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Debt Ceiling: 8 Things You Need To Know But Wish You Didn't - Sep. 27, 2013

House Republicans, by contrast, are begging for him to enter talks. Their theory seems to be that in exchange for giving President Obama something that he wants (but that they dont want to give), he should give them a bunch of things they want (but that he doesnt want to give). It's John Boehner vs. President Obama in the fiscal face-off. The House Republicans, and, unfortunately, many of my brothers and sisters in the media, misunderstand what is going on here. The debt-limit increase is not something that Congress gives President Obama. Its something the Congress will give President Reagan, and President Bush (I and II), and President Clinton. Its something theyll give all the prior Congresses, including ones in which current House GOP leadership served in and ran. And above all, its something that Washington gives to the holders of the trillions of dollars of bonds this country has issued over the last 30 yearscentral banks, financial institutions, companies, and individuals who are legally entitled to interest and principal payments. The government spends more than it takes in every year, and has done so for the last many decades, under every partisan arrangement imaginablefull Republican control, full Democratic control, Republican presidents with Democrats running Congress, Democratic presidents with Republicans running Congress, etc. (In the late 1990s, there was a brief moment where the government actually made a small profit.) In addition, we fund our biggest and most cherished entitlemenSocial Securitby issuing bonds as IOUs to the Social Security Trust Funds. Simply by living and breathing, the governments debt rises each year. To fund current operations and pay off debt that has been accumulated in years past, the government sells bonds. Some roll over very quickly, but others endure for 10 years, 20 years, or 30 years. The government needs to increase the debt limit so it can raise cash to pay for next years operations. But it also needs to raise cash to pay for last years, and last decades, and last centurys operations. Bonds we issue today are paying for the stimulus package approved by Democrats in 2009. But theyre also paying for the Medicare Prescription drug benefitan expensive entitlement without a funding mechanism that was rammed through a Republican Congress whose members included Speaker John Boehner and Rep. Paul Ryan, and signed into law by President George W. Bush. Go check out the Bureau of the Public Debt , which has a wealth of information. On Feburary 18, 1986, in the middle of Ronald Reagans second term, the government sold 30-year bonds, at a yield of 9.25 percent (those were the days!). That issue, CUSIP # 912810DV7, is still trading today . On November 7, 1991, when George H.W. Bush was president, the government issued 30-year bonds at an 8 percent rate. Well be paying interest on those until 2021. On August 7, 1997, with President Clinton in the White House and Republicans controlling the House, the government issued $10.37 billion in 30-year bonds paying a 6.375 percent interest rate. In August 2006, with George W. Bush in the White House, the government auctioned $14 billion in 30-year bonds yielding 4.5 percent. In November 2011, the government raised $17.224 billion, selling 30-year bonds at a 3.125 percent interest rate. These bonds were issued to fund the operations of government and the payment of benefits in the 1980s and 1990sto pay for satellites in the last years of the Cold War, to fund the Gulf War and the Iraq War and the bombing of Serbia, to support a generation of research at the National Institutes of Health, to pay for the medical care of our grandparents. The taxpayers are currently making payments on all those bonds, and the government needs to increase the debt limit so it can continue doing so. In the corporate world, those who fail to make payments wind up losing ownership in bankruptcy. Its not quite that way with government debt. When a public entity defaults, or even acts in a way that makes people suspect it might default, the market freaks out. The borrower loses credibility, respect, and the ability to participate in the market in the future. Which is why cities and states work so hard to avoid defaulting on bondstheyll gladly stiff suppliers, workers, and citizens long before theyll stiff bondholders. Yes, the debt has exploded in recent years, in large part because the government ran successive trillion-dollar deficits during the recession and the early years of the recovery. But as this chart from the Center for Budget and Policy Priorities shows, a great deal of todays debt can be traced to policies enacted before President Obama arrived. Center for Budget and Policy Priorities That chart is one way of looking at the problem. Heres another way. I went back and looked at the monthly reports on the U.S. debt , to determine how much the total U.S. national debt outstanding had increased under different presidents over the past 30 years. (Note: the total debt outstanding differs ever so slightly from the amount of debt subject to the limit.) This may be didactic and repetitive, but stick with me. When Reagan took office, in January 1981, the national debt was $934 billion. Between January 31, 1981, and January 31, 1989, the debt rose to $2.697 trilliona threefold increase, or $1.763 trillion. Between January 31, 1989, and January 31, 1993the Bush I yearsthe national debt jumped $1.47 trillion to $4.167 trillion, up 54 percent. During the Clinton years, January 31, 1993 to January 31, 2001, debt rose another $1.55 trillion to $5.716 trillion, up 37 percent. During the Bush II years, the national debt soared, rising $4.9 trillion, or 86 percent, to $10.632 trillion. The national debt soared again during the Obama years, too.

