Letter From My Senator About US Default

[pridecity]

I got a letter from my senator today. It was one of those mass emails, but it was asking me to sign a petition. I don't follow politics. I know I should, but I just have other things to do at the moment then follow every single update in our government. In addition, I understand very little of it. At any rate, this is the letter sent to me:

Dear Halley (ME!!!!),

I recently asked you to sign a petition urging Washington to stop the antics and avoid a default. And as of today, over 10,000 people stepped up and signed that petition, showing that Coloradans are tired of political games that put our country and our economy at risk.

We are 4 days away from a potential default on the nation’s debt. If that happens, interest rates will spike, our creditworthiness will come into question, and our economy could plunge into another deep recession. As I said today on “The Early Show” and NPR’s “Morning Edition”, we can’t allow a broken political process in Washington to let that happen.

We have to avoid default, but we also need a long-term, comprehensive plan for deficit reduction, and the Gang of Six has provided us with a framework to get our fiscal house in order. Our economy needs this certainty and the people of Colorado want this result.

Every day Washington fights over the debt limit is another day not spent talking about creating jobs, breaking our reliance on overseas oil, or building a world-class education system for the 21st century. Join me and the 10,000 people who’ve signed this petition, and please forwards this to your friends and family. Let's tell Washington it’s time to end the antics, avoid default, and get to work.

So, what is this "default"? It's it basically declaring bankruptcy? If so, what happens if it happens? In simple terms please. What happens if we don't go into default? What side of the line are you on and why?

I really need to go back and learn my basics in politics. Never really had a class on it.

 

[Cassie16]

You're not alone; I have utterly no idea what's going on in the world of politics these days. In high school, I tried really hard to stay informed, and even took a political science class my freshman year that I thoroughly enjoyed, but these days I don't bother.
Is it just me, or is that e-mail purposely ambiguous? You would think that it would be more detailed if they expected you to sign something.

 

[Outcast]

Basically, from what I gather, it means that China gets all of our BLM land that we put up for collateral, so that we could get all the loans for the stimulus money...

 

[helifreak]

I'll bite and try to explain to the best of my understanding. I hVe been following this pretty closely.

So think of it this way. The US has a credit card. The "Bank" that gives us the money for our "credit" is whoever trusts us enough to give us money and "buy" this debt. China happens to be a country who has purchased a large amount of this credit - but many other institutions and countries also purchase our debt because we are seen as a country with a very high probability that we will payout credit card bills.

So whenever a credit card bill is due, for some reason, we have to vote in the legislature to "pay" our bill. This is confusingly called "raising the debt limit" - which doesn't really allow us to spend more (that is what the budget does) - but simply says - ok we are gonna pay our bill.

This vote to raise the debt ceiling (pay the minimum payment on our credit card) happends many times over the course of a presidential term - and until now has never been questioned.

Reagan raised the debt ceiling 17 times. During 2000-2008 it was raised something like 7 times.

So now our minimum payment is due on Aug 2nd - and the consequences of not paying our credit card minimum payment are HUGE. Our credit rate will drastically go up, our credit rating will be reduced, and we possibly want have enough cash on hand to run The government.

So knowing the drastic circumstances of not raising the debt limit - a small faction of the republican party - but important in getting enough votes to pass the raising of the debt limit - have decided to stop all credit card payments because they believe that we have too much credit already.

Here is the problem. It is probably a valid argument that we have too much debt. However, the fight over how to reduce our spending should not be held hostage to the payment of our current bill due - like the republicans in the House are doing.

So basically our "Banks" - I.e. all the entire system of Countries and investors giving us credit is freaking out because for the first time in the history of the US - it is looking like we are not gonna make the minimum payment on our credit card.

That is as non political as I could make it.

There needs to be a debate on how to reduce our debt - however using the debt ceiling vote in the legislature is not the appropriate time and place to have this debate.

 

[helifreak]

Please excuse the various spelling and grammatical errors - I typed that huge post on an iPad and forgot to go back and proofread...

