Infinite debt ceiling - Tim Geithner thinks so

[mr friendly guy]

http://www.huffingtonpost.com/2012/11/1 ... 47748.html

Treasury Secretary Timothy Geithner said the U.S. "absolutely" should get rid of the debt ceiling as soon as possible.

"It would have been time a long time ago to eliminate it," Geithner told Bloomberg TV on Friday. "The sooner the better."
Geithner did not commit to personally doing anything to eliminate the nation's legal limit on borrowing. When pressed on the issue, Geithner told Bloomberg TV: "This is only something only Congress can solve. Congress put it on itself."

"Only once, last summer, did people decide to use it to threaten default on the American credit for the first time in history as a tool for political advantage," he continued. "And that's not a tenable strategy for the country."

Geithner said he doesn't plan to keep his job much longer. He told Bloomberg TV that he's agreed to stay as treasury secretary "until mid-January."

The U.S. will hit the debt ceiling some time in mid-February or early March if Congress does not raise it. And, just like last year, some congressional Republicans, including House House Speaker John Boehner (R-Ohio), have said they plan to use the debt ceiling deadline as leverage to force spending cuts. Meanwhile, the "fiscal cliff," or $1.2 trillion in spending cuts and tax hikes, is scheduled to take place on Jan. 1 if Congress does not reach a deficit reduction deal before then.

Not raising the debt ceiling would have a destructive effect on the economy. It would force steep government spending cuts and likely cause a financial crisis and recession. The government would be at immediate risk of defaulting on its debt.

Congress and the Obama administration reached an agreement to raise the debt ceiling at the last minute last year. By threatening not to raise the debt ceiling, congressional Republicans extracted $2 billion in spending cuts over 10 years from the administration. The economy shed jobs during the months of infighting, according to Labor Department data, as businesses waited on edge for a resolution.

Wow. Just wow. What will this do to the value of the US dollar if they could just keep on borrowing and need to print money to service this debt? But I guess its not called currency manipulation when the US does it.

[Flagg]

It's my understanding that most western countries have no debt ceiling.

[Mr Bean]

It's my understanding that most western countries have no debt ceiling.

This is roughly correct, the only reason the debt ceiling exist was a method of giving the Treasure control over a then pressing issue back in 1917. Since then it's been a political talking point and has always been raised by every single President since then. This is the same Congress after all who can pass a budget that ensures we need to borrow money then refuse to raise the debt ceiling so we can borrow the money to pay for the budget they passed.

In other words it's simple insanity and after the last time around the masters of the political process (IE the major contributors) sat the Republicans down and explained if they let the Tea Party crash the global financial economy because they thought it would score points back home there would be hell to pay.

[Sea Skimmer]

Fun fact, the US government paying less interest on the debt in 2012 then it did in 2008 by no less then 100 billion dollars, even though the debt has increased by something like six trillion dollars. The debt ceiling is just an economic liability at this point, precisely because it creates crisis in the markets but never does a thing to actually hold down the US national debt. The size of the debt only matters as far as interest payments size do, and that has proven to have far more to do with interest rates then the size of the debt itself. Its actually kind of crazy, the US paid almost as much (few single digit billion less) in 1997 as it will in 2012, and at that point the debt was under a third of its present size. Of course this means if interest rates went up a lot, so would interest payments, but that would also mean the economy is working a lot better.

[SirNitram]

But Hyperinflation! Bond vigilantes! CONFIDENCE FAIRY!

Basically there's no sensible reason to keep the debt ceiling. Plus, Obama can literally just order a coin with a 1T dollar value printed, carry it to the treasury, deposit it, and the debt ceiling is cranked down. This is inferior to simply ignoring it, but imagine the talking heads exploding with rage over it.

[Grumman]

They've raised the debt ceiling almost twenty times in the past thirty years - it's little more than a farce at this point, given that the response to approaching the debt ceiling is almost always to raise the ceiling instead of lowering the debt. It's like setting a road's speed limit at 50 mph, but whenever someone exceeds the speed limit you just bump it up some more. It is no longer a meaningful deterrent, so you might as well kill it off completely.

[Aaron MkII]

But Hyperinflation! Bond vigilantes! CONFIDENCE FAIRY!

Basically there's no sensible reason to keep the debt ceiling. Plus, Obama can literally just order a coin with a 1T dollar value printed, carry it to the treasury, deposit it, and the debt ceiling is cranked down. This is inferior to simply ignoring it, but imagine the talking heads exploding with rage over it.

Wasn't that a Simpsons episode?

[cosmicalstorm]

You know there is something fishy when there is a debate about whether or not people should be legally obliged to pay of their actual debt and not just the interest, as is the case here in Sweden.

[Simon_Jester]

The US national debt is made up of bonds and securities. Correct me if I'm wrong, but I thought people can cash out those bonds and securities- the catch is that the government will just issue more.

So if you own a share of the US national debt, such as a savings bond, you can get the government to pay you back: just cash in the bond. You may have to wait for a certain period of time to pass (10-year bond), but it still works. The government pays you in dollars... and promptly issues another bond to someone else who's willing to buy, to cover the money that they gave you.

So any individual creditor can collect their share of the principal, as well as the interest. Every penny of government debt now on the books can and will be paid off, assuming no major disasters. But unless we start running a surplus and deliberately pay down the debt, the current debt will just be replaced by an equally large amount of future debt. And those loans will probably be taken out at higher interest, which makes our troubles worse.