(Photo By Tom Williams/CQ Roll Call) | Getty Get Politics Newsletters: Subscribe Follow: House Republicans , Kevin McCarthy , Elections 2014 , House Republican Debt Fight , House Republicans Debt Ceiling , House Republicans Movie , Kevin Mccarthy Debt Ceiling , Kevin Mccarthy Movie , Politics News WASHINGTON -- At a time when House Republicans are preparing to force a list of conservative demands on Democrats in exchange for raising the debt ceiling, House Majority Whip Kevin McCarthy (R-Calif.) is planning a GOP field trip to the movie theater to see the thriller "Prisoners." According to an email obtained by The Huffington Post from a congressional aide, McCarthy is trying to round up Republican lawmakers to see the movie together on Friday night. "Kevin would like to do a movie night tomorrow night for those members in town," reads an email sent Thursday from a McCarthy aide to group of other GOP aides. "I know you all are dying to spend Friday night with ME and Elvis (regal's finest) watching Hugh Jackman and Jake Gyllenhaal," she continues. "On a serious note -- let me know if you would like to help out. No pressure, but its a pretty great movie." The apparent irony of Republicans going to see a movie about two girls being kidnapped and taken as prisoners -- a storyline that for some parallels the hostage-taking charges Democrats have lobbed at Republicans during the debt-ceiling fight -- wasn't lost on one GOP aide on the email thread. "Any chance the media reads WAY too much into the title of the movie, Prisoners?" the aide wrote to the group. Drew Hammill, a spokesman for House Minority Leader Nancy Pelosi (D-Calif.), said the movie's theme is right in line with the approach Republicans are taking to running the government. "Given Speaker Boehner's crusade to hold the full faith and credit of the United States hostage to Tea Party ransom demands, it's not surprising that, in their free time, the Republican Conference would choose to spend their Friday night watching a violent and disturbing film together about hostage taking," he told HuffPost. Hammill added, "Perhaps, given the group, 'Cloudy with a Chance of Meatballs' would be more appropriate for their movie night." McCarthy spokeswoman Erica Elliot confirmed that her office has had "internal discussions about potential member services activities this weekend," but said nothing has been finalized. She also said Pelosi's office was mistakenly included on the email thread about the movie. This isn't the first time the Republican whip has ruffled Democrats by showing certain movies to his team. In 2011, during another debt ceiling fight, McCarthy played a clip from "The Town," a 2010 crime thriller during a closed-door meeting with his members. In the segment reportedly shown, a bank robber says to his friend, I need your help. I cant tell you what it is. You can never ask me about it later. And we're going to hurt some people. The friend then responds, "Whose car are we gonna take?" Former Rep. Allen West (R-Fla.) reportedly told his colleagues after the clip was shown, "Im ready to drive the car." Also on HuffPost: Loading Slideshow We Mean It... Smile! It's not often we see Sen. Mitch McConnell (R-Ky.) crack a smile. He dons his go-to straight face most of the time. Ahead, see the rare grins of the Kentucky senator. (Photo by T.J. Kirkpatrick/Getty Images) McConnell Cracks A CPAC Smile McConnell waves as he arrives to speak at the 40th annual Conservative Political Action Conference in National Harbor, Md. (AP Photo/Manuel Balce Ceneta, File) Happy To Hang With Obama President Barack Obama is greeted by McConnell as he arrives at the U.S. Captiol for his third day of meetings with members of Congress March 14, 2013. (Chip Somodevilla/Getty Images) Leaving The Senate, McConnell Smirks McConnell leaves the Senate chamber to caucus in the US Capitol Dec. 30, 2012. (Molly Riley/AFP/Getty Images) Smiley Senate Exit McConnell leaves his office and walks toward the Senate floor on Capitol Hill March 22, 2013. (Drew Angerer/Getty Images) Ready For His Close Up McConnell tours the stage during preparations at the Tampa Bay Times Forum Aug 26, 2012. (BRENDAN SMIALOWSKI/AFP/GettyImages) A Smile And A Hug McConnell greets US President Barack Obama following Obama's address to a Joint Session of Congress about the US economy and job creation Sept. 8, 2011. (SAUL LOEB/AFP/Getty Images) McConnell Happily Takes To The Podium McConnell smiles as he speaks to the press with fellow Republican senators John Barroso of Wyoming and John Cornyn of Texas at the Capitol Aug. 2, 2011. (NICHOLAS KAMM/AFP/Getty Images) Thumbs Up! McConnell gives the the thumbs-up as he walks to the Senate floor after a deal was reached to avert a US default at the Capitol in Washington July 31, 2011. (NICHOLAS KAMM/AFP/Getty Images) Sworn In And Smiling McConnell is sworn in by Vice President Dick Cheney as his wife Labor Secretary Elaine Chao holds the Bible during a swearing in reenactment ceremony at the US Capitol Jan. 6, 2009. (KAREN BLEIER/AFP/Getty Images) Smiling On Stage At RNC McConnell smiles during sound check at the Republican National Convention (RNC) in Tampa, Fla., Aug 27, 2012. (Scott Eells/Bloomberg via Getty) Something's Funny! McConnell laughs with Louisville Mayor Jerry Abramson at the annual ham breakfast at the Kentucky State Fair in Louisville, Ky., in 2010. (AP Photo/Ed Reinke) McConnell Laughs Some More Sen. Lamar Alexander (R-Tenn.) jokes with reporters as McConnell, laughs in the Ohio Clock Corridor following the Senate Republicans' policy lunch in June 21, 2011. (Photo By Bill Clark/Roll Call) Lots Of Laughing Sen. Roy Blunt (R-Mo.), McConnell, and Sen. Marco Rubio (R-Fla.), share a laugh during news conference in the Capitol after a meeting of Senate Republicans, Feb. 8, 2012. (Photo By Tom Williams/CQ Roll Call) Contribute to this Story:

