before New Year’s rather than have to face the issue again prior to the 2010 elections. “We’ve incurred this debt. We have to pay our bills,” House Majority Leader Steny Hoyer told POLITICO Wednesday. And the Maryland Democrat confirmed that the anticipated increase could be as high as $1.8 trillion — nearly twice what had been assumed in last spring’s budget resolution for the 2010 fiscal year. The leadership is betting that it’s better for the party to take its lumps now rather than risk further votes over the coming year. But the enormity of the number could create its own dynamic, much as another debt ceiling fight in 1985 gave rise to the Gramm-Rudman deficit reduction act mandating across-the-board spending cuts nearly 25 years ago. Already in the Senate, there is growing pressure in both parties for the creation of a novel bipartisan task force empowered to force expedited votes in the next Congress on deficit reduction steps now shunned by lawmakers.

As introduced Wednesday, the legislation sets no specific targets for deficit reduction, but its 18-member task force — 16 of whom would come from Congress — is promised immense leverage to force change if they can first come together behind a plan. “This is a defining moment,” said Senate Budget Committee Chairman Kent Conrad (D-N.D.), one of the lead sponsors, and New Hampshire Sen. Judd Gregg, the panel’s ranking Republican, is already maneuvering to try to add the legislation as an amendment to any bill tapped to carry the debt increase. As explained by Hoyer and other Democrats, that will almost certainly be a pending $636.4 billion Pentagon appropriations bill that includes $128.3 in contingency funds for military operations in Iraq and Afghanistan.

The House leadership has held back the bill for weeks, saving it for this moment, but now appropriations clerks have been instructed to have a final package ready to go by Monday. Leadership staff stressed that nothing was yet final in what has become a year-end negotiation between top Democrats in the House and Senate. But the Senate appears to have been the first to put the $1.8 trillion number on the table. And Hoyer’s comments are the clearest yet on the scale of the increase and the expectation that it will be part of a larger year-end legislative train pulled along by the must-pass military bill.

House Appropriations Committee Chairman Dave Obey, who is pursuing job-related measures he would also like to add, insisted that the debt issue is a “leadership call” alone. But the Wisconsin Democrat showed no sign of opposition to the strategy outlined by Hoyer. “It is December. We don’t really have a choice,” Obey told POLITICO. “The bill’s already been run up; the credit card has already been used. When you get the bill in the mail you need to pay it.” Though Treasury can buy itself time by moving assets around, it is already coming close to the current debt ceiling of $12.1 trillion. Last spring, the Democratic-backed budget proposed to raise this to about $13 trillion, but given the current pace of borrowing, no one now expects that will be sufficient to get through 2010.

In fact, fiscal year 2009 ended Sept. 30 with a $1.4 trillion deficit, which demanded higher-than-expected Treasury borrowing. Most of that was due to the downturn in the economy and spending commitments in place before Barack Obama took office. And as much as Republicans point to the president’s economic recovery bill last February as the culprit, only a small share of that $787 billion package was spent by Sept. 30. The picture in 2010 is different. The administration is predicting the stimulus will hit its stride with much more spending. And there will be a steady escalation of outlays driven by back-to-back increases in 2009 and 2010 appropriations for domestic agencies. The White House has vowed to be more deficit conscious in its forthcoming 2011 budget due out in February. But the House could vote as early as Thursday on a $446.8 billion year-end package covering more than a dozen Cabinet departments and agencies and representing a healthy 9 percent to 10 percent increase over current spending for the same accounts.

For example, transportation and housing resources would grow by 12 percent, including $2.5 billion for high-speed-rail investments on top of the $8 billion already added by the White House to the giant stimulus bill in February. A $163.5 budget for the Departments of Labor, Health and Human Services, and Education would add an additional $8.6 billion to annual spending, and Veterans Health Administration spending would grow to $45.1 billion, a $4.1 billion increase.

POLITCO

[Chris OFarrell]

So the US just prays that everyone keeps buying its debt...

Is there a chart somewhere, inflation adjusted for current dollars, which shows Debt over time?

[KrauserKrauser]

And a chorus of "What do you do with a drunken sailor" resounded in my head while reading this article.

