Whats the role of government in ensuring the financial well-being of its citizens?

[MaxBuck]

[quote='BusNative;118119;7]Is demand for oil high? Yes. But we would feel it less from a personal budget standpoint if we were paid in Euros or Pounds, for example, as those currencies have risen relative to the dollar, which is what oil is traded in. Just saying.[/quote]
No argument. And had we elected a POTUS with less appetite for invading countries based on personal dislike for their dictators (and/or better planning skills with respect to exit from said adventures), we'd have more buying power.

Fact is, we elected an idiot, and we're paying the price. Hope our idiot-identification skills as an electorate are better this time out of the chute.

 

[PlanetFrnd]

No argument. And had we elected a POTUS with less appetite for invading countries based on personal dislike for their dictators (and/or better planning skills with respect to exit from said adventures), we'd have more buying power.

Fact is, we elected an idiot, and we're paying the price. Hope our idiot-identification skills as an electorate are better this time out of the chute.

 

[NewYorkBuck]

[quote='BusNative;118118;4]Wrong.

If the U.S. defaults on its debt - its trillions of dollars of debt - we will be in a world of shit, especially now that we are by far a net consumer nation rather than producer nation. We would be dreaming of $5 gas, as the dollar would become like czar-era rubles or something. Inflation would be like Zimbabwe's. Immense pools of dollar-denominated assets would be crushed, and financial systems would be in chaos.

Likely? Probably not. But remember when Russia defaulted? It would be like that - only many, many times worse - I'm not smart enough to quantify it, maybe NYB or 14-0 can chime in.

Bondholders get stiffed when our rates are too low or inflation eliminates NPVs, but a default on U.S. debt would be a very, very bad thing.

Seeing how the government is essentially a gatekeeper for a nation's economy - both protecting some portions of the economy and deregulating others as it sees fit - it absolutely has a fiduciary duty to its constituents to maintain the country's solvency.[/quote]


Native is correct - a default on US Treasuries would be an absolutely cataclysmic event for the economic health of our country, and the world. The first reason for this is because currently the short term treasury rate is currently considered the risk-free rate, and all other financial instruments trade as a spread to this rate after building in the risk premium. Take away the risk-free rate, and there is absolute bedlam in financial markets until a new risk free rate was established. Markets hate uncertainty, and you just took away the very bedrock that the markets are built on, effectively making every single financial instrument an unknown commodity. You could see a 50% sell off in the Dow. It could be that huge.

Second, our credit rating would go from its current AAA+ rating to junk status. Our cost of funds would go from 5% to 15+%. Given our spending ways, in no time debt service would eat up most of the tax revenue.

Thats just two (hopefully you dont need more.)

As far as the original title of the post - I think the government has absolutely no obligation in ensuring the financial well-being of its citizens. There is absolutely no provision for such in the Constitution, and in fact, I think attempting to do so is unconstitutional. (Please dont cite "general welfare" clause - its the most abused and overreached part of the Constitution.) Its my contention that the framers had no intention whatsoever of constructing a document that ensured the finances of the citizens. I believe instead they were trying to ensure the OPPORTUNITY to obtain financial well-being.......

 

[Steve19]

Oh, I'm not, trust me. There are lots of good reasons for going to war, but they all ultimately relate to national self-interest (in a moral vacuum).

So back to the national debt. As with any debt, one needs to focus more intently on value relative to the productive capacity of the debtor. Here's an interesting graph:

So our debt load hasn't grown since the Eisenhower years (no thanks to the Republican administrations of Reagan, Bush I and Bush II).

With respect to debt, there is another factor that everyone seems to forget. We don't have a debt that is owable to Martians; debts are related only to moneys loaned by Party A to Party B. Most of the "national debt" is held in government-issued bonds and related securities, which in turn are ultimately held by private individuals. Consequently, the payoff is not going into some black hole, but rather constitutes yet another set of transfer payments.

I really believe that most people's consternation over the national debt is misplaced. It really is not a huge deal. When it gets to be too big, the bondholders will get stiffed. Much as I get stiffed when a tenant fails to pay his rent, or when a client fails to pay his bills. Happens all the time.

I was rather staggered a few days ago when the national debt was posted in another thread. I think an issue that we may want to consider is the total debt per US household as a percentage of annual income. What you didn't have during the Eisenhower years, possibly, is such high consumer debt. That is what concerns me. Americans have been carrying the bloody world economy for years in their consumption, while our Asian and European "friends" produced more and saved more than us. Maybe it's time they carried us for a while.

 

[craigblitz]

I was rather staggered a few days ago when the national debt was posted in another thread. I think an issue that we may want to consider is the total debt per US household as a percentage of annual income. What you didn't have during the Eisenhower years, possibly, is such high consumer debt. That is what concerns me. Americans have been carrying the bloody world economy for years in their consumption, while our Asian and European "friends" produced more and saved more than us. Maybe it's time they carried us for a while.

+1 on the consumer debt part!

 

[PlanetFrnd]

Our cost of funds would go from 5% to 15+%.

Not to pile on, but 15% is a good proxy based on current spread to treasury assumptions relative to risk. With out the risk free rate, who knows what junk rates would be, or if there would even be such a thing as junk rates...

As far as the original title of the post - I think the government has absolutely no obligation in ensuring the financial well-being of its citizens. There is absolutely no provision for such in the Constitution, and in fact, I think attempting to do so is unconstitutional. (Please dont cite "general welfare" clause - its the most abused and overreached part of the Constitution.) Its my contention that the framers had no intention whatsoever of constructing a document that ensured the finances of the citizens. I believe instead they were trying to ensure the OPPORTUNITY to obtain financial well-being.......