(Which you can follow on Twitter at #MintTheCoin). Their logic is that as silly as the trillion-dollar coin sounds, the debt ceiling is far sillier -- and much more destructive. As this terrifying report from the Bipartisan Policy Center shows, the consequences of going over the debt ceiling are unthinkable and unpredictable. At best, it will mean immediate 40 percent austerity; at worst, it will mean an outright default on our debt. Both are bad enough that a legal gimmick like the trillion dollar coin sounds sane in comparison, if it comes to that. At least that's what Representative Jerry Nadler , Paul Krugman , and, as of pixel time, over 6,000 other patriotic Americans think. But maybe you're not convinced yet. Alright, here is EVERYTHING you need to know about the trillion-dollar coin, and why it might just be the crazy solution Washington deserves and needs. What's this nonsense I've been hearing about a trillion-dollar coin? It's got to be some kind of elaborate -- Stop. It's no joke. At least no more than voluntarily defaulting on our obligations by refusing to lift the debt ceiling would be. It sounds like something out of the Simpsons, but thanks to a crazy technicality the Treasury really can create a trillion-dollar coin, which would let us keep paying our bills if the debt ceiling isn't raised. It's an absurd solution to an absurd problem, but a solution nonetheless.As they say, when in Washington.... No, I'm pretty sure this is from the Simpsons. Almost. That was a $1 trillion bill , whichFidel Castro tricked out of Monty Burns, but this is real life, so it has to be a $1 trillion coin. A platinum coin, to be exact. I'm almost afraid to ask, but why does it need to be a coin? And why platinum? We don't make the loopholes. We just find them. The Treasury can't print money on its own, because the money supply is supposed to be the strict purview of the Federal Reserve ... but that might not be quite so strict after all, thanks to a coin-sized exception. Congress passed a law in 1997, later amended in 2000, that gives the Secretary of the Treasury the authority to mint platinum coins , and only platinum coins, in whatever denomination and quantity he or she wants. That could be $100, or $1,000, or ... $1 trillion. Did Congress decide life wasn't imitating Bond films enough? What were they possibly thinking? The idea was Treasury would only use this authority for collectible coins, while making a little money for the government in the process. But the law is vague. It only says the Treasury can mint platinum coins in any denomination it wants. So, to infinity and beyond! Okay. So the Treasury can mint a trillion-dollar coin because of a law that lets it mint commemorative coins in whatever denomination it chooses, right? Doesn't this violate the spirit of the law? Maybe. But remember, part of the point of creating these commemorative coins was to increase government revenue. As former Congressman and author of the original bill Mike Castle told Dylan Matthews of the Washington Post, the intent was to use the government's seigniorage power to very modestly reduce the deficit. Seigniorage is the delightfully literal concept of making money by making money. It's the difference between the cost of creating currency, and the value you assign to that currency -- in other words, the "profit" governments get from minting money. The trillion-dollar coin is seigniorage just like commemorative coins are seigniorage -- well, except that the trillion-dollar coin is a whole, whole lot more of it. Even if you don't find this terribly convincing, it doesn't really matter. The plain text of the law, not its intent, is what matters. And that means the trillion-dollar coin is almost certainly legal. "Almost certainly legal" is good enough for me, but what if it isn't for everybody else? Would it survive a court challenge?

Honestly, you shouldn't have to. Problem is Congress has turned the debate over raising it into a national drama. And if lawmakers don't bring that drama to a speedy and smart end, all bets are off for the economy and markets. That means Americans' savings, loans and general economic well-being could be collateral damage. Oh fine, so what's the debt ceiling again? It's a cap set by Congress on how much the federal government may have in outstanding debt . The cap applies to debt owed to the public (i.e., anyone who buys U.S. bonds) plus debt owed to federal government trust funds such as those for Social Security and Medicare. Congress has always set some kind of limit on national debt, but the first modern version of it was set in 1917. Today it's set at $16.699 trillion. How often has Congress raised the debt ceiling? So often. On average, more than once a year. http://darrenxnjagyqnul.beeplog.com/355794_2174448.htm Since 1940, lawmakers have effectively approved 79 increases. Sometimes they've raised it by small amounts, other times by large amounts. And sometimes http://pentyhos.livejournal.com/7264.html they've raised it "temporarily" with provisions for a "snap-back" to a lower level. Is it true that raising the debt ceiling gives Congress a "license to spend more"? No. Raising the debt ceiling simply lets Treasury borrow the money it needs to pay all U.S. bills and other legal obligations in full and on time. Those bills are for services already performed and entitlement benefits already approved by Congress. So raising the debt ceiling is more like a license to continue paying what the country owes. And the obligations are incurred because of countless decisions made by lawmakers from both parties over the years. So, why does Congress even bother with a limit? In theory, setting a debt ceiling is supposed to help Congress control spending. In reality it doesn't. Not meaningfully anyway, although there have been times when the debate has yielded some fiscal restraint. Google+ Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer . Morningstar: 2013 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM 2013 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2013. All rights reserved. Most stock quote data provided by BATS. 2013 Cable News Network. A Time Warner Company. All Rights Reserved. Terms under which this service is provided to you. Privacy Policy . Ad choices .

