Slowing Economy Complicates Debt Talks

[Lone Wolf]

Ha ha, not tearing my hair out in the slightest!  I enjoyed the discussion very much (as always.)  I'm disappointed that things took the direction they did in the aftermath of this time period, but we have the world we have.  It's not a perfect one but it's a very, very good one.

The Depression and World War II were so important and contained so many moving parts that there's always another angle to look at when interpreting them.  I get lost in my imagination sometimes when I talk with my grandmother about that period of time.  Really sucks me in.

[moda0306]

Our world is great.

For all the complaining, the ability to learn so much (for free!) from other diversely-thinking individuals without leaving the comfort of my home leaves me with a lot of optimism about how things might turn out.

The nature of the PP may get us sounding a bit pessimistic, and it's probably best we break out of that from time-to-time (which it seems we do).

I'm truly grateful to interact with this group.  I wouldn't change a thing about it... ok maybe 1 or 2 more libertarian-doubtfuls like myself, but beggars can't be choosers.

I kid.

[Storm]

Ah CNBC, the bastion of sound financial reporting (lol).

Now that I've gotten that out of the way - the US is not going to default on debt.  I read an article that says the treasury has the ability to decide who or what it pays in a tight money situation.  So, even if we reach a complete impasse and congress tries to throw out the baby with the bathwater by not increasing the debt ceiling, the Treasury can just decide to keep making coupon payments and not pay, for example, congressional payrolls.

Another thing that continually gets brought up is the myth that foreign investors own almost all US debt.  As Clives chart proves, US citizens own the most US debt.  Any congress that would allow grandmas coupon payments to be delayed does so at their own peril.

You do not want to witness the million grandma march! 

[Gumby]

Now that I've gotten that out of the way - the US is not going to default on debt.  I read an article that says the treasury has the ability to decide who or what it pays in a tight money situation.  So, even if we reach a complete impasse and congress tries to throw out the baby with the bathwater by not increasing the debt ceiling, the Treasury can just decide to keep making coupon payments and not pay, for example, congressional payrolls.

The problem is that the Treasury is currently doing this right now — since the deadline already passed to raise the debt ceiling. These emergency measures will only get us to August 2nd. At that point, the obligations will pile up to the point that there will be what is known as a "technical default". You are correct in that everyone will get paid, but the "technical default" may do a lot of damage to the reputation of Treasuries. Nobody really knows what will happen after August 2nd. We can only hope the Treasury has some more cards to play when that day comes. From what I've read, the Republicans want a technical default to happen. They are playing with fire.

[Storm]

Now that I've gotten that out of the way - the US is not going to default on debt.  I read an article that says the treasury has the ability to decide who or what it pays in a tight money situation.  So, even if we reach a complete impasse and congress tries to throw out the baby with the bathwater by not increasing the debt ceiling, the Treasury can just decide to keep making coupon payments and not pay, for example, congressional payrolls.

The problem is that the Treasury is currently doing this right now — since the deadline already passed to raise the debt ceiling. These emergency measures will only get us to August 2nd. At that point, the obligations will pile up to the point that there will be what is known as a "technical default". You are correct in that everyone will get paid, but the "technical default" may do a lot of damage to the reputation of Treasuries. Nobody really knows what will happen after August 2nd. We can only hope the Treasury has some more cards to play when that day comes. From what I've read, the Republicans want a technical default to happen. They are playing with fire.

I think worst case scenario, what will happen is they have a temporary government shutdown - stop paying some federal employees, until millions of phone calls flood the congressional offices and they decide to pull their heads out of their asses and stop playing with fire.

When considering why something is happening, you have to look at who benefits from it.  Who benefits if the debt ceiling doesn't get raised, the markets get spooked, and the economy ends up in the dumpster?  Who would love to see a 2012 election cycle with a worse economy and jobs situation than we have today?  The dirty tricks of elected officials that would rather sabotage the entire economy just to get their party elected are pretty despicable, to be honest.

Also, consider the Ryan budget plan:  http://www.nationaljournal.com/budget/r ... s-20110405

The Ryan budget plan projects 2.8% unemployment by 2021?  What the hell are they smoking?  They predict a housing recovery and $89 billion housing investment in 2012, $1 Trillion investment in housing over the next decade?  We're still trying to work through trillions in shadow inventory and underwater homes...