What to do?

Darlene Ohabughiro’s editorial on “What should the Investors do???” is taking an investors view on the United States debt crisis and is similar in some aspect to my own editorial. Darlene Ohabughiro’s editorial discusses on what investors are supposed to do while the Republicans and Democrats continue to play their little game of chess.

Investors need to stay strong and continue to have faith in the United States government and here’s why. The possibility of a United States default is unimaginable to Investors. The reason being is because the United States owes a lot of money to foreign nations from the amount of U.S. Treasury bonds we have sold to finance our country. Countries like China for example which holds the largest amounts of U.S Treasury bonds would lose a large amount of money which could cause the world markets to tumble further if the United States also has a falling out.

Darlene Ohabughiro also discussed on what some investors were doing with United States treasury bonds in case the United States government doesn’t reach a deal on the debt ceiling. What investors are doing is selling off some of their bonds issued by the United States government, but when you talk about investing you have a high possibility of losing money which is why a lot of people lost a lot of their money in the 1930s with the Great Depression because there was a panic with the prices. The same concept applies to here as well. If the United States defaults on its loans then all those countries that we owe money lose money as well which will create panic like I said and cause a domino effect causing everyone to try and get as much money as they can back causing prices to fall which Darlene Ohabughiro addresses.

I’m no expert on economics but I do know that if investors lose faith in the United States government and start selling their holdings on bonds in mass quantities. Then we have a larger situation on hand not just with the United States but the world’s top economies. I like that Darlene Ohabughiro provides some key points on what investors are doing amidst this situation, but by saying that investor are losing more and more confidence in the United States is doubtful because the effects are too large. The world knows what happens when you lose confidence in a system all too well and will make sure that doesn't happen.

Picture from http://kennysilva.net/wp-content/uploads/2011/01/doubt.jpg

7 Days

It seems as though we're no officially a week away from something that has never happened before in the history of the United States since its creation. That's right everyone talks broke down again this weekend no big surprise to anyone who has been keeping up with this circus. Though as time runs down both sides seem to be in no rush to get this deal done and both seem to be intent to keep playing this game of political chess until one side gives.  House Speaker John Boehner was reported to have said that if President Obama just signs the deal to raise our nations debt ceiling this crisis atmosphere will just all disappear.

You've got to be kidding me! Do you really think that by extending our limit our problems will just disappear? Multiple credit rating systems such as Standard & Poor and Moody's have both said that they may downgrade our credit rating. That I would say is a very bad thing that won't be going away with just a flick of a wrist. We need to fix our debt desperately considering that our nation doesn't get all its money from its citizens but rather foreign investors such as China who holds the largest amount of the bonds that we sell to investors.

House Speaker John Boehner also told reporters that the plan that the Democrats are offering offers no real change to the way our government spends money every year and that the biggest driver of our debt today and tomorrow are entitlement programs such as Social Security and Medicare. I admit that entitlement programs take up a large portion of our budget every year that continues to increase every year with more people retiring.  However we knew these kinds of programs would lead us to this situation sooner or later ,and we still didn't deal with until now with the clock rolling down so now isn't time to propose cuts to a program that should have been solved a long time ago. The Democrats may  or may not offer any real change besides increased taxes its still better that putting millions of Americans out of a paycheck that they depend on to live.

We all need to accept the fact that we need drastic cuts in our federal budget. We need to raise taxes and end loopholes but we need to as well fix our system of entitlements as well; though we need to do the latter after we come to a deal because like I said before not only will the United States be affected but the world as well. So let's all remain optimistic that our political leaders will stop butting heads and decide on a plan at least.

Picture from https://realmac.macdock.com/realmacsoftware/2007/addons/images/products/countdown.png

On Thin Ice

The blog article More Debt Talks... No Decision by Ashley Sorvillo on how there's no progress on the debt talks with the deadline nearing is similar to my own argument in many ways.

Ashley Sorvillo's article provided me with some interesting information on how the debt talks are going as of late. The posting made by Ashley Sorvillo discuses on how with the debt talks stalling and time running out. President Obama would be able to raise the nations debt limit without the consent of Congress. This is some intriguing news to me and it concerns me a great deal as it does to Ashley Sorvillo.

Ashley Sorvillo's in her article says that for President Obama to be able to raise our national debt ceiling he would need to just submit a proposal of suggested cuts. Though that may lead to a plan later on the future it doesn't help with the situation we face now because like Ashley Sorvillo discussed we wouldn't know where the money will be coming from. The money may be coming from new taxes or cuts to federal programs we don't know; it may be just the government printing more money which would lead to a lower exchange rate between the other major currencies in the world.

Ashley Sorvillo suggests that this is just a delay tactic because we're running out of time now and both parties see no compromise in sight. I agree that it's true that its a delay tactic but a necessary one at that because if we fail to do a least something about our debt limit then we're going to be in worst trouble than we're in now.

Taxes?

The issues regarding the debt talks are numerous but lets look at one in particular taxes. Taxes have always been a large part of United States life in fact it was the reason why we decide to become independent anyway but this time however it isn't about "no taxation without representation". Its deciding on how much to increase the taxes that we pay? The Republicans are more in favor of not raising taxes and instead cutting back on some federal programs such as Medicare and Social Security or even possibly ending these programs; while the Democrats want to raise taxes on the wealthy and corporations.