Most of us expected, at some level, that the election would cool the rights apocalyptic fervor. Instead, the opposite has occurred. Paul Ryan candidly explained the calculation: "The reason this debt limit fight is different is, we don't have an election around the corner where we feel we are going to win and fix it ourselves. We are stuck with this government another three years." This is a remarkable confession. Republicans need to compel Obama to accept their agenda, not in spite of the fact that the voters rejected it at the polls but precisely for that reason. The exhaustion of electoral channels against Obama has spurred the party to seize power through non-electoral channels. Their opening demand that Obama sign Mitt Romneys entire economic plan into law in return for avoiding a debt default, while historically bizarre, followed perfectly from their legislative strategy this year. House Republicans decided back in January to boycott any negotiations with Obama over fiscal policy. They presented this at the time as a desire to return to regular order, with negotiations between the House and Senate, but eventually decided to boycott those, too . The entire House Republican strategy is premised on using threats to leverage unilateral concessions from the Democrats. Their aversion to compromise has been accepted as settled fact in Washington, reimagined not only as a new normal but as the way its always been. Republican Dana Rohrabacher defended the use of debt-ceiling threats to pry concessions from Obama like so: People have to recognize theres never any compromise until the stakes are high. In our society, thats the nature of democratic government. That is completely false. American political parties have forged compromises for decades without high-stakes threats to bring them to the table. Not to mention the fact that, by compromise, Rohrabacher means unilateral concessions by the president. Part of the confusion is that the debt ceiling used to be an opportunity for the opposing party to denounce the fiscal irresponsibility of the president. On occasion, but not usually , debt-ceiling hikes have been appended onto budget agreements that were negotiated on their own terms. Whats completely novel is Congress using the threat of a debt default to force the president to make unilateral policy concessions. The conventions of he-said, she-said journalism have allowed this radical development to insinuate itself into the routine backdrop of partisan squabbling. Neutral parties have likewise come to accept the hostage-taking threat of the debt ceiling as merely a normal form of political negotiation. Time reporter Zeke Miller asserts, Hostage taking by promising harm if you do not get your way has long been a standard way of doing business in Washington, pointing to Democratic threats to let the Bush tax cuts expire or to change Senate rules as an analogue. But these examples lack any of the relevant hostage-taking qualities that sets apart the debt ceiling threat. One is the scale and irreversible impact of a debt ceiling breach unlike the failure of a bill, or even a government shutdown, which can be reversed. Second, and more importantly, its normal in any negotiation for each party to have a walk-away threshold to stop something they consider objectionable. Democrats, in the cases Miller cites, were objecting to outcomes -- full extension of the Bush tax cuts, continued filibustering of executive appointments that they defined as unacceptable. House Republicans, by contrast, dont object to raising the debt ceiling. They concede its necessary to avoid disaster! The hostage dynamic of the debt-ceiling fight has created a dangerous, historically unusual set of circumstances. One aspect of it is to set up a precarious, high-stakes negotiation, the failure of which could set off large, immediate, and irreversible damage. The second is to reset the balance of power between the president and Congress, allowing the latter to compel the former to submit to its agenda without concessions. Both these changes would permanently and dangerously alter the character of American government. If outsiders have failed to grasp the motivations of the House Republicans, puzzling at their odd redoubling of ideological fervor since November, they have likewise mistaken Obama. Everything I have seen from Obama suggests he understands that he cannot repeat his blunder of 2011, when he mistook the GOPs debt-ceiling threat for an invitation to engage in normal fiscal bargaining. Obama cant tame the monster he created gradually; he has to kill it completely. Bargaining his way through this crisis would do Obama no good, even if he could get through it by offering up a meager or even symbolic concession. Anything that allows Republicans to believe they can trade a debt-ceiling threat for policy concessions simply creates a new hostage crisis the next time the debt ceiling comes up. This negotiation is Obamas only chance to halt the routinization of debt-ceiling extortion. Obamas incentive structure is simple, then: Allowing Republicans to default on the debt now is better than trading something that allows them to threaten it later. His best option is to refuse to negotiate the debt ceiling and have the House raise it before October 17. His next best option is to refuse to negotiate the debt ceiling, allow default, and never have to go through it again. Bargaining merely postpones, and worsens, the next default crisis. No negotiated debt-ceiling price is small enough to be acceptable. There is therefore no circumstance under which bargaining for a debt-ceiling hike makes sense, even if the alternative is certain default. That is a frightening reality, made all the more frightening by two additional factors. The first is that Republicans dont believe Obamas insistence that he wont negotiate. Obama can claim he wont negotiate, but he would have an incentive to lie about this, and nobody other than Obama can really know for sure. (I believe him, but I wouldnt bet my life on it.) And one of the things Republicans truly believe about Obama they say it constantly in private is that they can make him fold. As the debt-ceiling deadline ticks toward midnight, Obama ought to be able to make his determination clear enough that House Republican leaders understand their only choices are to raise the debt ceiling or breach it. Default would risk not only economic calamity but the potential of an electoral one for the otherwise unassailable Republican majority. But history is replete with disastrous miscalculations.

Do whatever you like. Regardless, on the first of the month, you pay what you owe, or you may be forcibly evicted. The debt ceiling works the same way. If you're concerned by how high it's getting, there is nothing but ample opportunity to have debates, make cuts, raise revenue, and right the budget. If the vote doesn't go your way, you go out on the campaign trail and you make your case to the electorate. Next time, the vote maybe goes your way. But on the appointed date, you raise the debt ceiling. A lot of people these days are suggesting that it's natural to make big budget deals when the debt ceiling needs to be raised. This is what we call "erroneous." Here's Jonathan Chait, enumerating the two central errors : Error No. 1: As Richard Kogan points out, since the Reagan administration began, Congress has raised the debt ceiling 45 times. Only seven of those times were attached to significant budget legislation. Basically, when Congress does a budget deal, it usually attaches a debt-ceiling hike onto it. But it doesnt make the debt-ceiling hike contingent on the deal. Error No. 2: Boehner is not proposing a deal, as in a deal involving the swapping of concessions. Indeed, all the previous agreements he cites involved the two sides making mutually agreeable policy bargains. None of them, save