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Federal Debt Limit Reached. Congress: "Pensioners, Please Bend Over"
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| occrider |
U.S. Hits Debt Limit After Senators Put Off Raising Ceiling
Fri Oct 15, 2:46 AM ET Top Stories - washingtonpost.com
By Jonathan Weisman, Washington Post Staff Writer
The federal government reached its $7.4 trillion debt ceiling yesterday, forcing Treasury Secretary John W. Snow to delay contributing to one of the federal employees' pension systems to avoid running out of cash and possibly defaulting on government debt.
The situation will probably be temporary, as it has in the past. Congressional leaders said that when they return for a lame-duck session after the election, they will raise the debt ceiling to allow the government to borrow the money it needs to pay its bills. At that point, any overdue contributions to the pension fund would be paid, with interest.
Snow has pleaded with Congress since Aug. 2 to raise the debt limit, but Senate Republican leaders -- whose aides said they were worried about the possible political backlash -- adjourned for the campaign this week without acting on Snow's request. The Treasury secretary repeated his plea yesterday in a letter to Senate Majority Leader Bill Frist (R-Tenn.), appealing to his "commitment to maintaining the full faith and credit of the U.S. government."
"Given the current projections, it is imperative that the Congress take action to increase the debt limit by mid-November, at which time all of our previously used prudent and legal actions to avoid breaching the statutory debt limit will be exhausted," Snow wrote.
Congressional leaders in turn promised to raise the borrowing limit as soon as they reconvene. The House passed a $690 billion increase in the debt ceiling in a 2005 budget resolution, but it was never adopted by the Senate.
"Typically with Congress, they do it when they need to do it," said John Feehery, spokesman for House Speaker J. Dennis Hastert (R-Ill.). "And we'll do it when we need to do it."
The federal government regularly sells Treasury bonds to finance the difference between the amount of money it collects in taxes each year and the amount it spends. The debt ceiling was first imposed in 1917 to act as a brake on the total amount of accumulated debt the government owes. Today the total debt includes money owed either to private investors or, in the case of funds borrowed from surplus Social Security (news - web sites) taxes, to other government programs.
Since then, the Treasury has on five occasions delayed pension fund payments as it approached its limit on borrowing. Three of those incidents came under President Bush (news - web sites) -- in 2002, 2003 and yesterday -- as Republicans in Congress have become leery of voting to raise the debt limit. The others were during the rapidly spiraling deficits of 1985 and the budget showdown between the new Republican Congress and President Bill Clinton (news - web sites) in 1995.
When Bush came to office, the debt ceiling was $5.95 trillion and had last been raised in 1997.
Since 2002, Congress has raised the borrowing limit by more than $1.4 trillion, as the government ran increasingly large deficits of $158 billion in 2002, $375 billion in 2003 and $413 billion for fiscal 2004, which ended in September. Yesterday the Treasury Department (news - web sites) released its final 2004 deficit figure, which came in below initial forecasts but still at a record level in dollar terms.
If Republicans had hoped to avoid the issue before the election, Democrats sought yesterday to make them pay with a litany of accusations.
"This is a heck of a burden to pass on to the next generation," said Rep. John M. Spratt (news, bio, voting record) Jr. (S.C.), the ranking Democrat on the House Budget Committee.
Campaign aides of Democratic presidential nominee Sen. John F. Kerry (news, bio, voting record) (D-Mass.) noted that Bush's 2001 budget anticipated the debt ceiling would not have to be raised until 2008. And, they said, , the government has run up more debt in the past 17 months than was amassed under all the presidents from George Washington to Ronald Reagan (news - web sites).
"George Bush (news - web sites) continues to make history for all the wrong reasons," said Kerry campaign spokesman Phil Singer.
Budget watchdog organizations took both Kerry and Bush to task for what they see as a failure to take the deficit seriously.
"Following the presidential debate, where more attention was given to the candidates' wives than to the budget deficit . . . it is hard to see where the leadership to put the country back on the path of fiscal responsibility will come from," said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.
A number of independent analyses have concluded that the mix of tax cuts and spending plans outlined by both candidates would balloon the budget deficit.
http://story.news.yahoo.com/news?tm...32985_2004oct14
Boo John Kerry!!! No tax and spend presidents!!
