Sovereign debt resolution

[Core Imposter]

I've just read an article by Bill Gross in which he point out that the IMF (International Monetary Fund), the CBO (Congressional Budget Office) and the BIS (Bank of International Settlements) have recently issued reports that say, when averaged, that the US must reduce spending or raise revenue by 11% of GDP sometime in the next 5 or 10 years, or it will essentially suffer a meltdown.

Gross points out that that level of adjustment would total over $1.5 trillon yearly, which would be about 4 times the amount that the President's debt commission offered up and which of course, no agreement could be reached. Congress punted in terms of the sequester which it is now scheming to avoid.

I am quite sure that cuts/revenue increases of this magnitude are not politically possible at all. And I concluded this some time ago. My purpose for this thread is to ask all that pass by to chime in and explain how you see the issue.

Do you think that there is or is not a budget problem of catastrophic proportions?
Do you think that it is resolvable and if so how?
If it is not resolvable in a positive way through democratic governance, how do you expect it to be resolved and what do you think the conseqences might be?

My expectation is that the developed world will suffer a tsunami of sovereign defaults with horrific consequences. Do you agree? If not why? Explain why I might be wrong and how the issue will sort out?

 

[WindFish]

Reduce Defence spending.
Increase Taxes.
Federal most things to avoid duplication.
Tax new things.
Fold Medicare/Medicaid/Obamacare into one programme
Raise the retirement age to 70
Cut Subsidises to all companies.

 

[potatokiosk]

Disagree. I don't think Obama wants to go down in history as the guy who made debt default inevitable. And Japan has a debt-to-GDP ratio of over 230% and is still chugging along, so it's not like the US is anywhere near default right now.

 

[peter grimes]

@OP:
Why do you so rarely post links to your sources? What are you afraid of?

I'm not willing to comment without reading the same thing you have - what's the point?

 

[Core Imposter]

@OP:
Why do you so rarely post links to your sources? What are you afraid of?

I'm not willing to comment without reading the same thing you have - what's the point?

http://www.pimco.com/EN/Insights/Pages/Damages.aspx

But Peter I read dozens of articles a day and many books, from the perspective of all the experiences of a lifetime. I am not focused on one specific assertion in one specific article. And I think you know that. Why are you really not willing to comment? I'd actually like your input.

 

[Core Imposter]

Disagree. I don't think Obama wants to go down in history as the guy who made debt default inevitable. And Japan has a debt-to-GDP ratio of over 230% and is still chugging along, so it's not like the US is anywhere near default right now.

So you agree with Obama that we don't need to worry about the debt in the short term?

If so, at what debt level do you think we need to worry and what timeframe do we need to be concerned over and, why do you think this?

I'll concede that many economists advise Obama and other pols in this way, but why do you think we should accept their view when organizations like the CBO and the IMF are waving red flags?

 

[potatokiosk]

So you agree with Obama that we don't need to worry about the debt in the short term?

If so, at what debt level do you think we need to worry and what timeframe do we need to be concerned over and, why do you think this?

I'll concede that many economists advise Obama and other pols in this way, but why do you think we should accept their view when organizations like the CBO and the IMF are waving red flags?

There isn't a specific debt level where we should suddenly start being concerned. It's always something to be concerned about. But I do think a reasonable long term plan can include large deficits in the short term. If the CBO thinks we can't run deficits of 10% of GDP indefinitely, I would agree.

 

[peter grimes]

http://www.pimco.com/EN/Insights/Pages/Damages.aspx

But Peter I read dozens of articles a day and many books, from the perspective of all the experiences of a lifetime. I am not focused on one specific assertion in one specific article. And I think you know that. Why are you really not willing to comment? I'd actually like your input.

Thanks for the link

I'm not suggesting to you link everything you come across, but when you formulate a topic that's based on something you read, it only makes sense to include a link to it. I'll give it a look later on today.