the 2011 debt-ceiling ransom, involved Congress threatening debt default in order to extract concessions. Boehner isnt looking for a deal, except in the sense that Richie Aprile was looking for a deal with Beansie to share the profits from his restaurant . On Thursday, Chait sized up the House GOP's "offer" on the debt ceiling . It boils down to: Implement the economic policies that Mitt Romney and Paul Ryan ran on, or else you get default. You may remember Mitt Romney and Paul Ryan from their past masterworks, which include "Losing The 2012 Election." It's impossible to take this seriously. And not just in the sense that it's unreasonable to expect the winners of a presidential election to implement the policies they opposed on the way to that win. There's a second level of pure, mountain-grown unseriousness that Josh Barro points out, having examined this same offer: the GOP's demands -- which include blocking net neutrality regs and building the Keystone pipeline -- "have little or no connection to the federal debt." This is just a list of things Republicans would like to do if they ran the government. But they don't run the government. Instead, they are contending that it is a valid legislative strategy to use the leverage of the debt ceilingwhich will cause an economic crisis if it is not increasedto demand their way on any unrelated issue. The pretense that debt limit fights are about the public debt is over. Well, I wish that this was the case, but unfortunately, the odd notion that the occasion of raising the debt ceiling is an appropriate time to extract unreasonable demands has been normalized. It's now baked into the Beltway Conventional Wisdom. And along with that comes the odd notion that navigating nihilist demands -- not simply rejecting them -- is the new way that a president shows leadership. Right now, if the House GOP demanded that John Boehner be allowed to amputate Barack Obama's legs with a rusty band saw in exchange for a debt ceiling hike, the Beltway commentariat would light up with talk about how irresponsible it would be for Obama to not, at the very least, consider it. Maybe just one and a half legs. It would be a big "win" for the White House to be left with half a gangrenous stump. So instead of this moment of clarity that Barro rightly suggests should happen, here's what's going to take place. The Beltway Conventional Wisdom mavens are going to go on the offensive, and castigate the administration for its current, correct, position on the debt ceiling, which is: "There will be no negotiations on the debt ceiling." Obama's failure to properly offer some ransom to economic terrorists will be met with scorn. And here's a simple truth about all of this: Obama does, definitely, share in the blame. As Matt Yglesias points out : The absolute worst mistake Obama has made as president came back in 2011 when Republicans first pulled this stunt. At that time, Obama desperately wanted a bargain over long-term fiscal policy. So he tried a bit of too-clever-by-half political jujitsu in which GOP debt ceiling hostage taking became a pretext to start negotiations over long-term budgeting. All manner of evils have fallen forth from that fateful decisions, including an economic weak patch in 2011 the ongoing mess of sequestration, and worst of all the setting of a precedent for future crises. "A terrible monster was let out of the box in 2011," says Yglesias, "and the best thing Obama can possibly do for the country at this point is to stuff it back in and hopefully kill it." I've long wondered why, exactly, Obama decided to allow this monster to escape from the box. Part of it may have to do with his own history on debt ceiling votes. See, in the past, presidents have always gotten a clean debt ceiling hike from Congress, but it was traditional for the opposition party to allow a few of its members to rail at the president for his policies and cast votes against it. Not so many votes that it threatened the eventual outcome, just enough to make a point.

Should You Pay Off Debt or Save for Retirement? We can all see the benefits of having a large retirement portfolio. If its big enough, it can provide you with a standard of living comparable to or even higher than the one that you have when youre working. But lets face it, not everyone will have a retirement portfolio that will be that large, or even one that will be remotely sufficient. If it looks as if that may be your situation, paying off debt can probably get you a bigger bang for your buck than putting away more money for retirement savings. Consider the following Monthly payment reductions can be bigger than income from the same amount of money This one is best explained by example. Lets say that you have $10,000 that you can use either to invest or to payoff debt. If you invest the money in the stock market and earn the long-term average of about 8%, that will represent an income increase of about $800 per year. But instead of investing the money, you use it to payoff a car loan with a $300 per month payment and a balance of $10,000. By paying off the debt you reduce the annual expense of your car loan by $3,600, or more than four times the amount that you would earn if you invest the same amount of money. A car loan is even a bad example, since it will be paid off in a fixed amount of time anyway. But if you apply the same principle to more open ended loan types, such as mortgages and credit cards, the benefit will be more lasting. And that in itself has several advantages from a financial standpoint. Paying off debt can free up income for larger retirement contributions If you payoff debt before retiring, that will allow you to invest more money for your retirement . For example, in the above example of paying off the car loan instead of investing the money, you will free up $300 each month that can be directed into your retirement savings. And once it is in your retirement plan, it will begin earning you more income. And naturally, that advantage would be even greater if you were paying off $20,000-$30,000 in credit card debts, or a $200,000 mortgage. The more debt you can eliminate, the more money that you will have available to invest for your retirement. and reduce expenses in retirement too The B side of paying off debt is that by doing so youll also reduce your expenses in retirement . Lets say that your income requirement during retirement is $4,000 per month. Of that amount, $1,600 is debt payment your mortgage ($1,000 per month), a car payment ($300 per month), and credit card payments totaling $300 per month. By paying each of those debts off, you will reduce your need for retirement income from $4,000 per month to $2,400 per month which is a 40% reduction. Yes, you will have less in your retirement portfolio as a result of paying off your debts, but youll also have less need for retirement income, which will mean that you will need a smaller portfolio. This will be even more important when you consider the tax consequences of needing to generate a higher income . Sure, it may be nice to have an income of $4,000 per month rather than $2,400, but the higher income could result in higher income taxes that would reduce your net income. It may even trigger more of your Social Security income being taxable. It works especially well if youre approaching retirement and dont have enough retirement assets If youre in your 50s or early 60s and its pretty clear that you will not have a large enough portfolio to cover all of your living expenses by the time you retire, then paying off your debts will probably be the better strategy for you. Paying off debts often provides more bang for the buck than an equivalent of money invested for income for all of the reasons discussed above. Paying off debt works even better during bear markets Theres a hidden bonus to paying off debt rather than investing