 

[Outcast]

That sounds good to me Helifreak... I personally am tired of both parties acting like we are their personal piggy bank. If we owe someone money, we should pay it off. Simple as that.

 

[helifreak]

A little explanation as to where things stand as of tonight...


But first - remember from Schoolhouse Rock - the way the legislature works is a bill starts in the House, and if passed in the House, goes to the Senate, and then if passed goes to the President to be signed - if signed by the Pres, its a law, if veto'd it goes back and has to be overturned by a 2/3 majority before becoming law.

Currently, Republicans are in charge of the House. Democrats are in charge of the Senate and of course, the presidency.

So logic would say, that when the House creates a bill that it knows has to pass, it would have to work to make sure that it is sufficient to pass both the Senate and be signed by the President.

With this debt limit bill, that is not how things are working out. Republicans in the House have demanded, that no matter what, they want the next "minimum payment" to be due in 6months (don't ask how we get to decide when our own minimum payments are due - this entire debt limit concept is to bizarre) - but anyway - the House republicans feel that it is in their Political interest to have this debate and hostage crisis again in 6 months - feeling that they will win politically closer to an election.

The Democrats (as well as every mainstream economist and even the credit agencies who are granting the credit) - say that due to the heated political debate and uncertainty that the debt ceiling debate raises - we should move the next minimum payment out to after the next election.

The problem here is that we have to "convince" all of those who are buying our credit - that we are responsible enough to keep paying it - and given the fiasco over this current payment, they say doing this whole fight over again in 6 months is unacceptable. The members of the republican house who are holding this hostage are not listening.

And this is where the current stalemate stands.

Today, the House passed a bill which cuts something like 2.4 Trillion dollars in spending, but puts another debate and debt ceiling vote out in 6 months. This was immediately voted down in the Senate (as was known ahead of time).

The senate (and the president) - have said this is unacceptable - that due to the current political environment and that from advice from all economist that it will introduce to much uncertainty to our credit rating to go through this process again in 6 months.

So the only thing left is a bill in the Senate which also cuts something like 2.4 trillion dollars from our budget, but makes it so our next debt ceiling payment is not due until early 2013 - after all the political shenanigans of the next election are over. Currently, the republican leader of the senate is filibustering this bill - however this filibuster may be overturned by other republicans who are ready to just get on with things.

Of note, is that earlier in the week the President and the leaders of the House and Senate were working on a "Grand" deal - in which there would be something like over 3 Trillion dollars in spending cuts along with 1 Trillion dollars in revenue (mostly from closing tax loopholes and raising the taxes of the rich). This plan is what just about everyone agreed was the most reasonable and fair approach. It is also what made our credit owners the least nervous. However, the group of House republicans holding the negotiations hostage refused to agree to any tax increases (i.e. the TEA party republicans - they do not agree to any tax increases, even those in place prior to the year 2000 - they do not even agree that Billionaires should be paying a higher tax).

 

[ShenziSixaxis]

Basically it means we're screwed.

That's what I've been getting from the government for the past 2 years or so.


Now I wonder if I'm joking anymore when I say to my mom "let's move to Canada".

 

[helifreak]

p.s. I forgot to answer the original question...

No - default does not mean we are bankrupt. It simply means that we have missed a payment on our debt (kinda like missing a payment on your credit card - however if you are a country like the USA, this is kinda a much bigger deal than if you are a single person missing a payment on your credit card).

So, no, we are not officially bankrupt - but yes, missing a credit card payment is a HUGE deal for a country like the USA - especially when it is technically unnecessary that this payment be missed.

Things you can do to avoid this situation in the future:

1) Vote. Vote at every opportunity.
2) Study the positions of everyone you vote for. Extremes at either end of the political spectrum are surely a recipe for disaster.
3) Read. Read newspapers and visit online media to learn about what is going on. Some of the most popular media outlets are as follows:

- New York Times (D)
- Huffington Post (D)
- Washington Post (R)
- Wall Street Journal (R)
- Rolling Stone (D)
- Politico (mostly neutral)
- Politifact.com (fact checking organization)

Note: (D) means that they "lean" democratic in their opinion pages
(R) means that they "lean" republican in their opinion pages

 

[Rich Z]

Does anyone else get the impression that all this just pointedly shows the public what a bunch of bozos we have in office?

