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 Post subject: Re: Why the U.S. Could Use a Strategic Default
PostPosted: Sun Jul 17, 2011 1:56 pm 
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Here's a good quote:

"By dint of what comes in on a day-to-day basis, the government can keep paying about 60 percent of its bills, and will fail to pay the other 40 percent," says Alan Blinder, a Princeton professor and former vice chairman of the Fed

Now, by a show of hands, how many people think they could live their life very long if their income only covered 60% of your bills?

We all know the problem is bad but I did not realize it was that bad.

The trouble is, if government spending is cut by 40% we would definitely go into a recession, or at least growth would end for decades. Government spending is about 30% of GDP. Cut that down and GDP shrinks, possibly enough to be a depression by definition. Heck, any significant cut will lead to a recession by the definition.

What a mess!


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 Post subject: Re: Why the U.S. Could Use a Strategic Default
PostPosted: Mon Jul 18, 2011 4:23 pm 

Joined: Mon Feb 07, 2011 6:33 pm
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Location: Illinois
I find it troubling that the gov't is 30% of GDP. Dropping it by 40% would make it 18% (if I did the math right). I agree that that would be BAD BAD BAD all at once (I think some of it would be made up by increased private sector spending on things the gov't currently spends on, I doubt it would make up the difference). Though according to the chart I found (below) tracking go't spending as a percentage of GDP, It looks like 18-22% is the norm (after WW2). It only recently shot up the last few years.

http://imageshack.us/photo/my-images/840/tspending.png/

I don't think the gov't can or should cut that drastically all in one fell swoop, but it should be a goal to work towards.


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 Post subject: Re: Why the U.S. Could Use a Strategic Default
PostPosted: Mon Jul 18, 2011 4:50 pm 
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bpgui wrote:
I find it troubling that the gov't is 30% of GDP. Dropping it by 40% would make it 18% (if I did the math right). I agree that that would be BAD BAD BAD all at once (I think some of it would be made up by increased private sector spending on things the gov't currently spends on, I doubt it would make up the difference).


The trouble is, simply shifting a service to the private sector does not necessarily save the government money. If the private sector can do it more efficiently then yes, there is a savings. But the efficiency has to more than make up for the need to produce a profit. If government workers build a road...or process tax returns...they do so for their wages+benefits+overhead. If you privatize that work the cost is wages+benefits+overhead+G&A+profit. If the government pays a private company to build the road then it probably does not save much. (For road construction that is pretty much how it is done now.)

And in most cases the private company is just hiring the very same government workers. So, somehow you've got to make up the G&A+profit through increased efficiency. It's nice to criticize government workers and say the private sector is more efficient. But the trouble is that it is largely a myth. In some cases a private company might have better technology or whatever that improves productivity but generally, the same technology is available to the government. These days.

So the trouble is that we would need to actually eliminate services to see any real savings. Personally I would not mind seeing some things go. The TSA is an enormous waste of money that does absolutely nothing to increase air security. That agency alone accounts for a substantial part of the increased spending in the last decade. We could save hundreds of billions of dollars if we cut way back on the military - keep us string but don't try to be the world's police force...NASA could stand some serious cuts at a time when we are in serious shape...

But these are all pet projects. Even the most vocal cutters always say "non security" cuts. But the truly big piles of money are in security. If we really want to have an impact we have to be prepared to live with less security. That's the bottom line.

Really, which services currently provided by government do you think should be eliminated? Privatizing them doesn't work. We'd need to eliminate them...

My guess is that most people could only come up with a very short list that would save
very little money. I suspect that if we had a vote, most people, though philosophically against taxes, would rather raise their taxes a little than significantly eliminate government services. Until we get rid of the sacred cows and the dogma we will get nowhere.


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 Post subject: Re: Why the U.S. Could Use a Strategic Default
PostPosted: Mon Jul 18, 2011 5:46 pm 

Joined: Mon Nov 01, 2010 5:15 pm
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Quote:
The TSA is an enormous waste of money that does absolutely nothing to increase air security.

Completely agree. We oughta do like the Israelis & post a couple of soldiers with machine guns at every checkpoint & profile the crap outta every person who walks thru the airport.

Quote:
Until we get rid of the sacred cows and the dogma we will get nowhere.

Couldn't agree more.


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 Post subject: Re: Why the U.S. Could Use a Strategic Default
PostPosted: Mon Jul 18, 2011 6:12 pm 

Joined: Mon Feb 07, 2011 6:33 pm
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Location: Illinois
I think we'll have to disagree on efficiency. I do believe that the private sector is more efficient, because it is forced to be (assuming no subsidies). If the private sector can't do something at a profit, they won't do it (very long) or they'll be out of business. If there is high enough demand for something, the private sector will find a way to provide it at a profit. There is no such restraint on the government. They can simply keep on funding something and run it at a loss.