Yay Bush, our wonderful spend and spend President!!! |
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| MisterOpus1 |
Pensions?
Pensions?!?
We don't need no stinkin' pensions!!! |
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| St_Andrew |
| quote: | Originally posted by occrider
"Following the presidential debate, where more attention was given to the candidates' wives than to the budget deficit . . . it is hard to see where the leadership to put the country back on the path of fiscal responsibility will come from," said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. |
that is the scary part of the whole thing imo... |
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| Q5echo |
Please follow these important steps to make a contribution to reduce the debt.
(1)Make check payable to the "Bureau of the Public Debt"
(2)In the memo section of the check, make sure you write "Gift to reduce the Debt Held by the Public "
(3)Mail check to -
ATTN DEPT G
BUREAU OF THE PUBLIC DEBT
P O BOX 2188
PARKERSBURG, WV 26106-2188
i think it's about that time. |
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| occrider |
As expected, with the conclusion of the election, the White House is asking congress to raise the debt limit:
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White House: Debt Ceiling Must Be Raised
Wed Nov 3,12:54 PM ET White House - AP
By MARTIN CRUTSINGER, AP Economics Writer
WASHINGTON - The Bush administration announced Wednesday that it will run out of maneuvering room to manage the government's massive borrowing needs in two weeks, putting more pressure on Congress to raise the debt ceiling when it convenes for a special post-election session.
Treasury Department (news - web sites) officials announced that they will be able to conduct a scheduled series of debt auctions next week to raise $51 billion. However, an auction of four-week Treasury bills due to be completed on Nov. 18 will have to be postponed unless Congress acts before then to raise the debt ceiling.
"Due to debt limit constraints, we currently do not have the capacity to settle our four-week bill auction scheduled to settle on Nov. 18," Timothy Bitsberger, acting assistant Treasury secretary for financial markets, said in a statement.
Congress is scheduled to return for a lame-duck session beginning on Nov. 16 to deal with the debt ceiling, an omnibus spending plan for the rest of this budget year and other matters.
The Republican-controlled Congress put off dealing with the debt ceiling before adjourning in October, preferring not to force members to vote on the politically sensitive issue of adding to the national debt before the November elections.
The government hit the current debt ceiling of $7.384 trillion on Oct. 14, forcing Treasury to begin a series of bookkeeping maneuvers to keep financing the government's normal operations without breaching the debt ceiling. But Treasury Secretary John Snow has warned that those special measures would last only until mid-November.
The Treasury Department's actions have included reducing the amount of debt in government trust funds to free up room for further borrowing from the public. The nonpublic debt is then replaced in the trust funds once the debt ceiling is increased along with any lost interest payments.
Republicans have proposed that the debt ceiling be raised by $690 billion to $8.074 trillion, an amount that would get the government through next September, when the 2005 budget year ends.
The need to raise the debt ceiling reflects the record budget deficits of the past two years. The deficit for the 2004 budget year, which ended Sept. 30, was an all-time high of $413 billion, surpassing the old mark, in dollar terms, of $377 billion in 2003.
Democrats blame the surging deficits on Bush's tax cuts, while the administration contends the tax cuts provided critical economic stimulus to help lift the economy out of the 2001 recession.
The administration says the president has a plan to cut the deficit in half by 2009, but critics contend that the real problems will come in later years as retiring baby boomers put unprecedented strains on Social Security (news - web sites) and Medicare.
In its announcement Wednesday, Treasury said it will sell $51 billion in new securities next week including $22 billion in three-year notes on Monday, $15 billion in five-year notes on Tuesday and $14 billion in 10-year bonds on Wednesday.
http://story.news.yahoo.com/news?tm...wh/debt_ceiling
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The spend and spend government continues ... |
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| wolverine16 |
| quote: | Originally posted by occrider
As expected, with the conclusion of the election, the White House is asking congress to raise the debt limit:
The spend and spend government continues ... |
As I just mentioned elsewhere, but is appropriate here as well, Bush may be proposing a flat tax, which will generate far less revenue for the federal government, so either those with less pay more to make up the difference or we go even further into debt. |
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| St_Andrew |
| occrider, you are the economic expert here, how long do you think that the deficit can continue without seriously damaging the economy? |
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| MisterOpus1 |
| quote: | Originally posted by St_Andrew
occrider, you are the economic expert here, how long do you think that the deficit can continue without seriously damaging the economy? |
I think it can be argued that in small, indirect ways the damage has already started. But by 2008 when the baby boomers start retiring, those indirect ways will become less subtle and more direct. In fact, one may argue it will potentially run us right over.