The Republicans most recent plan is calling for no tax increases at all and instead to remove Medicare and make our elderly pay for all their medicine by themselves. As you can guess the public is not responding well to this plan with an overwhelming majority wanting to keep the it the same. What are the Republicans thinking? Do they think that if we just keep everything the same as it is then everything will be fine and that we'll be able to go back to the good old days when we didn't even need to worry about our debt? We need to do something either way if by either closing tax loopholes or raising them in the traditional sense in which we all pay higher taxes.

In my opinion I say that we do both options; that way both sides are happy. The Republicans get a small tax increase instead of a large one and the Democrats are able to get a tax increase that could lead to more in the upcoming years and by closing off the tax loopholes it will make up the lost revenue from the small tax increase. I believe this is most likely the solution that seems remotely possible in the upcoming weeks. Hopefully by then they realize that this problem isn't going away for awhile and both parties quit their little chicken game before it causes even more trouble than we started with. Though we will just have to wait and see won't we.

Picture from http://gamespics.com/wp-content/uploads/2011/04/software-taxes.jpg

Ripples

As the date of August 2 looms closer we seem to being seeing more of it in our surroundings from news networks to the morning paper. In an article posted on the Smirking Chimp written by Joshua Holland he discuss what could happen if the United States government fails to raise the debt ceiling by August 2. Joshua goes on to explain what would happen by of course stating that we wouldn't be able to pay any of our debts to the countries that hold them such as China but also the government would have a delay in shipping out Social Security checks and unemployment benefits as well. This is critical because being unable to ship out critical checks would cause a severe backlash at the private sector who depend on IRS refund checks for doing things such as going green. Without these checks these companies won't be even hiring they may even be laying off more people increasing the demand for unemployment benefits. What about the deficit though? If the government doesn't raise its own debt ceiling then it can't spend money that it doesn't have? Joshua Holland also discusses this he states that the debt ceiling will be raised without a doubt because it unfathomable to not pay our veterans, unemployed and elderly but on time or not he is unsure. Joshua talks about how by not raising the debt ceiling on time will result in a dramatic increase in our debt which would result from having to pay the interest on our debts and how to pay for it we would need to increase federal spending.All these factors would send our economy back into another recession with the increased unemployment there would have to also be increased unemployment benefits further increasing our debt People would also be cutting back again to save and the government would then have to issue out even more tax breaks to help families further reducing our tax revenue and increasing our deficit in the process. I fully agree with Joshua statements on what may happen to the United States if we fail to raise our debt limits. I believe that each political party needs to stop bluffing because its not doing us any good and it could lead us into a second recession or even worse a depression.

Picture from https://peterkaphysics4-5.wikispaces.com/file/view/ripple_effect3.jpg/174506637/ripple_effect3.jpg

Magic Levers?

Who wants to be wrong? No person in their right mind wants to be wrong. In an editorial posted in The New York Times titled The Magic Lever written by David Brooks. In the editorial it talks about the economy and how people see it. David Brooks writes that since the start of the recession there have been groups that have proclaimed that they know the solution to all our economic problems. This is a key point because the recession started with the Republicans in power and now 4 years later we have the Democrats in power. David Brooks discuss each group's Magic Lever was supposed to bring an end to the recession but did not and now the United States is in a deep hole and trying to climb out of it. He goes on to state and pit the blame on both parties that they can't fear going back on what they said before if we want to solve the deficit. I found David Brooks view to be highly accurate and I agree upon his statement that there is no one way to solve this crisis. Though David Brooks view is conservative he remains neutral throughout the article. Though at the end he does put his own political views into the mix by saying that the government needs to "Control debt. Control entitlements. Keep tax levels reasonable and the tax code simple. Work on the economic fundamentals: human capital, productivity, labor market flexibility, open trade, saving and investment." On this standpoint I have to disagree with him because I believe that we do need to raise taxes but only briefly until we can manage our finances better and reduce the deficit. He however realizes how the hubris of each group is preventing a solution and that this situation cannot stay the way it is which is the main topic of this editorial. David Brooks is talking for the average citizen who doesn't really know whats the fine details are in solving this crisis but he does know that it needs to be fixed and our pride is getting away which as he states at the very end of the editorial "is the oldest story known to man."

Picture from http://lapsych.files.wordpress.com/2011/04/choices.gif

Progress on Debt

Today on July 7,2011 there was a meeting at the White House with Congressional Leaders about cutting the debt deficit. In the article by The Wall Street Journal it states how the meeting was constructive in cutting our national debt and what our leaders where doing about it from looking at tax loop holes to the way the government spends money each year.
What was interesting about it was that in the article it reported that the talks included changes to Social Security which according to The Wall Street Journal that some people believe to be untouchable. The White House commented on this report by saying " that while Social Security is not a major driver of the deficit, we do need to strengthen the program". What this could mean is that the government may increase the age that people need to retire at or the amount each person gets but for now it's unclear on what they plan to do with Social Security until a finalized plan to solve our debt is created. Another meeting with officials is scheduled this Sunday so we'll find out more about what the plan is to solve our debt.
This article is worth reading and why I chose this article rather than other is  because it's critical to the status of the government because if we fail to reach a plan by August 2. It could send our economy into a second even worse recession and send the global economy into a recession or worse that would take years to recover from.