The Debt “Ceiling” is Unconstitutional

And what is the curve on risk associated to the theory?

I understand the concept of leveraging debt to increase return, but in my opinion the risk outweighs the return.

My company has revenue in excess of a million annually with a growth rate of about 200% annual for the last 6 years. We hold zero debt.

In my opinion, the highest rate of return is through reinvestment in lieu of liabilities from debt. Some are more risk adverse, and sometimes they win and sometimes they lose.

 

I agree. It's like having a bunch of 50 year old alcoholics all telling each other to stop drinking.

 

Big Bad Government attracts crooks.
Hence the pressure to increase spending will always increase.

 

The general theory is the higher the debt-to-equity ratio, the more at risk the company is based on the interest rates. This is a general rule and does not always apply. So, having high amounts of debt to equity works fine if interest rates are at near lows, such as from 2019 to 2021 with near zero percent interest rates by the FED, which should have never happened. But Trump wanted it, got it, and pretty much all the GOP praised it. It gets more risky for businesses if interest rates are higher and loans are more costly. For most businesses, they have a line of equity equal to the amount of 30% of the operating budget on a three-year average so that business operations face a minimum delay in payments for its expenses and continue its operations.

Risk is nuanced and depends on certain factors in which industry the company is in, outside threats and opportunities, internal threats and opportunities, and so forth. Having a growth rate of 200% is not going to last forever, and that number does not mean much unless it is compared to other companies of similar size and length of operation to compare it to. But generally speaking, those who are risk-averse are going to have a lower debt-to-equity ratio than a company that is risk neutral or risk-averse. Some industries, no matter if you personally are risk-averse, are riskier than other industries. For instance, you can be the greatest cook, have the perfect restaurant location, moderate price, reasonable rent to pay, and so forth, but eventually that restaurant will fail 90% of the time in 5 years.

 

Yes! Debt has it's place, but once a solid financial base is in place, debt-free companies eliminate the costs and demands of debt service; they build a cash reserve that is both strength to grow and strength to handle the events that often wipe out companies who have used debt unwisely. My company has been debt free for about 15 years, and our cash reserve is big. Things that create a crisis for companies in debt are only a bump in the road for those who have solid financial strength.

 

Great!

However, I don't see a justification for government to try to model itself based on some successful corporation not having debt.

There is a huge difference between government and private enterprise.

 

All Americans do, but your question implies that you want to know about my personal life. Weird and/or creepy.

 

Every America would be impacted in many ways due to a shut down - as has been seen in the past.

But, I think the real point is that what we face is far worse than a shut down.

 

That’s fine, but make that argument during budget negotiations, not after the budget is set.

Think about it. If a business has revenue of $1M, but sets a budget of $1.3M with a deliberate intent to grow, the board can’t tell the CEO he isn’t allowed to borrow the extra $300k, especially after he’s already gone out and entered into contracts and hired employees at salaries based on a $1.3M budget. It’s self-defeating and just plain stupid.

 

Ok.

How does debt benefit the government or the people?

 

And the long-term answer to that is to fire a CEO who bets the company's future on the come, promotes debt based on speculations. He's not qualified to do that. The idea that you must follow through on a stupid decision once you've made it only encourages stupid decisions. The short term answer is to restructure your commitments, resize your work force or whatever is needed to keep your company sound. If you sink the company- everybody will lose. Investors, creditors, employees.

Now this isn't some new company just learning the ropes or becoming familiar with how things work. These people know full well they are spending deficit money when they do it, and just figure that the taxpayers are always good for it, no matter how much they are over-taxed and under-served. Even worse, they are putting generations of children is debt long before they are even born- expecting their indulgence of today to never fall on their own shoulders at all. NO corporation, NO business, NO family- can run it's financial affairs like that.

 

It means that when there are disasters, they can be mitigated, including helping those who have been put out of work.

It means that we can have high quality healthcare, food, etc.

It means that when we need roads and bridges, we can build them.

It means that when we need airports, safe transport, shipping docks, etc., we can build them.

It means that when we need an absolutely stupendous war machine we can build it.

Etc., etc.

There is a massively long list of things we need - things that make us a first world nation, that NO private enterprise would want or be able to provide.

Obviously, our legislators can get out of control, but that's a different issue from noting what the benefits are.

We spent trillions of dollars conquering Iraq and Afg. and then the USA agreed to walk away, for example. Our expenditures on defense grossed out Eisenhower, the leader of allied forces in WWII. And, today we literally have NO idea what we are spending on our military capabilities.

Yet, McCarthy demands that we cut the healthcare and food support for those who have far too little income - while protecting the ultra rich from their hundreds of BILLIONS in tax cheating.


Sorry - I'm sure you knew all this and your post was merely rhetorical.