Its hard to argue this thread from a constitutionality standpoint, but I wonder (out loud, in this case) how much that matters. Constitutional-era America was agrarian with no central bank, very rudimentary markets, and highly uncorrelated sectors ("wall street" and "main street," for the sake of brevity). Regulation of financial markets, for example, for the sake of the financial welfare was just not an issue at the time.

However, the government did give itself the ability to levy tariffs on imports and the U.S. had varying levels of very high tariffs for many years. This is at least one example of the government acting on behalf of the financial welfare of the people.

 

[MaxBuck]

...a default on US Treasuries would be an absolutely cataclysmic event for the economic health of our country, and the world. ...

It would be serious, sure, but I think the word "cataclysmic" is way over the top.

Again, the US is not alone by any means in deficit spending among nations of the world, and if we were to default it would likely be a situation in which we were preceded in bankruptcy by many other nations. (For example, by my calcs Japan's national debt is almost twice its GDP! Puts our 65% or so to shame!) But we'd all get over it, sooner rather than later IMO.

However, this is all an exercise in tealeaf-reading, since such a default by a nation of the stature of the USA has never happened. We'll see what happens, if it happens.

 

[MaxBuck]

I think an issue that we may want to consider is the total debt per US household as a percentage of annual income. What you didn't have during the Eisenhower years, possibly, is such high consumer debt.

That being the case, the present problem of escalating defaults is hardly surprising, eh?

 

[NewYorkBuck]

It would be serious, sure, but I think the word "cataclysmic" is way over the top.

Again, the US is not alone by any means in deficit spending among nations of the world, and if we were to default it would likely be a situation in which we were preceded in bankruptcy by many other nations. (For example, by my calcs Japan's national debt is almost twice its GDP! Puts our 65% or so to shame!) But we'd all get over it, sooner rather than later IMO.

However, this is all an exercise in tealeaf-reading, since such a default by a nation of the stature of the USA has never happened. We'll see what happens, if it happens.

Max - I typically enjoy your posts and this is not intended as a personal attack, but if you dont think a US default would be anything other than cataclysmic, you simply dont understand financial instruments or world financial markerts. Taking away the risk free rate would send markets in a free fall until another was found, and God knows how long that would take. That includes ALL markets as well - equities, debt, govies, derivatives, currency, commodities, - you name it. The dollar would completely stop being the worlds currency (eventhough we are well on that track already). If it happened slow - with news slowly leaking out before it happened, that may lessen the velocity of the crash, but the point is a risk free rate will need to be found as a replacement. Again, this does not even address the USs news position to access debt markets, which would drastically change.

 

[Jake]

Whats the role of government in ensuring the financial well-being of its citizens?

This question already has an answer:

The United States Constitution - The U.S. Constitution Online - USConstitution.net

 

[fourteenandoh]

government has the responsibility to ensure that everyone in America has an opportunity to succeed. it is not government's role to ensure that everyone succeeds. capitalism is formed on the assumption that there are winners and losers. not everyone can win.

in the op-ed piece this guy tries to go about figuring out who to blame for americans putting themselves in debt. he mentions hollywood, state govts, credit card companies, payday loans and even hedge funds (WTF do they have to do with a college kids credit card debt?) but mentions nothing of the people who make the decisions to put themselves in that debt. There is no hint of personal responsibility to be found. IMO the solution is pretty simple. start educating people about money in grade school. learning about basic money skills should be right there with learning how to read and write. It really isn't that difficult to understand how savings and debt works. it could be taught one hour a week in the form of a money class that gets more complex as kids get older. if we did this, we could raise a generation of financially savvy (or least not financially retarded) americans that won't get duped into hollywood, lotteries, credit card companies, no money down interest only mortgages etc etc. to tie this back to my original thought, this would kill demand for lottery, predatory credit cards and home loan companies and they would be the losers and would probably go away. all of this could be accomplished with no gov't regulation into business whatsoever.

 

[NewYorkBuck]

government has the responsibility to ensure that everyone in America has an opportunity to succeed. it is not government's role to ensure that everyone succeeds. capitalism is formed on the assumption that there are winners and losers. not everyone can win.

in the op-ed piece this guy tries to go about figuring out who to blame for americans putting themselves in debt. he mentions hollywood, state govts, credit card companies, payday loans and even hedge funds (WTF do they have to do with a college kids credit card debt?) but mentions nothing of the people who make the decisions to put themselves in that debt. There is no hint of personal responsibility to be found. IMO the solution is pretty simple. start educating people about money in grade school. learning about basic money skills should be right there with learning how to read and write. It really isn't that difficult to understand how savings and debt works. it could be taught one hour a week in the form of a money class that gets more complex as kids get older. if we did this, we could raise a generation of financially savvy (or least not financially retarded) americans that won't get duped into hollywood, lotteries, credit card companies, no money down interest only mortgages etc etc. to tie this back to my original thought, this would kill demand for lottery, predatory credit cards and home loan companies and they would be the losers and would probably go away. all of this could be accomplished with no gov't regulation into business whatsoever.

Great post.

 

[Buckeyeskickbuttocks]

Great post.

Hippie.

:p

 

[NewYorkBuck]

Hippie.

:p

Limousine hippie......

 

[Buckeyeskickbuttocks]

Limousine hippie......

VW Buses are so 40 years ago.