 

[Cutlass]

First of all, there is no solution, not even a theoretical solution, to the problem that does not have tax rates higher than they were when Clinton left office. That ship has sailed. And anyone who does not recognize and work with that fact is part of the problem. The second thing that must be recognized is that there is no possible solution, not even in theory, that does not recognize that the very low level and weakness of government spending is strongly contributing to the economy not recovering faster from the crash caused by conservative economic policies. The third thing that has to be understood is that those same conservative economic policies keep the economy from growing as rapidly as it could otherwise, and so make the long term fiscal situation steadily worse.

In short, we need a complete break from the Reagan Revolution, and to adopt fiscal and economic policies designed for maximum economic growth. And that includes far heavier government investment in the economy. If we do that, then the debt is manageable, and debt as a percentage of GDP can be stabilized and will decline over time as the economy grows out from under it.

But as long as conservatives are dominant on fiscal and economic policy, the US is doomed in the long run to be a has-been nation.

 

[Core Imposter]

Okay, Cutlass believes more government spending and borrowing is the way to reduce government debt. Anyone else?

 

[galdre]

cut military spending; introduce a simple, graduated income tax (where all income is at the same rate) and close all the tax loopholes; bring jobs back to the us using tarrifs on products created overseas; reform our health care system by getting rid of insurance companies, replacing them with a national health insurance

 

[JollyRoger]

But Peter I read dozens of articles a day and many books, from the perspective of all the experiences of a lifetime.

And yet you still bat .000 on your predictions.

 

[Farm Boy]

cut military spending; introduce a simple, graduated income tax (where all income is at the same rate) and close all the tax loopholes; bring jobs back to the us using tarrifs on products created overseas; reform our health care system by getting rid of insurance companies, replacing them with a national health insurance

Tariff wars aren't always a good thing. Protectionism spawns protectionism. We might do ok in the USA as we have a lot of good natural ground left to pillage natural resources from but it's too simple to use tariffs as a cure-all stick.

 

[Cutlass]

Okay, Cutlass believes more government spending and borrowing is the way to reduce government debt. Anyone else?

Conservatives believe that cutting taxes will cut the debt. Even though every tax cut in the past has increased it. So my side has better history behind it than yours does.

 

[Core Imposter]

I don't think cutting taxes is going to get us out of this mess. I think touting tax cuts at this point is just about as crazy and touting more spending.

 

[Cutlass]

Well, if you understood economics it would make more sense. The economy, in order to grow faster, must have more of the spending that only the government can do. What you fail to understand, because you reject capitalism, is that you do not solve budget problems by screwing up the economy.

 

[Leoreth]

There is little to talk about if one side does not even acknowledge the necessity of anticyclical economic policy.

 

[Cutlass]

There is little to talk about if one side does not even acknowledge the necessity of anticyclical economic policy.

That's true. There's been a huge movement towards rejecting economics along with all other sciences. Any time it doesn't give them the answer they want, they just refuse to believe it.

It's really all partisanship and class warfare. By refusing to have a government that does economic management they make the poor poorer and the rich richer. The fact that the nation will be poorer is irrelevant to them.

 

[FriendlyFire]

I don't think cutting taxes is going to get us out of this mess. I think touting tax cuts at this point is just about as crazy and touting more spending.

But 20% across the board tax cuts is revenue neutral according to Paul Ryan. I say we vote Republican and find out.

 

[innonimatu]

My expectation is that the developed world will suffer a tsunami of sovereign defaults with horrific consequences. Do you agree? If not why? Explain why I might be wrong and how the issue will sort out?

The only thing with horrifying consequences is not defaulting or not (another way to default...) taxing the creditors of sovereign states out of existence. And the horrifying consequences will consist of rising unemployment until political regimes start collapsing under popular discontentment at their alleged incompetence. Which is no "incompetence" at all given that the priorities of most governments are currently to protect the wealth/debt claims amassed by the wealthy.

How those governments will be replaced by ones willing to resolve the sovereign debt problem (violently, or peacefully?) will be the last stage of the "horrifying" thing.