 

I'm not against the debt ceiling.
The president does not create a budget but spends as authorized and in fact demanded by congress.
It's good, in my view, that Congress has to admit publicly their spending excesses. What I would support is disallowing any spending rules included in the debt limit rise. That is the normal methode except when one party in Congress sees an opportunity for blackmail. Nope, make them live with their excesses and face up to them. And let them crow if they are in a position to lower the debt limit because some of it has been paid off.

 

CEO didn’t set the budget, the board did… just like the president doesn’t set the budget, Congress does. How do voting adults still not understand this?

You don’t seem to understand a debt for growth business model. That’s fine. At least you should understand it’s illegal for the president to spend money in away other than how Congress appropriated it… meaning our CEO can’t alter Congress’s stupid budget decisions.

As long as you understand “these people” are the members of Congress.

 

What do you mean by that and how does it help?

 

It can benefit the nation the same way borrowed money helps a business grow, expand, and increase revenue. Done right, it puts people to work providing goods and services that drive the creation of new businesses and jobs and provides a broader tax base (source of revenue). Building infrastructure, R&D into technology, education/training programs are just a few examples.

 

If the board set the budget, and it was not well considered, the CEO should have objected. I can say that because I am a CEO, and have founded 8 businesses over the last 50+ years; currently operating two- one of which is a small manufacturing operation with customers in over 100 nations, the other provides consulting to business..... In my case, I own the majority of my company's stock- so I DO call the shots. I have also been acquainted over the years with numerous very successful entrepreneurs whose company's you have certainly patronized, and it's always been my practice to learn the secrets to great success. My last tax return put me in the top 2% and 6-figure tax brackets. You can assume I failed to learn anything along the way if you wish.

What happens in government is hardly consistent with what is supposed to happen. IF congress did actually manage the finances responsibly, they would be in control. But we continue to hear about Biden this and that projects, and clearly- congress does allow presidents to tell them what to do. Congress does have the power- but power is useless if you won't or don't know how to use it. Congress is not an entity working for the people's best interests, but generally for their individual ones. What they support is supported because it serves that, and common interest is not the top of the list. So working with congress honestly would be a lot like herding cats- meaning you aren't going to get any cooperation with out buying it or coercing it, and you discover there is no honor there.

Congress is a committee, whereas a CEO is more like a commander, or at least a strong leader. A person with the power to call the shots, assuming he is good- will invariably perform more effectively than a committee.. which compromises everything and never produces a clean, high performance solution to anything. Our politics fear too much leadership power in any one person, out of concern they will be dictators.
But a good CEO is better and more valuable to a company than a board of directors that thinks the their job is to dictate the CEO's decisions.
Our problems have as much to do with followers as leaders- because we tolerate conduct from politicians that would get you fired in a heartbeat in private industry. Thus we the people are failing to demand our employees do their job honestly. They won't change until we do.

 

let me see if I understand this. Government overspends its available funds and overspends before even knowing whether or not it will have the future borrowing power to cover the spending. See anything wrong with that? You actually believe that the constitution gives federal government power to destroy the American economy through profligate spending and there should be no limits to it? If federal government earned a default then it should suffer a default. Or, as an alternative, it could have started reducing its size. Perhaps that will help put the brakes on this economic destruction. Did I mention that the house offered up a bill that would extend the debt limit? I disapprove of that but, apparently, so do you.

Perhaps this would be a good time to say goodbye to the education department, the interior department, farm subsidies etc etc etc. Perhaps it could make some money by selling federal lands. Living without more credit is obvious and simple. The cretins just have to get it done.

 

What does any of that have to do with debt.

Needing things and going into debt to have then are not the same thing.

 

All of which can be done without debt.

Spending 31 trillion more than we have is not "reponsible"

 

No. Government is not a business. Tax revenue isn't earned. Spending other peoples' money is not an economic benefit to the nation. Federal government needs to limit itself to doing those things that the states can't do practically for themselves. Perhaps you understand the reason for the word federal in government's name. The idea was to have a union of states.

 

The current proposal for it by the Republicans includes spending, not just raising the limit. Keep those two things separate. Always.

 

Bad idea. Spending is the problem, not the debt limit.

 

OMG- Are you suggesting the Federal government should actually accept fiscal responsiblity?
That would call for a new agency, because nobody up there now knows what that is, or how to do it.
I'm all for it, but until the public is ready to kick some serious ass and demand it they will pretend it doesn't matter....

 

The point is that borrowing is seriously important.

On a personal level, carrying debt means people can buy houses and cars. It means they can get an education that improves their future income. Etc.

Our problem today is that we then refuse to pay. We don't seem to see ANY connection between the buying and the paying.

For one example, we dumped trillions into conquering Iraq and Afg. When is our tax bill coming? Never??

We had a pandemic, which required serious federal spending to support those devastated and other large costs, and then to stabilize the economy we made huge tax cuts.

When is our tax bill coming? Never!! We decided to make those massive tax cuts permanent, TOTALLY denying that we have bills to pay.