What was the PURPOSE of a debt ceiling in the first place?

They are making a farce of the entire concept of "debt ceiling" as well as "budget". They didn't KNOW far ahead of time that they are spending much more than the income being collected? If this "debt ceiling" can be raised anytime spending exceeds that limit, then WHY have such a "ceiling" in the first place? It's all just political BS that pretty much pointedly shows us that congress will do whatever the heck it wants to do, no matter what consequences it will have on this country.

Seriously, a DEBT CEILING of fourteen TRILLION dollars is not enough? Even spending fourteen TRILLION dollars MORE than the income that is collected is NOT ENOUGH?? And the feds have the audacity to create laws and regulations designed to tell businesses how to operate? Shouldn't they get their own house in order instead of telling companies "do as I say, not as I do"?

So when their feet are put to the fire, they will then squeal and threaten to cut out services that will HURT the most needy people the most, rather than digging into the pork barrel to cut out all that fat. Basically to punish US for their malfeasance in office all these years.

That being said, they are NOT going to default on the debt. It will focus way too much attention from the public on what they have been getting away with nearly forever. They are not going to allow that to happen. They REALLY don't want us thinking too hard about what it is they do with our money. So this pony show will have an eleventh hour save where they will all be congratulating themselves for "saving" the day.....

 

[helifreak]

Actually, during the presidency of Bill Clinton (which generally had a republican congress), we did not have a debt - we had a surplus. The government was making more money than they were spending.

Then guess what happened? We got cocky with this surplus. We deregulated the banking industry allowing the infusion of trillions of "funny" money to be used to increase the debt. We started two massive wars. We gave trillions in tax breaks to people who historically, didn't need these tax breaks. And finally we inflated the housing industry to unsustainable levels.

Then boom. This bubble burst and caused the financial collapse of 2007/2008 which required us to spend even more money we didn't have to save the banking industry from collapse.

 

[Nova_C]

Basically it means we're screwed.

That's what I've been getting from the government for the past 2 years or so.


Now I wonder if I'm joking anymore when I say to my mom "let's move to Canada".

Not sure how much you'll get out of this. Canada is likely to be dragged down at least part of the way if the US economy craters. The US is our biggest trading partner.

 

[pridecity]

Thanks everyone for explaining! I was too young to care or noticed the Clinton administration (only 22 here). I do have some more questions though.

What did we do with the money? Why did we need to use our credit card? For the war?

Do you really think they'll raise taxes for the rich?

So we have the money to pay our annual fee but are refusing to do so because of the dips we call our government?

Let's pretend that we could actually get one of two (or both) things to happen nationwide. What would happen if…..

Every single person in the US stopped paying taxes?

And/or

Every single person in the US got together and demanded all government officials to remove themselves from office and were replaced by people far less corrupt who would accept reasonable salaries for their jobs with taxes to fit income? A revolution of sorts.



The reason I don't read political news is because I don't understand what I'm reading. Same reason I don't read tax law. Well… tax law is really boring whether you understand it or not. Lol.

 

[kathylove]

"...Every single person in the US got together and demanded all government officials to remove themselves from office and were replaced by people far less corrupt who would accept reasonable salaries for their jobs with taxes to fit income? A revolution of sorts."

We don't really need EVERY SINGLE person. We just need a majority of voters to get out there and vote self serving, corrupt politicians out. Doesn't seem like it SHOULD be an impossible task. But so far, it has been. People tend to think that their own incumbent is ok and that it is all of the others that are bad. So they keep voting them back in again and again.

VOTE LIBERTARIAN!!!!!!!!!!!!!!!!!

 

[pridecity]

I hate voting to be honest. Every time I vote on anything to do with politics, I get jury duty.

