Our financial system is crumbling this week.

[longhornbaseball]

That's pure Keynesian stuff, right? I understand the demand's got to come from somewhere to avoid another recession, but federal public debt isn't made up and is growing at an unsustainable rate. I agree austerity measures in the short term would be a mistake, but your graph is showing a housing recovery not until 2020. You're suggesting public spending to make up for private spending for that long? I'm trying to figure out a way to reconcile the two and it's tricky.

2020 is the most pessimistic view I've seen of when the balance sheet recession will end. Others believe it will take another 2-3 years before the private sector starts to become self sustaining. At that time, it will be appropriate to reduce government spending and decrease the deficit.

[Hungary Jack]

I do not understand how you can state that there is not a public debt crisis in this country. I understand that our federal and state governments can raise taxes, that our central bank can (continue) to devalue our currency, and that we can continue to borrow even if it means paying significantly higher rates as the credit agencies and Chinese get nervous, but all of these remedies have serious consequences for our economy and standard of living. It is a theoretical argument, and one that fails to recognize that our public fiscal policy is really taxing the limit of our economy and trading partners to finance public consumption.

A crisis implies that if we don't undertake fiscal tightening soon, there will be dire immediate consequences in the form of a higher interest rates and/or a currency collapse, which will lead to hyperinflation. There is currently very little evidence that suggests either scenario is likely to occur in the future, and no evidence that either is occurring right now (which is what the word crisis implies).

The only reason the ratings agencies are discussing a downgrade of US federal debt is due to the BS debt ceiling, which is an outdated relic of the gold standard. If there was no debt ceiling, the ratings agencies would not be discussing a US downgrade. The argument that the Chinese might decrease their demand for US treasuries ignores the fact that the Chinese need to buy US treasuries (or other dollar denominated assets). As long as they keep trading us goods for dollars, the need to do something with those dollars. US treasuries continue to be the safe-haven asset for the entire world, and I don't see that changing anytime soon.

The primary factors that drives US treasury yields are Federal Reserve policy and inflation. Currently the Fed funds rate is around zero and inflation is 3.6%, which is higher than we'd like, but primarily due by the oil shock which began with the Libyan revolution. As long as there is stability in the global energy markets, inflation shouldn't be much of a problem.

OK, I see your point. And yes, we would not have a "crisis" if the debt ceiling was not maxed out. But given the current trajectory of our debt, with no reasonable inflexion point in federal spending in sight, I think the issue has, politicking aside, come to a deserved head.

Of course, I haven't been comfortable with our federal debt and spending for years, and I live in a state and a county that is leveraged to the hilt (in terms of pension obligations), and a city that has a huge deficit, just sold off its parking meter revenues and spent most of the proceeds, and hands out TIFs like Ronnie Woo Woo hands out "Woos!"

[longhornbaseball]

But given the current trajectory of our debt, with no reasonable inflexion point in federal spending in sight, I think the issue has, politicking aside, come to a deserved head.

With stagnant growth and a 9.8% unemployment rate, too much federal spending should be far down on our list of things to worry about.

Of course, I haven't been comfortable with our federal debt and spending for years, and I live in a state and a county that is leveraged to the hilt (in terms of pension obligations), and a city that has a huge deficit, just sold off its parking meter revenues and spent most of the proceeds, and hands out TIFs like Ronnie Woo Woo hands out "Woos!"

Municipalities are a whole different story. I haven't followed the situation in Illinois, but higher state taxes due to irresponsible spending is something to be pissed off about.

[ghostrunner]

I do not understand how you can state that there is not a public debt crisis in this country. I understand that our federal and state governments can raise taxes, that our central bank can (continue) to devalue our currency, and that we can continue to borrow even if it means paying significantly higher rates as the credit agencies and Chinese get nervous, but all of these remedies have serious consequences for our economy and standard of living. It is a theoretical argument, and one that fails to recognize that our public fiscal policy is really taxing the limit of our economy and trading partners to finance public consumption.

A crisis implies that if we don't undertake fiscal tightening soon, there will be dire immediate consequences in the form of higher interest rates and/or a currency collapse, which will lead to hyperinflation. There is currently very little evidence that suggests either scenario is likely to occur in the future, and no evidence that either is occurring right now (which is what the word crisis implies).

The only reason the ratings agencies are discussing a downgrade of US federal debt is due to the BS debt ceiling, which is an outdated relic of the gold standard. If there was no debt ceiling, the ratings agencies would not be discussing a US downgrade. The argument that the Chinese might decrease their demand for US treasuries ignores the fact that the Chinese need to buy US treasuries (or other dollar denominated assets). As long as they keep trading us goods for dollars, they need to do something with those dollars. US treasuries continue to be the safe-haven asset for the entire world, and I don't see that changing anytime soon.

The primary factors that drive US treasury yields are Federal Reserve policy and inflation. Currently the Fed funds rate is around zero and inflation is 3.6%, which is higher than we'd like, but primarily due to the oil shock which began with the Libyan revolution. As long as there is stability in the global energy markets, inflation shouldn't be much of a problem.

I wish I heard more of this POV in the media. There's been plenty of talk about cuts and taxes, and sports like coverage about who's winning, but it would be nice to at least hear the central premise challenged.

I started reading this blog several months ago

http://www.optimist123.com/

Oddly enough, though he hasn't updated it since January, the last post is about the debt ceiling. You can go back and read the archives though and there's a lot of thought provoking stuff contrary to the conventional wisdom. Basically he thinks the debt crisis is a bunch of hooey. As I recall, his major point is that we owe ourselves quite a bit of this debt, and therefore don't need to worry so much about it. He's more concerned with what percent of the debt is taken up by interest.