Anyone know the status of the congress critters proposing the debt reduction board? Is it being championed by mini-Geithner's?

How exactly does the government raise the debt cieling? Are they saying that the expect next year's budget to be 1.8 trillion higher than 2009?

[Big Orange]

Meredith Whitney, a banking analyst, thinks the US Government is running out of railway track and the consumers are fucked: (video included in link)

The government is running out of ways to help the economy as the US faces major issues regarding credit and employment ahead, banking analyst Meredith Whitney told CNBC.

"I think they're out of bullets," Whitney said in an interview during which she reinforced remarks she made last month indicating she is strongly pessimistic about the prospects for recovery.

Primary among her concerns is the lack of credit access for consumers who she said are "getting kicked out of the financial system." She said that will be the prevailing trend in 2010.

Despite being able to borrow at near-zero percent interest, banks are not taking that money and putting it back into the marketplace. The Federal Reserve said Monday that consumer lending dropped 1.7 percent on an annualized basis in October, the ninth straight monthly decline.

With consumer spending making up about 70 percent of gross domestic product, the inability of even credit-worthy consumers being able to be able to borrow could put a severe crimp in future growth.

"What's so frustrating is you have an administration that is arguing such a populist (ideology) and not appreciating all the unintended consequences that the consumer and small businesses have far less credit," Whitney said. "You're going to get a situation where you revert from a consumer standpoint," she added, "where those that had bank accounts for the first time, credit cards for the first time, homes for the first time get kicked out of the system and then fall prey to real predatory lenders."

The problems taken together also will pose difficulties for investors.

"I have 100 percent conviction that the consumer is not getting any better and there's not more liquidity," Whitney said. "So if everything touching the consumer is going to be represented in the S&P, then the S&P is going to be under pressure."

The solution, she said, is for the government to take proactive steps that will give consumers more money to spend.

"I don't think you can cut taxes enough to stimulate demand," Whitney said. "For a 2010 prediction, which is so disturbing on so many levels to have so many Americans be kicked out of the financial system and the consequences both political and economic of that, it's a real issue. You can't get around it. This has never happened before in this country."

[Aaron]

So I guess the plan is just to keep putting things off till we are really and truly fucked then?

[Guardsman Bass]

The plan (assuming there is one, and they aren't simply lurching from crisis to crisis) is probably to keep spending (particularly with some major programs, such as health care reform, coming on-line) until the economy hopefully recovers, at which point tax revenues will rise and they can pare back a bit on the deficit spending.

[J]

So I guess the plan is just to keep putting things off till we are really and truly fucked then?

Well....yes.

On a related note, ever wonder what happens when the US goes over its debt limit?
Now we know, and the answer is nothing. The US debt ceiling is $12.1 trillion. The current debt is ummm...Oops...
I wonder why they even bother with a debt limit.

[Akhlut]

Hey, J, according to the debt clock you linked to, the debt burden per citizen exceeds income per citizen. Just how fucked does that make the US in the long run, aside from 'very' and what sort of consequences can we assume if this trend continues beyond 'anarchy'?

[Serafine666]

Oh, but it gets even better. They're thinking of raising the debt ceiling to around $1.8 trillion while the House guarantees that they'll spend around $1.1 trillion.