I think the argument used by the conservatives is that provided it's manageable (as a % of the GDP, I think), it's okay. Right now we're at that "manageable" level, for now. But many other factors are coming into play, however. Don't think it's a fluke that there's immediate talk today of privitizing social security. At our current borrowing levels and fiscal irresponsibility, we'd have no way in hell to fund for SS for very much longer. Now a budget surplus like we once had would be another matter altogether, but that ain't gonna happen anytime soon.
Keep in mind, one of the neocon mandates is big government spending. More of the same to come. |
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| PhloTron |
Realize that the Government ended pensions for new [99.9%] government employees almost 10 years ago. Only those employees on the payroll prior to that time are eligible for full...or partial pensions. Even the gov't has gone to a 401K system for it's newer employees.
That said, the Federal Pension system will be in effect for at least another 60 years...until the last of the people hired under the old system finally die off. And with people living longer and longer...thus the reason for the huge amount of $$$ needed to pay for pensions. They were designed back in the day when people needed money for a couple 5 years before they kicked the bucket. Just like Social security, it is and outdated and obsolete system.
Aside from the people grandfathered in, I reason to believe that both "pensions" and SS will be a thing of the past, in favor of more lucritive systems for the way we live today.
And if the gov't can't afford a pension system, why would any private company in their right mind have that kind of burden to worry about.
The deficit will grow until people that qualify for pensions start dying off...and less and less people are in the program. This should ultimately begin in the near future...however...as stated, it may never fully recover until the last ones kick the bucket, as when less people are on the plan, they will simply divert funds elsewhere...to satisfy the majority of who's "alive" at the time being...which will be when people like myself will be retired :D
[Plus] in my industry...this is the junk I get to see everyday about failing systems and how the gov't is supposed to bail them out. Thank god, my boys have a 401K w/ 10% match :D
| quote: | United Details New Contract Proposals
31 minutes ago
By ANNA JOHNSON, Associated Press Writer
CHICAGO - United Airlines sent its employee unions new contract proposals on Thursday, seeking to terminate pensions and demanding other concessions.
United, the nation's second-largest airline, has been threatening to terminate its pensions since August, and last month it said it would need to cut costs significantly more than anticipated because of the industry's deteriorating financial outlook.
"We recognize this is difficult for employees but it's necessary considering the environment we are in. Fuel is at record high and airfares are at record low," United spokeswoman Jean Medina said.
The Elk Grove Village-based carrier and its parent company UAL Corp. are attempting to save an additional $2 billion by 2005, Medina said. United already has lopped $5 billion from annual expenditures since it filed for Chapter 11 bankruptcy in December 2002.
Facing $4.1 billion in obligations to its existing pension program over the next five years, United wants to terminate future pension plans and replace it with a defined contribution plan. United's plan _ which the company says is necessary to attract financing to leave bankruptcy _ has caused an uproar among employees.
The government-financed Pension Benefit Guaranty Corp. would have to take on United's huge obligations if the airline terminates the pensions. United's plan has also sparked worry in Washington over the potential steep cost to federal taxpayers.
Steve Derebey, a spokesman for the Air Line Pilots Association, said in a recorded message Thursday that United's proposal outlines "dramatic changes," including the replacement of pension plans. Another pilot spokesman declined further comment. The union's governing body is scheduled to meet beginning Nov. 15 and will discuss United's proposal then.
United's machinist union _ the International Association of Machinists and Aerospace Workers _ would not comment on the contract proposal until its members see it on Friday, spokesman Joseph Tiberi said.
United's flight attendants union spokeswoman Sara Nelson Dela Cruz also said the Association of Flight Attendants would not comment on the contract proposal until its leaders meet Friday to discuss it.
Along with labor concessions, United senior executives, including CEO Glenn Tilton, also have agreed to a 15 percent wage reduction beginning Jan. 1, Medina said. Tilton earns $712,500 annually.