But to answer your question about cuts, I would see the TSA (and probably a good deal of the expansion that became Homeland Security Administration) go.

I'd like to see military spending cut significantly. I do believe in having a very strong military, but I really don't see the need to be the "world's police" or for that matter have bases all over the world. I'd probably cut NASA significantly as well.

I'd like to see some major reforms with Social Security/Medicare, etc., but I'm not sure what I'd like to see to that end. Likely increasing the age, but possibly also cutting benefits as well (at least for future generations, we might not be able to for those currently in the system). I think too many people rely solely on SS for their retirement, which is never what it was intended to be (not to mention life expectancy was much lower when it was established).

Health care, I don't like the old system, but I don't agree with a national single payer system either. Ideally, I would not have insurance tied to employment, as has been the case traditionally. I'd like to see a safety net for those who truly cannot afford it or cannot get it, but otherwise, I'd like to see widespread coverage via high deductible insurance coverage plans. I think everyone (other than those who truly cannot afford it) should have to pay something when they go to the doctor. That would partially eliminate the incentive to run to the doctor every time you (or one of your kid's) sneeze.

Other Entitlements (I'll generally call this welfare): I'd cut significantly. Again, I think there should be a safety net for those that truly need it, but there are too many people gaming the system right now.

As I mentioned in another thread, I'd like to see a drastic simplification of the tax code (which will never happen) which could eliminate the need for much of the IRS.

Education: I'd eliminate federal funding of education, and would gladly pay higher state/local taxes for that. It should be clear that simply throwing money at education, while its great for the politicians' campaigns, doesn't automatically equate to better results. I feel you can get more accountability for how that money is spent at the local levels.

I'd eliminate most (if not all) of the farm subsidies (political suicide in my area). A significant portion of my tax work is with farmers... they don't need them. The added payments from CRP etc. are just a bonus to them.

I'd also eliminate the pet projects of Senators and Representatives, in theory. I don't have any idea how that would be accomplished. We'll just say that, in general, I'd like to drastically limit the scope of what gov't spends on.

Certainly some others would come to mind if I spent some time analyzing the budget, but those are the ones that jumped out at me.


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 Post subject: Re: Why the U.S. Could Use a Strategic Default
PostPosted: Tue Jul 19, 2011 5:53 am 
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bpgui wrote:
I think we'll have to disagree on efficiency. I do believe that the private sector is more efficient, because it is forced to be (assuming no subsidies). If the private sector can't do something at a profit, they won't do it (very long) or they'll be out of business. If there is high enough demand for something, the private sector will find a way to provide it at a profit. There is no such restraint on the government. They can simply keep on funding something and run it at a loss.


We'd agree on 90% of what you said. I'm guessing you're a republican...I'm not.

I did hear informed speculation on what would be paid in the event of a default. I won't cite the source so take it for what it is worth. It's from someone well-versed in national politics and economics though not currently in the government.

He speculates that social security and medicare would be paid because those are technically funded by bonds and we do not under any circumstances want to truly default. Civilian employees must be paid for months because of contracts and union agreements. Military pay and veteran's administration services can be cut immediately. There is precedent for that apparently.

And, the federal courts can be cut, stymying any challenge to other cuts.

But who really knows what would happen. I truly hope that no member of congress is stupid enough to actually vote for a default. That vote should disqualify them for public office.


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 Post subject: Re: Why the U.S. Could Use a Strategic Default
PostPosted: Tue Jul 19, 2011 6:46 am 

Joined: Mon Feb 07, 2011 6:33 pm
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DoingHomework wrote:
I'm guessing you're a republican...I'm not.

Not really. They get my votes more often than the dems, but usually because I dislike them the least. I abhor the repubs tendancy to push their morality into everything and attempt to legislate it.


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 Post subject: Re: Why the U.S. Could Use a Strategic Default
PostPosted: Tue Jul 19, 2011 4:14 pm 

Joined: Mon Feb 07, 2011 6:33 pm
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Expanding on the above. I think I am most inline with the libertarian ideology, although there is plenty there I don't really care for either.

FYI: Supposedly there is deal made http://www.foxnews.com/interactive/politics/2011/07/19/gang-six-proposed-debt-reduction-deal/


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 Post subject: Re: Why the U.S. Could Use a Strategic Default
PostPosted: Wed Jul 20, 2011 6:31 am 
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bpgui wrote:
Expanding on the above. I think I am most inline with the libertarian ideology, although there is plenty there I don't really care for either.