WASHINGTON – Democrats are muscling through a deficit-swelling spending bill, giving domestic programs their third major boost this year and awarding lawmakers with more than 5,000 home-state projects.
The House voted 221-202 Thursday to pass the 1,088-page, $1.1 trillion measure — combining $447 billion in operating budgets with about $650 billion in payments for federal benefit programs such as Medicare and Medicaid. The Senate immediately voted to begin debate, with a final vote likely this weekend.
No House Republicans voted for the bill. Some 28 Democrats, chiefly moderates and abortion opponents, opposed it.
The measure provides spending increases averaging about 10 percent to programs under immediate control of Congress. It comes on top of an infusion of cash to domestic agencies in February's economic stimulus bill and a $410 billion measure in March that also bestowed budget increases well above inflation.
Also Thursday, Speaker Nancy Pelosi, D-Calif., confirmed that the House will vote to raise the cap on government borrowing, currently set at $12.1 trillion. The hike in the debt ceiling is likely to exceed $1.5 trillion so that another politically excruciating vote to raise the limit won't be needed next year.
The deficit for the 2009 budget year registered $1.4 trillion and a comparable deficit is expected for 2010 — and that's before Congress spends up to $100 billion to renew extended jobless payments and health insurance subsidies for the unemployed and passes legislation intended to create jobs.
"When are we going to say, 'Enough is enough?'" asked House GOP Leader John Boehner of Ohio. "Let's stop the madness."
In fact, the gravy train may slow next year, assuming President Barack Obama follows through on his promise to bring unsustainable trillion-dollar-plus deficits under control. His budget director has ordered agencies to brace for a spending freeze as part of a midterm election-year push to rein in record budget shortfalls.
The spending bill blends increases for veterans' programs, NASA and the FBI with a pay raise for federal workers and help for car dealers. It bundles together six of the 12 annual spending bills, capping a dysfunctional appropriations process in which House leaders blocked Republicans from debating key issues and Senate Republicans dragged out debates.
Just the $626 billion defense bill would remain. That's being held back to serve as a vehicle to advance must-pass legislation such as the debt increase.
The measure contains 5,224 so-called earmarks totaling $3.9 billion, according to Taxpayers for Common Sense, a Washington-based watchdog group. Republicans and Democrats share in the largesse, which includes grants to local police departments, money for road and bridge projects, and community and economic development grants.
Democrats made no apologies for the spending increases, saying that domestic programs starved under eight years of President George W. Bush.
"I see these bills as an opportunity to reverse years of neglect — neglect to our roads and bridges, neglect to our lower-income neighbors and friends, neglect to our education system, neglect to our veterans," said Rep. Jim McGovern, D-Mass.
Democrats forced a $151 million cut to Obama's almost $2.8 billion request for economic and security aid to Afghanistan this week. Obama's $1.6 billion request for aid to Pakistan would be cut $124 million. But Appropriations Committee Chairman David Obey, D-Wis. — a top skeptic about the Afghanistan war — said the cuts were not intended as a rebuke to Obama.
For the more than 2,000 Chrysler and GM dealers closed or facing closure, the bill would offer an improved binding arbitration process to challenge the automakers' decisions. It also renewed for two more years a federal loan guarantee program for steel companies.
Rep. Bennie Thompson, D-Miss., chairman of the House Homeland Security Committee, protested a provision to let Amtrak passengers carry handguns in their checked baggage, provided the guns are unloaded and locked in a secure container. The policy would go into place within a year.
The bill caps a heated debate over Obama's order to close the Guantanamo Bay jail in Cuba. It would permit detainees held at Guantanamo to be transferred to the United States to stand trial but not to be released.
Republicans also blasted moves by Democrats to drop several social policy provisions that conservatives had championed for years. A long-standing ban on the funding of abortion by the District of Columbia government would be overturned, igniting strong opposition from anti-abortion lawmakers. The bill also overturns a ban on federal money for needle exchange programs in the city, phases out a D.C. school voucher program favored by Republicans and opens the door for the city to permit medical marijuana.
It would also lift a nationwide ban on the use of federal funds for needle-exchange programs.
Federal workers would receive pay increases averaging 2 percent, with people in areas with higher living costs receiving slightly higher increases.
Republicans claimed the measure would mean a 33 percent increase for foreign aid and the State Department, but once war-related funding and emergency funding shuffles are taken into account, the increase is more like 10 to 15 percent. A Democratic press release actually claims a modest overall spending cut but then lists a host of sizable gains when describing specific programs.
The increases to foreign aid were not directed at individual countries as much as initiatives such as health programs, food aid and developmental assistance for poor countries, and funding for additional foreign service officers.
The Senate voted 56-43 to take up the measure, short of the 60 votes needed to defeat a GOP filibuster. But Democratic leaders are confident several senior GOP members of the Appropriations Committee will support the measure when a 60-vote threshold is needed, most likely Satuday.

[Darth Wong]

Meredith Whitney, a banking analyst, thinks the US Government is running out of railway track and the consumers are fucked: (video included in link)

The government is running out of ways to help the economy as the US faces major issues regarding credit and employment ahead, banking analyst Meredith Whitney told CNBC.

