Why is debt? When we spend more than we have as income. What to do? We
borrow money from credit card or bank, and we have to pay monthly high interest rates.
Same with US govt: owes $14 T 460B and the GDP (gross domestic product – income & expenses of all the goods & services) of the country is $14T 660B = 98% of total revenues. US borrows from rich countries such as China $1T1, Japan $900 B, others from $100 to $300 B. Pay near $414 B in interest payments in 2010.
Deadline to pay debt, August 2, few days, if not face default. What to do? 1) Raise
Taxes (Democrats), or 2) spend less (Republicans). 1) Democrats: raise taxes on Forbes 400 richest Americans, earn from $1B to $56B (Bill Gates), $45 B (Buffet), who pay around 18%/year, while the Middle Class Americans pay 28% to 35%. : 2) Republicans: cut on expenditures. Govt Must pay $980 B on defense & security (two wars in Iraq & Afghanistan & Homeland security; $730 B in Social Security; $$490 B in Medicare; pay for govt workers salaries, contractors, students loans, unemployment worse: 8 Millions receive unemplymt benefits, 9.2%.
Consequenses: 1) fear in US: seniors, petition to their reps, no money to pay for
food & lodging, health insurance, 2) students no money for loans to college, 3) Wall Street stocks falling, economy down, inflation up, businesses closing, investment less, unemployment, interest rates up, housing crash, recession.
Fear in other countries: in Europe 17 countries 12 years ago used Euro money denomination. Ripple effect, affects 40% in Euro zone - trade & businesses, banks & financial institutions. Crisis in Greece, Portugal, Ireland, high debt, no default, rescued by Germany & BCentral Bank of Europe to pomp money in these countries.
US Congress: Article 1, Section 8, gives Congress power to borrow money, not excee
Ding limit of GDP. What to do? House 240 R, 193 D, US Congress needs 217 votes to pass the bill to raise the debt ceiling. Cong. Boener, Chair of the House majority, proposes to increase debt ceiling of $1.2 T to be voted in 2012, then $1.8 T in 2013, and cut gvt exp.
Sen. Reid, head of Senate majority, proposes to increase debt ceiling until 2013 and not increase tax to richest Americans. Both face a lot of opposition for their own parties and from both parties. Clock is ticking, hope to pass D/C by tonight at 11th hour.
