US money running out?

[GridGirl]

I was reading the Sky News website and they had an article about how the US goverment could potentially run out of money by midnight on Friday. I really dont profess to know huge amounts on this subject but as an outsider the general gist of the problem seems to stem from Congress not being able to agree budgets. The article I read said that there was the threat of a shutdown, which would affect all non-essential federal services if a deal couldn't be made before Friday.

I also didn't know that the US government last ran out of money in 1996 when Clinton was president.

I hadn't previously heard that the US government could run out of money. Is this just media over-hype or a realistic scenario? If it could happen, this does make me wonder what the knock on effects would be in other financial markets.

[Rollo]

http://news.sky.com/skynews/Home/World-News/US-Frantic-Negotiations-Taking-Place-To-Avert-A-Government-Shutdown-Within-Days/Article/201102415942732?lpos=World_News_First_Home_Article _Teaser_Region_0&lid=ARTICLE_15942732_US%3A_Frantic_Negotiations_Ta king_Place_To_Avert_A_Government_Shutdown_Within_D ays
Members of Congress must agree budgets for government agencies each year and Republicans and Democrats are poles apart on how to cut America's multi-trillion dollar debt.
A short-term funding agreement is likely to be reached before the money runs out at the weekend but that will only delay the crisis for two weeks.

A similar situation existed in 1975 in Australia when the May budget hadn't been passed by November. This resulted in a shutdown of the parliament and new elections were held. In Australia it meant that Government workers continued to be paid, but no new bills were tabulated before the house.

What this means for the US I expect, is that because appropriation bills haven't passed, then technically the Congress hasn't approved the business of the administration. You'll probably see a suspension of government services, but because wages, salaries, pensions and utilities are ongoing and mandatory, then Government workers effectively get a paid holiday and the Congress itself shuts down until a new budget is passed.

[Rollo]

Actually come to think of it, didn't this happen in 1995 with Newt Gingrich, when the poor cry baby was forced to sit at the back of the plane?

[Mark]

Debt is different to the 'running out of money' scenario. As I understand the US system the president makes the rules and congress hands out the money. Rather like the olden days in Britain where the King was in charge of the country but parliament in charge of the money!

So if congress can't agree the budget then funds can't be released? It's not like the money isn't there, but rules prevent it being spent!

[Zico]

I was reading the Sky News website and they had an article about how the US goverment could potentially run out of money by midnight on Friday. I really dont profess to know huge amounts on this subject but as an outsider the general gist of the problem seems to stem from Congress not being able to agree budgets. The article I read said that there was the threat of a shutdown, which would affect all non-essential federal services if a deal couldn't be made before Friday.

I also didn't know that the US government last ran out of money in 1996 when Clinton was president.

I hadn't previously heard that the US government could run out of money. Is this just media over-hype or a realistic scenario? If it could happen, this does make me wonder what the knock on effects would be in other financial markets.


This video explains how the financial system works pretty well.. http://video.google.co.uk/videoplay?docid=7065205277695921912#

I dont know about you guys but watching this really brought home to me how fragile and deceptive the system is... Fractional reserve?..

[Garry Walker]

The money really isn't there, that's what the issue is. Only by taking on more debt is the government going to be able to go forword. It's like you or me having no job and no money left to make the house payment and going to our brother in law to borrow it.

Except you cant just print it whenever you want.

[Mark in Oshawa]

The US has been broke for so long, I am shocked the whole house of cards hasn't trembled and fallen again. When the Chinese own most of your debt.....well lets just say it is a good thing for world peace, because the Chinese cannot afford to have the US collapse now. They are the next domino if the US falls. Sort of MAD, except with money...

[schmenke]

Except you cant just print it whenever you want.

The US government doesn’t print money, the Federal Reserve Bank does. If the government wants more money in circulation they have to borrow from the Feds who print the bills in exchange for an IOU, plus interest. This is the catch-22 that the government now faces. The only way to keep the economy strong is to borrow money (for things like bailouts :mark: ), but borrowing money puts them further in debt because of the interest.
The U.S. is one of the few countries in the world whose banking system is managed outside the government. This topic was raised in a previous recent thread, and I can understand why, but it certainly doesn’t help the debt situation. If banking responsibility was entrusted to Congress, then they could borrow and print money interest-free.

[Rollo]

The U.S. is one of the few countries in the world whose banking system is managed outside the government.

The Bank of England, Reserve Bank of Australia, the Bundesbank, Banque de France and the European Central Bank, are all managed independently and are autonomous, but still government owned.