"I think they're out of bullets," Whitney said in an interview during which she reinforced remarks she made last month indicating she is strongly pessimistic about the prospects for recovery.

Primary among her concerns is the lack of credit access for consumers who she said are "getting kicked out of the financial system." She said that will be the prevailing trend in 2010.

Despite being able to borrow at near-zero percent interest, banks are not taking that money and putting it back into the marketplace. The Federal Reserve said Monday that consumer lending dropped 1.7 percent on an annualized basis in October, the ninth straight monthly decline.

...

I'm still confused by this. Everyone agrees that the US was on an insane, irrational debt-fueled joyride before last year's collapse. And yet, we keep hearing that the key to solving our economic woes is to get consumers borrowing madly again?

[CaptainChewbacca]

Its stuff like this that makes me sure economics is in no way anything resembling a science. Its alot of wishful thinking, hoping, and making up rules as you go.

[Darth Wong]

Its stuff like this that makes me sure economics is in no way anything resembling a science. Its alot of wishful thinking, hoping, and making up rules as you go.

It seems like it's not really a science because it's more based on axioms than experimentation. People state principles and theories and they can produce reams of figures, but the mere presence of quantification and equations does not necessarily make something a science. How does one go about testing an economic theory? When people always have a handy excuse ready for any inaccurate predictions, what is the value of those predictive models?

[Rawtooth]

It seems like it's not really a science because it's more based on axioms than experimentation. People state principles and theories and they can produce reams of figures, but the mere presence of quantification and equations does not necessarily make something a science. How does one go about testing an economic theory? When people always have a handy excuse ready for any inaccurate predictions, what is the value of those predictive models?

This is actually coming up in economics a lot more. There is an ongoing debate between Neo-Classical and Experimental economics. Neo-Classic are the axioms. Experimental is what it sounds like, testing theories both in lab setting and out in the field by having groups of people operate under market conditions. Some of the ideas to come out of this have been the designs of auctions for selling off radio bandwidths.

[Surlethe]

Its stuff like this that makes me sure economics is in no way anything resembling a science. Its alot of wishful thinking, hoping, and making up rules as you go.

It seems like it's not really a science because it's more based on axioms than experimentation. People state principles and theories and they can produce reams of figures, but the mere presence of quantification and equations does not necessarily make something a science. How does one go about testing an economic theory? When people always have a handy excuse ready for any inaccurate predictions, what is the value of those predictive models?

I've heard a lot of honest-to-god economists grumbling about this. One professor spent a half hour telling me about how he (accurately) predicted the lack of quality of job candidates to the department by checking whether the word "lemma" appeared in any of their papers. So it's probably an accurate argument to say that a lot of modern economics is like string theory: interesting complex mathematical models that are impossible to test for all practical purposes. However, I'd submit that economics is not fundamentally flawed as a science, any more than meteorology or climatology or evolutionary biology. After all, it's impossible to accurately predict the weather more than several days in advance, it's impossible to accurately predict the course evolution takes, and it's impossible to accurately predict the global mean temperature year-over-year. Just like an economy, the weather, the biosphere, and the climate all are incredibly complex chaotic systems where, to compound our extant inability to forecast, we have very limited data-gathering capabilities.

(Of course, this means that economists need to acknowledge these limitations, but whether economists are good scientists is a different issue than whether economics is a broken as a science.)

[Sea Skimmer]

It seems like it's not really a science because it's more based on axioms than experimentation. People state principles and theories and they can produce reams of figures, but the mere presence of quantification and equations does not necessarily make something a science. How does one go about testing an economic theory? When people always have a handy excuse ready for any inaccurate predictions, what is the value of those predictive models?

It doesn't seem very complex to me. It’s just a way to help you experiment with better then random chance odds when you make investments, be they from or into the public or private sector. The main defense against risk is of course going to be diversification, but you’ll never get all that far unless you take on at least a little additional risk. Economic theory can certainly help you decide what direction to take that added risk in.

