Texas Monthly hosted a Q&A with Dallas Fed Chair Richard Fisher at SMU on Monday. I attended. One of the questions he was asked was how can we default if we take in 200BN/month and debt servicing is in the range of 20BN/month.
This is a paraphrase of his answer: maybe we can pay the debt servicing and maybe not, but it doesn’t matter; the result will be the same - an unthinkable black swan disaster.
October is one of the lowest receipt months for the government and at the same time, about 1/3rd of annual expenses are funded during that month. There’s no guarantee that there actually would be money there to pay.
EVEN if there were cash on hand to pay for debt servicing, there is certainly not the money to pay debt servicing, SS, Medicare and the Military, not to mention everything after that. No matter how you prioritize and no matter whether you agree with it or not, great swaths of the economy are propped by the government and the inability to raise the debt limit will cause a serious of cascade failures that will rattle the markets, create worldwide stress fractures, and send interest rates through the roof.
It would be an unthinkable black swan disaster. His words.
Whether we fail to pay the debt directly in October, or have to refinance future debt in a post-black swan interest rate environment, the result is the same: both paths lead to default.
Don’t shoot the messenger.
Do you understand how much 1 trillion is?
1. The debt has to be bigger than they admit to.
2. Revenues are less than they admit to.
There are people in jail for violating accounting rules. Math doesn't lie.