Me too. I like the ideology but find most Libertarians to be whackos. My former boss, who had worked in the White House in the Reagan Administration and was definitely in the "inner circle" of the republican party told me about 4 years ago that he thought the party was now an embarrassment but there was no viable alternative. He described himself as a libertarian with a small L.


bpgui wrote:
FYI: Supposedly there is deal made http://www.foxnews.com/interactive/politics/2011/07/19/gang-six-proposed-debt-reduction-deal/


I'm shocked. I guess all those things I was thinking and saying about our leaders being incompetent to do their job must have been wrong. They had our best interests in mind all along and performed very effectively ...I suppose.


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 Post subject: Re: Why the U.S. Could Use a Strategic Default
PostPosted: Wed Jul 20, 2011 8:48 am 

Joined: Tue Mar 23, 2010 3:31 pm
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I'll still be skeptical until it goes into effect.


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 Post subject: Re: Why the U.S. Could Use a Strategic Default
PostPosted: Wed Jul 20, 2011 3:49 pm 

Joined: Mon Feb 07, 2011 6:33 pm
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Location: Illinois
DoingHomework wrote:
Me too. I like the ideology but find most Libertarians to be whackos.
Same here.

DoingHomework wrote:
My former boss, who had worked in the White House in the Reagan Administration and was definitely in the "inner circle" of the republican party told me about 4 years ago that he thought the party was now an embarrassment but there was no viable alternative.
I think that is probably a pretty fair assessment. My guess is a similar view is held by many in the Democratic party. The extremists on both sides are the ones that vote in mass in the primaries, and therefore have a significant impact on the candidates.

DoingHomework wrote:
He described himself as a libertarian with a small L.
I like that, I think I'll start using it.


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 Post subject: Re: Why the U.S. Could Use a Strategic Default
PostPosted: Wed Jul 20, 2011 4:23 pm 
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bpgui wrote:
I think that is probably a pretty fair assessment. My guess is a similar view is held by many in the Democratic party. The extremists on both sides are the ones that vote in mass in the primaries, and therefore have a significant impact on the candidates.


If I believed in conspiracies I might suggest that both parties have an interest in the voting public being stupid and incapable of thinking critically. It makes it so much easier to get their votes. It would be so much more difficult to get elected if you had to actually say things that are intelligent, logical, and hold up to verification. But such a conspiracy would explain the poor condition of our educational system and various other characteristics of American society.

I'm glad I don't believe in conspiracies...


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 Post subject: Re: Why the U.S. Could Use a Strategic Default
PostPosted: Wed Jul 20, 2011 4:26 pm 

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Location: Illinois
I think it is more of an attack the other side no matter what they do, mentality.

I got some enjoyment today watching videos of senators from (I think) early in the Bush Administration.

The Dems were yelling and screaming that our debt was too high (it was to be 9 trillion at the time) and they couldn't support an increase in the limit without spending cuts. The Repubs were yelling and screaming that we had to increase the limit to avoid default and couldn't cut spending.


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 Post subject: Re: Why the U.S. Could Use a Strategic Default
PostPosted: Fri Jul 22, 2011 3:52 pm 

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I guess we spoke too soon. Seems both sides are going to continue posturing for awhile. I still think they'll reach a deal before the deadline and both sides will declare victory.


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 Post subject: Re: Why the U.S. Could Use a Strategic Default
PostPosted: Sat Jul 23, 2011 11:09 am 
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bpgui wrote:
I guess we spoke too soon. Seems both sides are going to continue posturing for awhile. I still think they'll reach a deal before the deadline and both sides will declare victory.


Let's hope so. Frankly, both sides are behaving like idiots. But I think the stupid pledge the republicans have taken to not raise taxes is going to be their downfall. I don't want my taxes raised any more than the next guy. But a one-sided pledge not to raise revenue without also cutting the big ticket items (like defense) is just plain dumb. It is unworkable.

And I really wonder why no one is convening an "Unamerican Activities Committee" to crucify them for swearing allegiance to an unelected organization.

I still say that the republicans will take 90% of the blame if the US defaults. I'm not saying that Obama or the dems are right or have behaved appropriately. But it is unarguably the republican Congress that must pass a bill before it can get to the stage of Obama signing it or vetoing it.

I predict they will try to pass something at the last minute that is unacceptable to Obama just to call his bluff. If they do, and the president vetos it, I think the republicans will still take the blame. They know what is acceptable and what isn't. Trying to play games with the country by sending something that is not is poor leadership. And Obama will look very presidential by standing up to them and refusing to be held hostage.

Anyway, that's my amateurish political analysis.

I'm beginning to think Obama has a trick up his sleeve. The president had broad emergency powers. There is no credible argument that allowing the US to default does not constitute an emergency. So, if congress fails to act I think it is entirely possible that the president declares and emergency and continues to spend as necessary. And the republicans would not even be able to get the courts to intervene if they did not pass a spending bill to fund them.


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