[UnderAGreySky]

Wow. Just wow. What will this do to the value of the US dollar if they could just keep on borrowing and need to print money to service this debt? But I guess its not called currency manipulation when the US does it.

The US tripled its monetary base during this recession and that did fuck all to inflation - at a time when inflation was (is?) needed because what happened was deflation. Printing money doesn't always result in inflation, and hyperinflation occurs when prices AND wages increase in a vicious cycle. In the western world there is almost zero growth in wages over the past four years especially when compared to inflation.

Please stop exclaiming "hyperinflation!" each time someone mentions printing money/quantitative easing, it doesn't help.

Monetary base v/s inflation:


Just inflation (showing < 10% price rise over five years)

[mr friendly guy]

Wow. Just wow. What will this do to the value of the US dollar if they could just keep on borrowing and need to print money to service this debt? But I guess its not called currency manipulation when the US does it.

The US tripled its monetary base during this recession and that did fuck all to inflation - at a time when inflation was (is?) needed because what happened was deflation. Printing money doesn't always result in inflation, and hyperinflation occurs when prices AND wages increase in a vicious cycle. In the western world there is almost zero growth in wages over the past four years especially when compared to inflation.

Please stop exclaiming "hyperinflation!" each time someone mentions printing money/quantitative easing, it doesn't help.

The only people exclaiming hyperinflation have been you and Nitram, who are in turn ridiculing others who claim it. All I am querying is something much more modest. A depreciation of the US dollar due to creating new money to service debt. Evidence. I never used the term hyperinflation or gave a definition which matches what most people consider hyperinflation in my post.

[Blayne]

From what I've seen, the depreciation that has happened has been a boon to the US as its made their exports more competitive and helped close the trade deficit. Strong/Weak currencies have their trade offs and strengths.

[mr friendly guy]

Of course they have trade offs. But the US (its politicians anyway) likes to label others as currency manipulators for depreciating their currency, while it does the same thing, albeit via different methods, but still.

[Block]

Of course they have trade offs. But the US (its politicians anyway) likes to label others as currency manipulators for depreciating their currency, while it does the same thing, albeit via different methods, but still.

The method in which you do things is extremely important, that's why insider trading among other things is such a big deal.

[UnderAGreySky]

The only people exclaiming hyperinflation have been you and Nitram, who are in turn ridiculing others who claim it. All I am querying is something much more modest. A depreciation of the US dollar due to creating new money to service debt. Evidence. I never used the term hyperinflation or gave a definition which matches what most people consider hyperinflation in my post.

I apologise, I read too much into your post. But I would still like to point out that the dollar has NOT depreciated in spite of a tripling of the monetary base when compared to either first-world or third-world currencies. And this has been the main criticism of Keynesians - orthodox monetary policy in the face of a liquidity trap doesn't work to combat unemployment and a drop in GDP; all it does is make funds available for bailing out the banks (which was needed then).

[SirNitram]

Wow. Just wow. What will this do to the value of the US dollar if they could just keep on borrowing and need to print money to service this debt? But I guess its not called currency manipulation when the US does it.

The US tripled its monetary base during this recession and that did fuck all to inflation - at a time when inflation was (is?) needed because what happened was deflation. Printing money doesn't always result in inflation, and hyperinflation occurs when prices AND wages increase in a vicious cycle. In the western world there is almost zero growth in wages over the past four years especially when compared to inflation.

Please stop exclaiming "hyperinflation!" each time someone mentions printing money/quantitative easing, it doesn't help.

The only people exclaiming hyperinflation have been you and Nitram, who are in turn ridiculing others who claim it. All I am querying is something much more modest. A depreciation of the US dollar due to creating new money to service debt. Evidence. I never used the term hyperinflation or gave a definition which matches what most people consider hyperinflation in my post.

I was actually reciting the reasons invented by the deluded fools which rule economics discourse. Uncertainty is a big one.

[mr friendly guy]

I apologise, I read too much into your post. But I would still like to point out that the dollar has NOT depreciated in spite of a tripling of the monetary base when compared to either first-world or third-world currencies. And this has been the main criticism of Keynesians - orthodox monetary policy in the face of a liquidity trap doesn't work to combat unemployment and a drop in GDP; all it does is make funds available for bailing out the banks (which was needed then).

No problems. I will point out it has risen against the Euro and some European currencies but Europe itself has its own problems. Against some economies who are doing somewhat better than Europe, its a different story. For example against its major trading partner the PRC, the dollar has definitely depreciated. Against Australia, we have definitely appreciated against the USD quite markedly as well.

I was actually reciting the reasons invented by the deluded fools which rule economics discourse. Uncertainty is a big one.

Fair enough. I suspected you weren't referring to me per se, but its best to make sure.

[UnderAGreySky]

I would contend that the deprecation of the dollar against the remnibi and the AUD is because of inflation in the latter countries and not a general weakening of the dollar. Australia has done well in the recession, better than most "first world" countries and China had two issues - even though its growth slowed it was still orders of magnitude better than the west and it had to fight massive internal inflation and so had to allow its currency to appreciate. So overall I propose that the dollar has become stronger on average but this is a matter of degree.

[CJvR]

An utterly pointless construct that should be dropped. If you don't want to get so heavily in debt don't spend so much! Dropping it will at least prevent lunatics from driving the world economy over the edge because they have buyers remorse over stuff they already bought.