Medina said United hopes to reach consensual agreements with the unions on the contracts. If not, the carrier can ask the bankruptcy judge to impose cuts, Medina said.
United also is widely expected to disclose thousands of additional job cuts when it reveals its new business plan later this month. Medina said Thursday the company does not yet have specifics on the number of job cuts it would make. The world's second-largest airline has about 62,000 employees, down from more than 100,000 before the 2001 terror attacks.
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| occrider |
| quote: | Originally posted by St_Andrew
occrider, you are the economic expert here, how long do you think that the deficit can continue without seriously damaging the economy? |
Well a lot of people form misconceptions about the effect of deficits and the national debt because socially speaking, it is not a debt. It is a domestic debt owed by government and most of the interest payments are, in fact, paid by ourselves to ourselves. The economic effects of a mounting debt are quite complex (and somewhat theoretical) and I could probably write decent lengthed paper on all the cause and effect relationships. I'll try to be brief in my summary however and only describe a few effects.
The debt is not really so much an issue right now. As a % of GDP it's not as bad historically as it once was. But the large deficits are ultimately unsustainable in long run. Essentially there is a market for government debt, the bond market. There is a given supply and a given demand for bonds. Right now there is still plenty of demand for government debt since the US government is still regarded as one of the best investments in the world. Therefore foreign investors are willing to purchase bonds and domestic investors are willing to purchase bonds. However, once the government incurs large deficits over a long period of time and that behaviour is regarded as unsustainable, investors will percieve that the government will have a more difficult time paying interest on the debt. Consequentely you start to see upward revisions in bond yields (interest rates) because the government is more "risky" and therefore the returns have to be higher in order to attract the same number of investors. Once yeilds rise, the bond market starts to draw from the equity markets (Dow Jones, Nasdaq, etc.) because investors can get a better rate of return from the bond market than risky equity markets. On top of that, the government is not the only insitution that issues debt. Most publicly traded companies issue debt as well and especially investment banks. Therefore the government has a double "crowding out" effect. Investors are drawn from the equity market to invest in government bonds and the government monopolizes on debt issuance since most debt buyers will be attracted to government debt as opposed to private issued debt. Therefore there will essentially be less private investment.
That's one effect, another effect is that the government has less to spend. Even though much of the debt owed by the government it has to pay the interest on the debt. If the government ever went into default you better have a pile of gold and cans of food in your bomb shelter. Therefore despite the fact that much of the interest payments are going back out to the public, the government is left with the choice of either raising taxes or limiting spending as the size of the debt grows. Both will have a negative impact on the economy. Yes the government can continue to do neither as the Bush administration has been doing, but that's like escaping withdrawal by taking more heroin. Eventually your interest payments are going to get so high that the public will percieve you as being unable to pay off the debt. As a result what I described in my first paragraph will ensue and interest rates will rise.
One last effect that I'll go into is foreign investment. Foreign investment is a big factor in the demand for our debt. Remember, if demand were to decrease, bond rates would go up, as dictated by a shifting equilibrium point on a supply-demand curve. If foreign investors perceive the US as becoming too risky, they will shift demand elsewhere. They haven't as of yet because the US is still a very lucrative place of investment. More lucrative than the EU because of their social policies. However, China is going to be a big worry. The only reason why investors are not pouring into China is because they have no private controls and everything is government owned. However, if China initiates dramatic reform in its banking industry and its regulatory controls, you can definetely expect investors to shift investment from the US market to China ... and this would of course be bad for the US.
Soooo, that's just 3 effects of a mounting debt. There are actually a ton of other effects minor and major and I should really go into greater detail of the market forces involved, but I'm not writing a term paper am I? :)
Edit: hehe i never answered your question. I would say 10-20 years at current spending rates. That 20 is the definite max by the way. The social security surplus runs out before 2020. Once that happens SS dips into the SS trust fund ... which is entirely composed of government securities. |
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| occrider |
Hey Shakka, remember when you said that you thought that the Bush administration would be less prone to run up the deficit and would be more fiscally responsible than Kerry? Surprise, surprise …
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Newsview: Bush Agenda Would Add Big Costs
2 hours, 48 minutes ago White House - AP
By ALAN FRAM, Associated Press Writer
WASHINGTON - With federal deficits already running amok, it is unclear how President Bush (news - web sites) will pay for his second-term agenda, a potentially multitrillion-dollar smorgasbord that includes overhauling Social Security (news - web sites) and revamping the tax system.