the extra money in retirement savings. When you pay off debt you get a permanent reduction in your expenses; when you invest money in the stock market, your income is never guaranteed. Simply put, paying off debt provides a guaranteed cash flow, that investing cannot match. This is never more true than in bear markets. Paying $10,000 to eliminate a car loan with a $300 per month payment eliminates an entire expense. If that same amount of money is invested in the stock market and stocks fall significantly that $10,000 could turn to $5,000 in a matter of months. At that point, you would be wishing that you had paid off the debt instead of investing the money in the stock market! In a perfect world, you would both payoff debt and invest more money in your retirement portfolio. But if you have to make a choice and many people do paying off debt is probably the better of the two. The reason is simple: paying off debt is a sure thing investing money never is. Have you ever agonized over the choice of whether to invest a certain amount of money in your retirement portfolio or use it to payoff debt? If you like this article, please sign up for our free weekly updates Read Another Article:

Most of us expected, at some level, that the election would cool the rights apocalyptic fervor. Instead, the opposite has occurred. Paul Ryan candidly explained the calculation: "The reason this debt limit fight is different is, we don't have an election around the corner where we feel we are going to win and fix it ourselves. We are stuck with this government another three years." This is a remarkable confession. Republicans need to compel Obama to accept their agenda, not in spite of the fact that the voters rejected it at the polls but precisely for that reason. The exhaustion of electoral channels against Obama has spurred the party to seize power through non-electoral channels. Their opening demand that Obama sign Mitt Romneys entire economic plan into law in return for avoiding a debt default, while historically bizarre, followed perfectly from their legislative strategy this year. House Republicans decided back in January to boycott any negotiations with Obama over fiscal policy. They presented this at the time as a desire to return to regular order, with negotiations between the House and Senate, but eventually decided to boycott those, too . The entire House Republican strategy is premised on using threats to leverage unilateral concessions from the Democrats. Their aversion to compromise has been accepted as settled fact in Washington, reimagined not only as a new normal but as the way its always been. Republican Dana Rohrabacher defended the use of debt-ceiling threats to pry concessions from Obama like so: People have to recognize theres never any compromise until the stakes are high. In our society, thats the nature of democratic government. That is completely false. American political parties have forged compromises for decades without high-stakes threats to bring them to the table. Not to mention the fact that, by compromise, Rohrabacher means unilateral concessions by the president. Part of the confusion is that the debt ceiling used to be an opportunity for the opposing party to denounce the fiscal irresponsibility of the president. On occasion, but not usually , debt-ceiling hikes have been appended onto budget agreements that were negotiated on their own terms. Whats completely novel is Congress using the threat of a debt default to force the president to make unilateral policy concessions. The conventions of he-said, she-said journalism have allowed this radical development to insinuate itself into the routine backdrop of partisan squabbling. Neutral parties have likewise come to accept the hostage-taking threat of the debt ceiling as merely a normal form of political negotiation. Time reporter Zeke Miller asserts, Hostage taking by promising harm if you do not get your way has long been a standard way of doing business in Washington, pointing to Democratic threats to let the Bush tax cuts expire or to change Senate rules as an analogue. But these examples lack any of the relevant hostage-taking qualities that sets apart the debt ceiling threat. One is the scale and irreversible impact of a debt ceiling breach unlike the failure of a bill, or even a government shutdown, which can be reversed. Second, and more importantly, its normal in any negotiation for each party to have a walk-away threshold to stop something they consider objectionable. Democrats, in the cases Miller cites, were objecting to outcomes -- full extension of the Bush tax cuts, continued filibustering of executive appointments that they defined as unacceptable. House Republicans, by contrast, dont object to raising the debt ceiling. They concede its necessary to avoid disaster! The hostage dynamic of the debt-ceiling fight has created a dangerous, historically unusual set of circumstances. One aspect of it is to set up a precarious, high-stakes negotiation, the failure of which could set off large, immediate, and irreversible damage. The second is to reset the balance of power between the president and Congress, allowing the latter to compel the former to submit to its agenda without concessions. Both these changes would permanently and dangerously alter the character of American government. If outsiders have failed to grasp the motivations of the House Republicans, puzzling at their odd redoubling of ideological fervor since November, they have likewise mistaken Obama. Everything I have seen from Obama suggests he understands that he cannot repeat his blunder of 2011, when he mistook the GOPs debt-ceiling threat for an invitation to engage in normal fiscal bargaining. Obama cant tame the monster he created gradually; he has to kill it completely. Bargaining his way through this crisis would do Obama no good, even if he could get through it by offering up a meager or even symbolic concession. Anything that allows Republicans to believe they can trade a debt-ceiling threat for policy concessions simply creates a new hostage crisis the next time the debt ceiling comes up. This negotiation is Obamas only chance to halt the routinization of debt-ceiling extortion. Obamas incentive structure is simple, then: Allowing Republicans to default on the debt now is better than trading something that allows them to threaten it later. His best option is to refuse to negotiate the debt ceiling and have the House raise it before October 17. His next best option is to refuse to negotiate the debt ceiling, allow default, and never have to go through it again. Bargaining merely postpones, and worsens, the next default crisis. No negotiated debt-ceiling price is small enough to be acceptable. There is therefore no circumstance under which bargaining for a debt-ceiling hike makes sense, even if the alternative is certain default. That is a frightening reality, made all the more frightening by two additional factors. The first is that Republicans dont believe Obamas insistence that he wont negotiate. Obama can claim he wont negotiate, but he would have an incentive to lie about this, and nobody other than Obama can really know for sure. (I believe him, but I wouldnt bet my life on it.) And one of the things Republicans truly believe about Obama they say it constantly in private is that they can make him fold. As the debt-ceiling deadline ticks toward midnight, Obama ought to be able to make his determination clear enough that House Republican leaders understand their only choices are to raise the debt ceiling or breach it. Default would risk not only economic calamity but the potential of an electoral one for the otherwise unassailable Republican majority. But history is replete with disastrous miscalculations. Theyre often made by weak, short-sighted leaders facing pressure to demonstrate toughness from internal opponents.