[TimeForGuinness]

I do not understand how you can state that there is not a public debt crisis in this country. I understand that our federal and state governments can raise taxes, that our central bank can (continue) to devalue our currency, and that we can continue to borrow even if it means paying significantly higher rates as the credit agencies and Chinese get nervous, but all of these remedies have serious consequences for our economy and standard of living. It is a theoretical argument, and one that fails to recognize that our public fiscal policy is really taxing the limit of our economy and trading partners to finance public consumption.

A crisis implies that if we don't undertake fiscal tightening soon, there will be dire immediate consequences in the form of higher interest rates and/or a currency collapse, which will lead to hyperinflation. There is currently very little evidence that suggests either scenario is likely to occur in the future, and no evidence that either is occurring right now (which is what the word crisis implies).

The only reason the ratings agencies are discussing a downgrade of US federal debt is due to the BS debt ceiling, which is an outdated relic of the gold standard. If there was no debt ceiling, the ratings agencies would not be discussing a US downgrade. The argument that the Chinese might decrease their demand for US treasuries ignores the fact that the Chinese need to buy US treasuries (or other dollar denominated assets). As long as they keep trading us goods for dollars, they need to do something with those dollars. US treasuries continue to be the safe-haven asset for the entire world, and I don't see that changing anytime soon.

The primary factors that drive US treasury yields are Federal Reserve policy and inflation. Currently the Fed funds rate is around zero and inflation is 3.6%, which is higher than we'd like, but primarily due to the oil shock which began with the Libyan revolution. As long as there is stability in the global energy markets, inflation shouldn't be much of a problem.

I wish I heard more of this POV in the media. There's been plenty of talk about cuts and taxes, and sports like coverage about who's winning, but it would be nice to at least hear the central premise challenged.

I started reading this blog several months ago

http://www.optimist123.com/

Oddly enough, though he hasn't updated it since January, the last post is about the debt ceiling. You can go back and read the archives though and there's a lot of thought provoking stuff contrary to the conventional wisdom. Basically he thinks the debt crisis is a bunch of hooey. As I recall, his major point is that we owe ourselves quite a bit of this debt, and therefore don't need to worry so much about it. He's more concerned with what percent of the debt is taken up by interest.

Rational thought and facts provided by longhorn are not welcome by the media, fear and chaos sell more ads/papers.

[vinsanity]

Rational thought and facts provided by longhorn are not welcome by the media, fear and chaos sell more ads/papers.

Fear and rhetoric also elects more politicians (on both sides of the aisle).

[TimeForGuinness]

Rational thought and facts provided by longhorn are not welcome by the media, fear and chaos sell more ads/papers.

Fear and rhetoric also elects more politicians (on both sides of the aisle).

Bingo.

[Hungary Jack]

I do not understand how you can state that there is not a public debt crisis in this country. I understand that our federal and state governments can raise taxes, that our central bank can (continue) to devalue our currency, and that we can continue to borrow even if it means paying significantly higher rates as the credit agencies and Chinese get nervous, but all of these remedies have serious consequences for our economy and standard of living. It is a theoretical argument, and one that fails to recognize that our public fiscal policy is really taxing the limit of our economy and trading partners to finance public consumption.

A crisis implies that if we don't undertake fiscal tightening soon, there will be dire immediate consequences in the form of higher interest rates and/or a currency collapse, which will lead to hyperinflation. There is currently very little evidence that suggests either scenario is likely to occur in the future, and no evidence that either is occurring right now (which is what the word crisis implies).

The only reason the ratings agencies are discussing a downgrade of US federal debt is due to the BS debt ceiling, which is an outdated relic of the gold standard. If there was no debt ceiling, the ratings agencies would not be discussing a US downgrade. The argument that the Chinese might decrease their demand for US treasuries ignores the fact that the Chinese need to buy US treasuries (or other dollar denominated assets). As long as they keep trading us goods for dollars, they need to do something with those dollars. US treasuries continue to be the safe-haven asset for the entire world, and I don't see that changing anytime soon.

The primary factors that drive US treasury yields are Federal Reserve policy and inflation. Currently the Fed funds rate is around zero and inflation is 3.6%, which is higher than we'd like, but primarily due to the oil shock which began with the Libyan revolution. As long as there is stability in the global energy markets, inflation shouldn't be much of a problem.

I wish I heard more of this POV in the media. There's been plenty of talk about cuts and taxes, and sports like coverage about who's winning, but it would be nice to at least hear the central premise challenged.

I started reading this blog several months ago

http://www.optimist123.com/

Oddly enough, though he hasn't updated it since January, the last post is about the debt ceiling. You can go back and read the archives though and there's a lot of thought provoking stuff contrary to the conventional wisdom. Basically he thinks the debt crisis is a bunch of hooey. As I recall, his major point is that we owe ourselves quite a bit of this debt, and therefore don't need to worry so much about it. He's more concerned with what percent of the debt is taken up by interest.

Regardless of who hold the Treasury bills and bonds that have financed our spending, these bondholders expect to get repaid. It's almost certainly a one-way ticket to higher taxes and less consumption, the latter of which drives our economy.

Foreigners still own about a third of our total public debt, which is rapidly nearing 100% of our GDP. The last time our public debt exceeded this figure was during WWII.

We really do not have a liquidity crisis in this country, but our borrowing is simply unsustainable at current trends, especially when it is primarily financing consumption. So the debt limit issue has become a pretty useful pawn for conservatives to force the issue on our deficit and our debt.

The author is correct in stating that the cost of debt service is the main issue. Historically low interest rates are really helping the US in this regard. Still, net interest consumes about $200 B in federal spending each year.

[Freed Roger]

So the debt limit issue has become a pretty useful pawn for conservatives to pretend they care about our deficit and our debt.

fixed.

[docellis]

Isn't the next step to complete chaos a youtube/facebook/twitter candidate?