I get so tired personally, of hearing about people who got wiped out because they invested entirely in one business, or worse only in one industry or even just one scheme within an industry like a 750,000 dollar per unit condo project in Cape Coral Florida. Obviously that’s just stupid, because you are intentionally introducing a single point of failure into the plan. But greed, even if well intentioned for nothing more then a retirement a few years early, is a powerful force that blinds people to this reality over and over again. This time around it was allowed to occur on the scale of several trillion dollars instead of several tens of billions of dollars, but nothing is new.

I don’t really see what else can be done, except to rely purely on bank interest, which is nearly nothing, or to buy gold, pray you bought real gold and not gold plated tungsten bars, and wait a long time to come out ahead. But even that option is limited since only so much gold exists to be bought, thus the high value.

[J]

Hey, J, according to the debt clock you linked to, the debt burden per citizen exceeds income per citizen. Just how fucked does that make the US in the long run, aside from 'very' and what sort of consequences can we assume if this trend continues beyond 'anarchy'?

Recall that a debt is paid off over time much like a mortgage, one can take out a mortgage amounting to several times yearly income and pay it off over 20 years without too many problems. The problem here is interest, if the interest on the debt ever exceeds yearly income after expenses, the debt will quickly run away and kill the borrower. Right now we're getting too close for comfort there with the US debt, the US can support its debt load only because of near zero interest rates. If the interest rate gets away you could have anything from an Iceland style reset to a complete collapse of the country, but likely closer to the former.

It seems like it's not really a science because it's more based on axioms than experimentation. People state principles and theories and they can produce reams of figures, but the mere presence of quantification and equations does not necessarily make something a science. How does one go about testing an economic theory? When people always have a handy excuse ready for any inaccurate predictions, what is the value of those predictive models?

You see if their predictions and models work out. It does, or it doesn't, pretty simple.

[Drooling Iguana]

I'm still confused by this. Everyone agrees that the US was on an insane, irrational debt-fueled joyride before last year's collapse. And yet, we keep hearing that the key to solving our economic woes is to get consumers borrowing madly again?

It's either that or try to reduce the gap between the rich an the poor enough so that regular people can properly afford a comfortable lifestyle. Easy debt means that you can keep the peons spending without having to actually pay them a decent wage, and when the system built on that debt inevitably collapses, well, that's what bailouts are for.

[Coyote]

Our entire economy is based on short-term gain thinking, and constanct consumerism. It was, for awhile at least, expected that people would get a new car every 2 years or so, at least on a lease. Or constantly re-buying things due to changes in fashions or styles, rather than degraded performance (and while the term 'fashion' and 'style' are usually associated with buying new clothes, the truth is it can be applied to a lot of things like consumer electronics such as mobile phones or televisions).

Only in a few cases do we really need to buy "the latest" thing, for example one of those is in the field of computers, where performance actually is being upgraded at rapid paces, and in extreme cases older computers simply can no longer keep up with information being given to them on the internet.

But the consumer is required to be in a cosntant state of debt, which means a constant state of interest payments-- and what is interest? Let's face it, interest payments on consumer debt means you're forking over tons of cash for nothing at all. People may well still be paying interest payments on a thing they no longer have, and had been replaced by something newer... which they are paying interest on. So businesses have a cash cow in the form of consumer debt, which they have no incentive to wean off of.

At the same time, though, businesses want to pay their employees less and less (or at least, fail to keep up with the cost of living) and they also want to trim back any benefits as much as possible, so there's less money for people to buy with, and it becomes harder and harder to keep up. When the government tries to mandate relief, who do they give it to? The businesses, because to cut into their profits "hurts the economy". And since the businesses have the money to keep the Senators and Representatives in line, with fat checks and presents, the government will continue to let the system slide and won't do anything to help the employees/consumers.

Eventually the whole thing will implode. [/shrug]

[Stargate Nerd]

So the US just prays that everyone keeps buying its debt...

Is there a chart somewhere, inflation adjusted for current dollars, which shows Debt over time?

2 things I'm thinking, don't know if they're accurate:

1. Do the countries that already have a lot of dollars like China any choice? Wouldn't them trying to sell their dollars lead to a collapse of the dollar which would pretty much leave them with monopoly money?

