US National Debt Economic Problems

The Debt Problem: A Knife to the Throat, or Lung Cancer?
Ruthie Frederick Kevin Schimdt Kyle Trujillo Kevin Zhang
Debt Ceiling
What is the debt ceiling? Who/ What are the major contributors to the debt ceiling? What is the current national debt? Who holds the national debt?
Historical Economic Crisis

-the Great Depression all over again?
national unemployment rate parallels?
Which presidents spent the most?

Proposals would raise the limit of $14.3 trillion by $2.5 to $2.7 trillion.
In 1940, the debt limit was about $43 billion. It was raised as high as $300 billion during World War II
The debt limit has been increased 140 percent since 2000, when it was $6 trillion.
What defines the debt ceiling as a short term problem or a long term problem?
short term problem o don't raise the debt ceiling long term problem o do raise the debt ceiling
What happens if we don't raise the debt ceiling?

It will not: cut the nations deficit allow government's leave from its existing obligations. It will: create a default
According to the Bipartisan Policy Center analysis:

If the government chooses to pay the interest on: its debt, Social Security benefits, Medicaid and Medicare payments, defense contractors and unemployment benefits It could not have enough left to pay for the salaries of federal workers & members of the military Pell grants for college highway construction tax refunds
What is a default?
Default: inability to pay back gov bondholders (neither in part nor in full) US defaults if doesnt pay bondholders (e.g. China, Japan, UK, Taiwan, Thailand)
What will happen if there's a default?

The Domino Effect: SS recipients & gov. vendors have less $ to spend The economy will slow down Risk of investors demanding higher interest rates Create doubt about US credit worthiness Damage roles of $ and treasury securities in global markets
What are the effects of a rise in interest rate?

Cost of borrowing will rise across the country and the world Equity prices will fall Value of savings will fall More people out of work More businesses will fail
How will it affect states and cities?

Fed payments interrupted -> serious cash-flow problems from states Lower tax collections Loss of individual income -> large effect on state & local revenues Erosion of value of State Pension funds' investments
How will it affect the global market?

Investors will seek the safety of other currencies.
Some evidence this is already taking place:

Switzerlands franc strengthened against the dollar o concern about US debt limit o worries about , given the Greek crisis Bond fund investments are moving elsewhere o Canada, Mexico and China. Where US foreign investors will dump some of their US debt
Some short-term things that are possible to do (as David Brooks believes):
Extend unemployment insurance Mitigate the pain caused by the state governments that are slashing spending Don't engage in reckless new borrowing or cutting o Cut programs that don't increase productivity o Spend more on those that do
Long Term Solutions:

deficit reduction national revenue spending Inflation: won't work (TIPS) Economic growth: won't happen in recession Economic growth -> tax revenues rise... $URPLU$!!! *<:D
How will the US get out this recession?

tax cuts/spending -> employment -> economic growth
spending cut = increase revenue, hurt economic growth (R) tax increases = increase revenue, hurt economic growth (D) tax base broadened = increase revenue, hurt economic growth (R)
Should S & P be trusted?

interest U.S. immediately debt decreased 30 year loans at real interest rates of 1.25% extra trillion adds 0.07% of GDP in future costs math...
U.S Debt Not Short Term Problem

China forced to buy U.S bonds for Stability of Yuan
Other pressing Problems ex Unemployment Pays debt off Long term Debt ceiling must be raised
May 16: U.S. reached its debt limit, U.S. Treasury instituted extraordinary measures, provides $232 billion while a budget deal was negotiated.
Aug. 3: Obama administration estimate for when it will exhaust its borrowing authority.
Aug. 10: Estimate by many Wall Street and Washington analysts.
Estimates of When the U.S. Will Run Out of Money
Rahm Emanuel: "never let a serious crisis go to waste"
$917 billion, 10 years super committee: $1.5 trillion more failure: automatic $1.2 trillion, military = domestic programs (Medicare providers)
Notable "crisis" deniers:

- Paul Krugman - Ben Bernanke - Mohamed El-Erian - Simon Johnson - Chris Orndorff - Pig w/lipstick?
Ratings
(US = Aaa, AAA, AA+)
Two factors: ability to pay willingness to pay
Bibliography
Appelbaum, Binyamin. "Rating Cut of U.S. Debt Echoes the Nervousness of Global Markets."The New York Times.com. The New York Times, 27 July 2011. Web. 24 Sept. 2011. Brooks, David. "A Little Economic Realism - NYTimes.com." The New York Times.com. The New York Times, 05 July 2010. Web. 24 Sept. 2011. "By the Numbers: China and U.S. Debt." Issues & Controversies. Facts On File News Services, 23 Aug. 2010. Web. 19 Sept. 2011. "By the Numbers: U.S. Debt Crisis." Issues & Controversies. Facts On File News Services, 12 Sept. 2011. Web. 19 Sept. 2011. http://www.economist.com/blogs/democracyinamerica/2011/08/deficit-reduction Cha, Ariana E. Whats the Debt Ceiling, and Why Is Everyone in Washington Talking About It?. Washington Post, 18 Apr. 2011. Web. 21 Sept. 2011.
Calmes, Jackie, and Carl Hulse. "Bernanke Blames Politics for Financial Upheaval." The New York Times.com. The New York Times. Web. Cooper, Michael, and Louise Story. "Q. and A. on the Debt Ceiling." The New York Times.com. The New York Times, 27 July 2011. Web. 24 Sept. 2011. Kap. "Lehman Brothers Bank Bankrupt." Toonpool.com. Toonpool.com, 16 Sept. 2008. Web. 24 Sept. 2011. Krugman, Paul. "The Arithmetic of Near-term Deficits and Debt - NYTimes.com." Economics and Politics by Paul Krugman - The Conscience of a Liberal NYTimes.com. The New York Times. Web. 23 Sept. 2011. Rampell, Catherine. "Inflation Won't Solve Our Debt Problems NYTimes.com." The Economy and the Economics of Everyday Life Economix Blog - NYTimes.com. The New York Times, 18 Feb. 2010. Web. 24 Sept. 2011. Shear, Michael D. "White House Paints Doomsday Default Scenario." The New York Times.com. The New York Times, 7 July 2011. Web. 24 Sept. 2011. Wyatt, Edward. "Credit Agency Tells Congress a Default Is Unlikely." The New York Times.com. The New York Times, 27 July 2011. Web. 24 Sept. 2011.

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The Debt Problem: A Knife to the Throat, or Lung Cancer?

Ruthie Frederick Kevin Schimdt Kyle Trujillo Kevin Zhang

Historical Economic Crisis

Which presidents spent the most?

What happens if we don't raise the debt ceiling?

According to the Bipartisan Policy Center analysis:

What will happen if there's a default?

What are the effects of a rise in interest rate?

How will it affect states and cities?

How will it affect the global market?

Some evidence this is already taking place:

Long Term Solutions:

How will the US get out this recession?

Should S & P be trusted?

U.S Debt Not Short Term Problem

Aug. 10: Estimate by many Wall Street and Washington analysts.

Estimates of When the U.S. Will Run Out of Money

Rahm Emanuel: "never let a serious crisis go to waste"

Notable "crisis" deniers:

Two factors: ability to pay willingness to pay

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