Bush laid out lofty goals Thursday at his first news conference since his Election Day triumph. He said he wanted to buttress Social Security, simplify the tax system, strengthen the economy, fight terrorism, bolster education, and battle AIDS (news - web sites) and poverty abroad.
"I earned capital in the campaign, political capital, and now I intend to spend it," the president said.
But all the political capital in the world won't pay for his pricey priorities. And unlike four years ago, when his first term began amid projections for $5.6 trillion in federal surpluses over the next decade, the budget's future looks bleak.
Thanks to recession and the burden of higher spending and tax cuts that Bush won, the nonpartisan Congressional Budget Office (news - web sites) now sees $2.3 trillion in accumulated deficits over the next 10 years. That excludes the costs of wars in Iraq (news - web sites) and Afghanistan (news - web sites), easing the alternative minimum tax's growing burden on middle-class families, and the long-term crunch retiring baby boomers will place on federal support programs like Medicare.
That leaves deficit hawks wondering how Bush would pay for his second-term wish list, finance the wars and meet his goal of halving federal shortfalls by 2009.
"I don't think you can do all of that and still cut the deficit in half in five years," said Robert Bixby, executive director of the bipartisan Concord Coalition, which favors deficit reduction.
Bush could decide to simply borrow the needed money, which would drive deficits higher, "and the real economic consequences of such a binge would come after he leaves office," Bixby said.
For his second term, Bush envisions reshaping Social Security so workers can use some taxes they pay to support the system to create personal savings accounts. He has not advanced details or cost estimates, but some analysts have estimated the 10-year price tag at between $1 trillion and $2 trillion.
Bush wants to make 2001 and 2003 tax cuts permanent — they will otherwise expire by this decade's end — at a roughly $1 trillion price tag. He said Thursday he wants to simplify the tax system at no net cost, but in the past such exercises have often resulted in tax cuts as part of the drive to get lawmakers' votes.
It is hard to estimate the long-term costs of the Iraq and Afghanistan wars, but this year's expenses alone may approach $100 billion. Domestic security costs several tens of billions annually, while his initiatives for education and foreign aid are relatively small, just a few billion a year.
White House budget office spokesman Chad Kolton said Thursday that Bush can still halve the deficit by 2009 while addressing his goals.
"These are national priorities that need to be addressed, long-term issues that would be more expensive to wait to deal with than to deal with now," Kolton said.
Democrats dispute that.
"All he talked about today were things that will increase the deficit," said Sen. Byron Dorgan (news, bio, voting record), D-N.D. "He's going to have to at some point confront reality."
With the GOP's electoral successes this week, Bush can count for support on Congress' growing cadre of conservative Republicans — with some caveats.
Rep. Mike Pence (news, bio, voting record), R-Ind., a leader of House conservatives, said a Social Security overhaul and tax simplification are central tenets of the conservative agenda.
But he added, "Restoring luster to our reputation as fiscal conservatives will be a very high priority for the Republican majority," including "moving toward a balanced budget."
To help achieve that, Pence said conservatives want to pare back part of the Medicare prescription drug benefits and avoid expanding the education revisions that Bush and GOP leaders have pushed through Congress.
Financial markets may also play a role in Bush's second term. Despite two consecutive record federal deficits — last year's was $413 billion — the markets have yet to show much concern and interest rates have stayed low.
"Realistically, a lot of these things turn out to be smaller than they sound," said Ethan Harris, an economist at the brokerage firm Lehman Brothers. "Wall Street doesn't get worried until it sees the details and the politics that's there."
But he and other analysts warned that while foreign investors and central banks have helped finance recent U.S. deficits, the risk that they will stop providing cash increases if large amounts of red ink remain consistent.
http://news.yahoo.com/news?tmpl=sto...sticker_shock_4
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| drizzt81 |
| quote: | Originally posted by MisterOpus1
I think it can be argued that in small, indirect ways the damage has already started. But by 2008 when the baby boomers start retiring, those indirect ways will become less subtle and more direct. In fact, one may argue it will potentially run us right over.
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it will.. trust someone from a country where 2008 has already arrive (at least in part) |
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