Posted on 07/12/2011 1:56:38 PM PDT by Ernest_at_the_Beach
Despite all the rhetoric and posturing we see in the media and in Washington D.C., it is safe to say categorically that the U.S. Treasury will not default on its debt after August 2nd, even if the debt ceiling is not raised. Not only will the Treasury be able to pay interest on U.S. debt obligations, but there is money for other essential programs as well. However, there will be some serious cutting that has to happen because spending clearly exceeds revenues.
I believe a debt ceiling limit extension will be enacted. However, let’s consider what might happen if the debt ceiling limit is not raised. Here in a Q&A format is what I believe you need to know at a basic level.
Q: What is a default?
A: In this case, a default would be the failure by the U.S. Treasury to make payments of principal or interest on its debt in a timely manner.
Q: In a given month how much does the Treasury owe as interest on its debt?
A: Roughly about $15–20 billion (more on this in a moment).
Q: How much revenue does the Treasury take in on average in a month?
A: Roughly about $200 billion.
Q: Are you saying the Treasury could pay interest on its debt 10 times over (or more) from monthly income?
A: Yes. Therefore the likelihood of not paying interest on its debt is zero.
Q: But, what about redeeming bonds that come due?
A: As bonds come due, the Treasury would again use monthly income to pay them off. This would lower the debt owed beneath the so-called debt ceiling. Then, the Treasury could turn around and issue debt in that amount up to the debt ceiling.
(Excerpt) Read more at blogs.marketwatch.com ...
For discussion...
If indeed the debt ceiling was enforced - major cuts to spending would have to be made. Whole agencies and Departments would need to be merged or eliminated. It would force some discipline on Washington and particular on the Progressives and their schemes.
The stock market would go up 1000 points in short order and the US dollar would blast upwards.
What is to stop Tim from offering Ben some asset in return for all of the debt the fed is holding?
Ben says I’ll take ANWAR rights, radio spectrum rights, Puerto Rico, and Guam to name a few. Thus with a stroke of a pen no more pesky debt limit and on to QE III.
Someone needs to tell the editors at the “Economist” this....see thread a couple up....
bttt
Very nice
Do other countries have "debt ceilings?"
If so, what has been their experience? Anybody?
Excellent post of an excellent article. Thanks.
Sounds like Bernie Madeoff is running the Treasury.
Best article I’ve seen on the issue.
“I’m just flabbergasted that we’re getting all this commentary about catastrophic consequences, including from the chairman of the Federal Reserve, about this situation but none of these guys bothered to write letters or whatever about the real situation which is we’re piling up trillions of dollars of debt.”
They want to kick the can on down the road...why should I fix this on my watch?
The more they increase the debt ceiling at this point, the bigger the bubble will be when it burts. In terms of how many Federal employees will be forced to be laid off.
They will attempt to cut social security checks, but it will cause an uproar.
We undoubtedly will see some historic sparks flying in Congress and Washington, DC by the end of this year or beginning of next.
Europe is heading toward complete collapse.
Both Europe and America have so far stuck to creating money and issuing debt to back it up that no one wants to buy, so the newly created money won’t be earned for decades. There is just not enough productivity to earn that much money.
The only answer is government austerity and let the largest banks fail if they do, and then auction off their assets on the bankruptcy auction block to smaller banks. The smaller banks will then be acquiring these assets for pennies on the dollar, which will greatly solidify their balance sheets. Medium-sized banks will grow to become larger, and other banks win all the customers of the failed banks.
Within a decade the entire world will be on solid ground and hopefully have learned the lesson to limit government borrowing to somewhere around 5% of GDP (I don’t know the optimal number, but it’s fairly small).
Furthermore, as the U.S. job market really has nowhere to go but up, presuming -- again -- no social revolution, the smart money averages down.
Where else are they gonna go?
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