John Boehner says he has to. Who blinks first? Tweet Evan Vucci/DPA/ZUMA With the Washington crisis of the week not yet resolvedwhether the US government will shut down on Tuesday because GOPers block legislation funding federal agenciesPresident Barack Obama, at a rally in Largo, Maryland, promoting Obamacare, looked ahead on Thursday morning to the next showdown and issued a hard-and-fast proclamation: "I won't negotiate on anything when it comes to the full faith and credit of the United States of America." Obama was referring to raising the debt ceiling, which will have to be done in the next few weeks (or the US government will default and possibly trigger a financial crisis that could go international). To emphasize that Obama was drop-dead serious about not responding to Republican threats to hold the debt ceiling hostage once again, the White House immediately tweeted out that sentence. The message: This was no off-the-cuff rhetoric. President Obama: "I wont negotiate on anything when it comes to the full faith and credit of the United States of America." #EnoughAlready The White House (@WhiteHouse) September 26, 2013 Earlier in the day, House Speaker John Boehner (R-Ohio), who's busy trying to concoct a strategy for the more immediate budget crisis, did respond to Obama's no-deal position on the debt ceiling: "I am sorry, it just doesn't work that way." So though it seems at the moment that a government shutdown might be averted next weekif only by a bill that provides for the temporary and short-term continuation of appropriations for the governmenta titanic confrontation is looming overthe debt ceiling, with the GOPers angling to prevent an expansion of the government's borrowing authority unless Obama agrees to accept deeper spending cuts, defund Obamacare, approve the Keystone XL pipeline, or whatever. This is a fight with higher stakes; a global financial crisis would cause more economic chaos than a short government shutdown. And Obama has been planningfor this stare-down for two years, saying publicly and privately that he will not blink. Advertise on MotherJones.com In 2011, when the Republicans first seized the debt ceiling as a political hostage, Obama and his economic team felt compelled to negotiate a settlement, out of fear that a default could be a death blow to the slowly recovering economy. Eventually, they settled on a compromise that included spending cuts that included the now infamous sequestration. But at the time, Obama was more eager to draw a line in the sand than his advisers. And his takeaway from the episode was this: never again. He would not let the opposition party blackmail a president in this fashion. This conviction was evident last year, when the debt ceiling was part of the so-called fiscal cliff. In December, as that tussle was underway, I wrote about the president's thinking on this front: During a Wednesday morning meeting with business leaders, Obama was blunt : "I want to send a very clear message to people here. We are not going to play that game next year. If Congress in any way suggests that they're going to tie negotiations to debt ceiling votes and take us to the brink of default once again as part of a budget negotiation, which, by the way, we have never done in our history until we did it last year, I will not play that game." The public comments from [then-Treasury Secretary Timothy]Geithner, Treasury, and the president do not fully reflect how passionate Obama is on this matter. "He really means it," a senior administration official insists. And Obama's top aides have seen him in private display fervor regarding this issue. During a meeting with his senior aides in the middle of the prolonged and heated negotiations in the summer of 2011, Obama let them know that he believed the debt ceiling face-off was in part a fight to save his presidency and those of future chief executives. At that time, Obama was holding daily bargaining sessions with Republican and Democratic congressional leaders to resolve the debt ceiling crisis and possibly to craft a "grand bargain" budget agreement that would include tax revenue hikes, spending cuts, and reductions in entitlement programs. But with the talks not yielding much progress, Republicansand some Democratswere raising the prospect of proceeding with a short-term extension of the debt ceiling. On July 13, 2011, as Obama gathered in the Oval OfficewithGeithner, then-budget chief Jack Lew, senior economic adviser GeneSperling, and other aides to prep for the next meeting with the legislators, he drew a line, telling his advisers, "I want to make something clear. I'm not going to accept a short-term extension of the debt." There was no way, he insisted, he would go through this again in 3, 6, or 12 monthscertainly not before the next election. Obama's aides empathized with him but explained that the president might have to yield on this to secure a deal that dodged a default. "I'm not doing it again," Obama said. "This is wrong." Obama believed a constitutional principle was at stake: If the Republicans could threaten default to get their way on budget issues, it would distort the separation of powers. This was not what the framers of the Constitution intended, he believed. Moreover, it was embarrassing for the United States. He was determined to prevent this scenario from occurring again. His aides could see that Obama would not bend. He was willing to go to the brink. Toward the end of that day's meeting with Hill leaders, when House Majority Leader Eric Cantor raised the idea of a short-term extension, Obama angrily said, "I'm not going to do it. We're not putting the country through this again. Don't call my bluff." Through the summer 2011 negotiations, Obama stubbornly held to this positionno repeats of this debt ceiling danceand the final deal avoided a short-term extension of the debt ceiling. During the fiscal-cliff negotiations at the end of 2012, Obama adopted the same stance, but no all-out battle occurred. The White House and Congress, without much fuss, eventually agreed to a temporary suspension of the debt ceiling. But now the reckoning has returned, andGOPerswho fear they may have the weaker hand in the government-shutdown clash are pumped up for another debt ceiling throw-down. Not surprisingly, theRsare enthusiastically citing polls showing that voters don't support increasing borrowing authority without accompanying spending cuts. But as the 2011 mess demonstrated, Obama was able to shape public opinion by calling out GOP hostage-taking, and at the end of that self-inflicted crisis, which led to the downgrading of the US credit rating, the Republicans fared worse in the polls. No doubt, Obama now thinks he can outmaneuver the Republicans once more. But for Obama this is a rather fundamental fight that he believes must be waged for the benefit of future chief executives and to protect the integrity of the nation's political system. So is the final confrontation at hand? Obama has stated clearly he will not negotiate with political extremists who would hold the US government and economy hostage. Boehner, who leads a Republican caucus craving confrontation, has proclaimed he expects the president to deal.

