Skip to comments.The Kabuki theatre of America's Debt Ceiling
Posted on 07/26/2011 11:23:59 PM PDT by bruinbirdman
Calm down. The US will not miss a coupon payment on its $14.3tn debt next Wednesday.
A genuine default would be Lehman on Steroids in the words of Ex-Treasury secretary Larry Summers. Precisely for that reason President Obama will not pull the trigger, EVEN IF the debt ceiling talks break down in acrimony.
Obama still has a clutch of cards to play, in extremis.
As Yves Smith from Naked Capitalism argues, the White House can challenge the constitutionality of the debt ceiling in Congress.
The 14th Amendment of the Constitution states that the validity of the public debt of the United States shall not be questioned.
Such recourse would kick it up to the Supreme Court, which would take its own sweet time. (Fortuitously a complex matter.)
Bill Clinton advised Obama to do just that: blaze ahead, break the debt ceiling in defiance of Congress, and force the courts to stop me.
Or, the US Treasury could eliminate the Feds entire holding of Treasury bonds at a stroke, gaining an extra two years. This would be a simple accounting transaction. Ben Bernanke might feel uncomfortable, and gold might blast to $3,000, but the Bernanke Fed has proved itself supple.
The Treasury also has the authority to issue infinite amounts of platinum coins at any denomination it chooses (ie, like fiat paper currency, far above the metallic value): a chest of $1bn coins, say. This is seignorage on steroids, pace Prof Summers.
You get the drift: nothing will in fact change when the deadline expires on August 2. The US is the worlds paramount strategic and economic power, with debts in its own sovereign currency. It can do as it pleases.
Yes, the US may be stripped of its AAA by Standard & Poors. A nice one-day story,
(Excerpt) Read more at blogs.telegraph.co.uk ...
First of all, that passage specifically limits the definition of that debt, despite the massive bogusity (it's a technical term) of Perry v. United States (1935).
But second of all, what it actually refers to is the legitimacy of the debt to the Federal Reserve. In other words, the Constitution authorizes the government to be the source of our money, and Congress then passed this responsibility on to a private corporation, the Fed, to print the money and loan it back at it's printed value - a scam of such unbelievable proportions, most people... don't believe it. But it's true, and such a wildly hyperbolic violation of the Constitution, that they decided to say, in the 14th Amendment that... "hey, you know that giant ripoff of our currency we made to the Fed through totally artificial, wildly inflated debt? Well, you hereby cannot question whether that debt is valid."
It's like declaring that people have to be taxed when the sky is red, and then passing a law that the blue sky is red, and then passing an Amendment that says "the validity of the definition of the sky as red shall not be challenged."
No, on the other hand, it's not "like" that.
It IS that.
The 14th Amendment was passed in 1866 to prevent the Confederate States from trying to evade paying their share of the debt incurred by the Union in fighting the Civil War.
The Federal Reserve Bank was not created until 1913. The 14th Amendment had been in place for almost 50 years before the Federal Reserve and therefor could not possibly refer to any debts owed to it.
He's very right with his image of the Kabuki mask to represent the current attempt to repeat the Gingrich-Dole defeat of 1995.
The problem for the pouty highchair king occasionally at 1600 Pennsylvania Avenue is that most don't believe him.
Rush makes it clear the mechanism is in place to convert treasury bonds to keep the checks going out on time.
If they don't, it will be due to the pique of the pouty poseur.
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