2. Wouldn't a collapse of the dollar and the likely inflation actually help the US since it's debt be worth less?

[Darth Wong]

It seems like it's not really a science because it's more based on axioms than experimentation. People state principles and theories and they can produce reams of figures, but the mere presence of quantification and equations does not necessarily make something a science. How does one go about testing an economic theory? When people always have a handy excuse ready for any inaccurate predictions, what is the value of those predictive models?

It doesn't seem very complex to me. It’s just a way to help you experiment with better then random chance odds when you make investments, be they from or into the public or private sector. The main defense against risk is of course going to be diversification, but you’ll never get all that far unless you take on at least a little additional risk. Economic theory can certainly help you decide what direction to take that added risk in.

I get so tired personally, of hearing about people who got wiped out because they invested entirely in one business, or worse only in one industry or even just one scheme within an industry like a 750,000 dollar per unit condo project in Cape Coral Florida. Obviously that’s just stupid, because you are intentionally introducing a single point of failure into the plan. But greed, even if well intentioned for nothing more then a retirement a few years early, is a powerful force that blinds people to this reality over and over again. This time around it was allowed to occur on the scale of several trillion dollars instead of several tens of billions of dollars, but nothing is new.

I don’t really see what else can be done, except to rely purely on bank interest, which is nearly nothing, or to buy gold, pray you bought real gold and not gold plated tungsten bars, and wait a long time to come out ahead. But even that option is limited since only so much gold exists to be bought, thus the high value.

Agreed, but that's personal investment strategy, which is not quite the same as macroeconomics. In terms of macroeconomics, it seems to me that it's one of those fields (like psychology) where it's impossible to conclusively discredit an idea, which bothers me.

[Big Orange]

This YouTube video can be seen as yet more sensationalist doom mongering, but still eye opening none the less, with the George emphasizing the underlining stress and tension that is bubbling in the US population still going through the motions of Christmas shopping (America's welfare safety net is not as well established as in Britain and Europe):



Although anecdotal and from a local perspective, it is still worrying, especially when it has been filmed in the ostensibly prosperous State of California (who's GDP is comparable or greater than many other Western countries).

Anyway this video was hosted by website called the National Inflation Association.

[Sea Skimmer]

Agreed, but that's personal investment strategy, which is not quite the same as macroeconomics. In terms of macroeconomics, it seems to me that it's one of those fields (like psychology) where it's impossible to conclusively discredit an idea, which bothers me.

Well macroeconomics is really just a bunch of different investment strategies interacting. Like the government invests in more highway interchanges, letting trucking companies invest slightly less in trucks since they are more efficiently operated ect… I know you know this I just felt like stating it.

That makes it much harder to test then mere personal investments, which is why you can’t really discredit anything, but I’m sure companies are working on computer simulations of the entire global economy. All you need to do is simulate every last consumer, every last product and every last resource, which frankly sounds easier to me then some of those brain simulation projects now ongoing. Especially since so much of the global economy already revolves around computerized transactions in the first place, involving physical products or electron money. Course this would also require simulating the habits of each consumer, which would require some degree of abstraction to avoid requiring quantum computers to do all the calculations. Still I don’t see it as being impossible. We just don’t know enough yet to be conclusive.

It seems to me that economies don’t just always have a way to backpedal out of whatever they said before whatever bubble burst; they also just usually say nothing but very vague statements in the first place. But hey, all else aside are pursuing successful investment strategies in paid bullshit creation, so they can’t be completely wrong.

[The Duchess of Zeon]

On the positive side, if the value of the US Dollar tanks, this debt won't be worth shit, and at this rate, the value of the US Dollar will in fact tank. When a Big Mac costs 15,000 USD, we'll have nicely erased our debt...

[Darksider]

all this talk of hyperinflation is scaring the shit out of me. What are the chances that the U.S. will get through this without turning into something out of Mad Max?

After watching that video, my fears for the future have officially turned from "will I get a job by august" to "will I starve to death in a ditch somewhere after society collapses."

[Alerik the Fortunate]

I doubt that things could get that bad here in less than many decades unless Europe, China, and other developed economies implode into anarchy first. Why would anyone outside not do all they could to stop the world's most heavily armed nuclear power with still the world's largest economy collapse into post-civilization? It would not be good for anyone. On the other hand, there is a lot of room for us to fall between now and Mad-Max scenarios that would be distinctly unpleasant.