Hypothetically, its best option would be to "prioritize" payments using the money it does have to pay for the things it deems really important (Medicaid and Medicare expenses, say) and letting the bills for less-important things go unpaid for the time being. The problem is that there aren't really any less-important things included in the Treasury's regular payment schedule. It's all stuff like food stamps, Social Security, military pay, unemployment benefits, and federal worker salaries. So these choices would be really, really painful. And forget about funding it all it's estimated by the Bipartisan Policy Center than 32 percent of the government's entire spending would have to be cut, in order to spend only the cash it has on hand. Another problem with prioritization is that we don't even know if it's legal, or if the government can physically do it. The Treasury department's computerized system, the one that sends out payments as they come due, isn't configured to pay certain bills instead of others. In the BPC's words, "prioritization would require a massive overhaul and reprogramming of these operations that may be impossible." Treasury could also decide to pay an entire day's payments at a time, once it's collected enough tax revenue to fund the entire day. This would mean not having to make tough choices between programs, but it would also mean that every government program was on the same terrible, sinking ship with no lifeboats, even for the neediest ones. We could default on our debt. The U.S. has never, ever missed a payment on a bond it issued. That's why Treasury bonds have traditionally been considered risk-free you know you're getting your money back. But under a debt-ceiling breach scenario, Treasury might have to delay or even miss payments to bondholders, putting Treasury bonds into technical default. Between October 18th and November 15th, more than $370 billion in U.S. government bonds are going to mature. Usually, when this happens, the Treasury department simply "rolls over" the debt it issues new bonds, and uses the proceeds to pay the old bondholders their principal plus interest. But rolling over debt in a post-X-Date scenario gets tricky, since new bondholders might demand much higher interest rates, or, if not enough people wanted to buy the new bonds, Treasury might have to start paying back the old bondholders out of pocket. It might even have to default on the bonds. We don't really know what happens if Treasury bonds default, since it's never happened. What we do know is that it would destroy the market as we know it. Banks could go under, credit markets could seize up, money-market funds could "break the buck" (meaning that the net present value of their assets would be less than 100 percent of what their investors put in), and ratings agencies like Standard & Poor's would almost certainly downgrade the U.S.'s credit rating, leading even more capital to leave the country. There is no good default scenario, only lots of really terrible ones. Investors might run away from Treasury bonds. If bondholders get scared of a default or a restructuring, they'll start selling their Treasury bonds. The government will raise interest rates on new bonds to make them more attractive to buyers, which will then cause rates on all kinds of credit to rise. Car loans and mortgages will cost more, and we could see the kind of credit freeze we saw after the financial collapse. Or, they could run toward Treasury bonds, which might be worse, actually. Adam Davidson makes the case that in the event of a debt-ceiling breach, investors might actually buy more Treasury bonds, running towards supposedly safe assets as they often do in times of market panic. This, weirdly, could be a worse outcome than a Treasury bond flight, since investors who held onto Treasury bonds during a panic might begin to regard those bonds as no less safe than bonds from other countries. America's bonds have long been thought of as a kind of global reserve currency the safest possible thing to own. If that status goes away and the U.S. becomes just another country with bonds that may or may not default in the future, Davidson says we'll lose the advantages we've long enjoyed. "The U.S. economys peaks will be lower and recessions deeper; future generations will have fewer job opportunities and suffer more when the economy falters." The central nervous system of the banking system might freeze. Fedwire is one of the least-known, most important services on Earth. It's a clearing system, run by the Federal Reserve, that banks in America use to shuttle cash, stocks, bonds, and other assets back and forth between themselves. It processes trillions of dollars a day, and has been around for nearly 100 years. But it's not set up to allow defaulted Treasury bonds to flow through its system. According to a note from RBC Capital, excerpted by FT Alphaville , if the U.S. defaults on its bonds, Fedwire could "seize" entirely, meaning that banks and other financial institutions could run into real trouble very quickly. The borrowing window might get jammed.

The cap applies to debt owed to the public (i.e., anyone who buys U.S. bonds) plus debt owed to federal government trust funds such as those for Social Security and Medicare. Congress has always set some kind of limit on national debt, but the first modern version of it was set in 1917. Today it's set at $16.699 trillion. How often has Congress raised the debt ceiling? So often. On average, more than once a year. Since 1940, lawmakers have effectively approved 79 increases. Sometimes they've raised it by small amounts, other times by large amounts. And sometimes they've raised it "temporarily" with provisions for a "snap-back" to a lower level. Is it true that raising the debt ceiling gives Congress a "license to spend more"? No. Raising the debt ceiling simply lets Treasury borrow the money it needs to pay all U.S. bills and other legal obligations in full and on time. Those bills are for services already performed and entitlement benefits already approved by Congress. So raising the debt ceiling is more like a license to continue paying what the country owes. And the obligations are incurred because of countless decisions made by lawmakers from both parties over the years. So, why does Congress even bother with a limit? In theory, setting a debt ceiling is supposed to help Congress control spending. In reality it doesn't. Not meaningfully anyway, although there have been times when the debate has yielded some fiscal restraint. Google+ Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer . Morningstar: 2013 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM 2013 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2013. All rights reserved. Most stock quote data provided by BATS. 2013 Cable News Network. A Time Warner Company. All Rights Reserved. Terms under which this service is provided to you.

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