I don't understand why there isn't a law that says if you're corrupt, you can't run. Don't we have any Abe Lincolns anymore? Or did he do something corrupt that I don't know about too?

 

[ZoologyGirl]

Does anyone else get the impression that all this just pointedly shows the public what a bunch of bozos we have in office?

That about sums it up. I have no need to comment further because that covered everything I'd want to say.

 

[kathylove]

Who would decide exactly what line you have to cross to be "corrupt"?

IMO, I believe a lot of young politicians might actually start out with good intentions. But I believe the SYSTEM is so huge and set in its ways that soon enough, newbies realize that they won't get anywhere unless they change to "cooperate" within that system. So most become just cogs in the wheel. The most principled among them probably leave and do something else. The rest learn to do whatever best appeases voters to convince them they are doing "something" - usually something that is more appearance than substance (such as all of the worthless legislation to "solve the python problem".) As long as it looks good on the news, it will help get them re-elected.

It is just human nature at work. "Power corrupts, and absolute power corrupts absolutely." Their power may not be absolute (or they wouldn't occasionally get caught "with their pants down" and have to resign in shame), but it is close enough for them to begin thinking themselves above the laws they pass for the rest of us.

The founders of this country never intended a elite class of career politicians. They were supposed to be citizens who served for a short time, and then went back to their real jobs of merchants, teachers, doctors, or whatever. Now we have mostly lawyers serving for life. Considering this fact, why would we expect anything other than the completely human reaction of being more concerned about continuing in their job than doing what is best for the country?

One doesn't have to be a political science master to see the logical consequences of our system. One only has to be a "student" of human nature, and to think about it in a logical manner.

I usually find myself voting against the worst choice, rather than for any good choice. But if you don't vote at all, there is no reason for anything to change.

 

[Allalaskan]

Actually, during the presidency of Bill Clinton (which generally had a republican congress), we did not have a debt - we had a surplus. The government was making more money than they were spending.

Then guess what happened? We got cocky with this surplus. We deregulated the banking industry allowing the infusion of trillions of "funny" money to be used to increase the debt. We started two massive wars. We gave trillions in tax breaks to people who historically, didn't need these tax breaks. And finally we inflated the housing industry to unsustainable levels.

Then boom. This bubble burst and caused the financial collapse of 2007/2008 which required us to spend even more money we didn't have to save the banking industry from collapse.

You forgot about all the money we GAVE AWAY to other countries also. Here we are in debt and we are still giving away money, wtf is wrong with this picture!?!

 

[kathylove]

"You forgot about all the money we GAVE AWAY to other countries also. Here we are in debt and we are still giving away money, wtf is wrong with this picture!?!"

Not to mention, that from what I have read, most of what we give just goes to governments even more corrupt than ours, and very, very little actually filters down to actual individuals and families who desperately need it. I think the reason for giving is either to prop up governments that have been loyal to us, or to coerce governments into going along with us on some matter or another. I don't think the primary reason is to actually help the foreign citizens that we say we are helping.

 

[helifreak]

You forgot about all the money we GAVE AWAY to other countries also. Here we are in debt and we are still giving away money, wtf is wrong with this picture!?!

I guess that depends on how you define "giving away money".

If you are referring to foreign aid we give to other countries, then no. We do not spend a lot of money at all. In all debates, I think the facts are important. And in this case, we simply do not spend a lot of money on foreign aid.

We spend about 0.2% of our national income on foreign aide. Think about your total cost in owning snakes and how much 0.2% is - that's probably about the amount of money you spend on filling up the water bowls.

0.2% is about $25billion per year - sure that could pay for a lot of things here in the US - but compared to just about all other non third-world countries - we do not spend a lot of money on foreign aid.

Here are two good graphs showing exactly how much we spend:

Foreign Aid per Country


US misconceptions about foreign aid

Note the debatable part is if you count military spending as "foreign aid" - i.e., the wars in Iraq and Afghanistan- which historically are not counted as foreign aid - then yes we spend a buttload...