Posted on 01/17/2013 6:42:12 AM PST by lbryce
Once upon a time, Congress didn't want to raise the debt ceiling,sending the country into default. It was bad, and we shouldn't do it again. The end.
Oh, you wanted to hear the rest of the story? Okay, here it is. Back in 1979, Congress waited, and waited, and waited to lift the debt ceiling, because Congress never likes taking responsibility for the tax and spending decisions it's already made. Now, Congress usually does the right thing after it's exhausted every other possibility, at least when it comes to paying our bills, and this debt limit increase was no exception. Congress did raise it right before defaulting on our obligations would have been unavoidable ... but that didn't let us avoid defaulting on our debt. At least not $120 million or so of it. That's because the logistically and technologically-challenged Treasury couldn't get the checks out in time on such short notice. As Donald Marron of the Tax Policy Center explains, the Treasury got swamped with an inordinately high demand for Treasury bills, which it couldn't meet due to a word-processing error. So we defaulted on some of them.
The government eventually paid back everyone what it owed with interest, but that didn't erase this accidental default from the market's memory. Short-term interest rates shot up 0.6 percentage points after the Treasury missed its payments, as you can see in the chart below from Terry Zivney and Richard Marcus:(The Day the United States Defaulted on Treasury Bills) and remained higher than they otherwise would have been for a few months at least. It wasn't the end of the world, but it wasn't exactly something we want to repeat either.
But it would be much, much closer to Armageddon if we did this today.
(Excerpt) Read more at theatlantic.com ...
The whole premise of the article is fallacious. Nobody is suggesting that the Federal Government stop making payments on its debt. There is no reason to even if we don’t raise the debt limit.
Weren’t interest rates around 15% anyhow? Interest rates were pretty volatile at that time. I’m sure a .6% jump could have been contributed to a lot of things.
Its like any other Ponzi scheme - you can use the funds you have to pay off the marks to whom you’ve promised a return or you can pay the board for your stable of racehorses, but you probably cannot do both... unless you find some new marks to pony up some brand new cash to keep the scam rolling.
What our maximum leader has said is that apparently he is willing to screw the marks, but keep the gravy train rolling for the goodies Uncle Sugar has used to buy votes with for the last 50 years unless a couple of hundred whores give him permission to find new marks in another month or two. I’m sure he will put in a few more trips to Tiffany’s or toss out another bridge to nowhere or juicy weapons contract to get the whores to swallow one more time.
This whole house of cards falling down is pretty much an exercise in basic math at this point. Even if by some QE miracle interest rates manage to stay at diddly.squat% for the next 10 years, our outstanding debt will consume every dollar of government revenue and everything else the federal government pays for, from .223 ammo to the dinner rolls for a meal in the white house, will be bought with borrowed money by then. A spike in interest rates brings that about sooner.
Ross Perot’s Hockey Stick showed up four years ago and none of our “leaders” can (or more to the point, will) do a damm thing about it.
What really happens is the Treasury issues new debt to raise funds to pay off old debt that is maturing . . . plus interest. If the debt limit isn’t raised, they cannot issue the new paper.
But, hey . . . I’m on your side.
If the government issued contracts to contractors based on the legally passed budget but then doesn't pay them due to the debt limit not increased then there are many situations where the government will pay more for the same products or services by defaulting on the contract, even if its renegotiation.
This is included in the generic term ‘The US govmnt obligations’ term that O uses.
If it is played out that way you know who will get the blame, after Rs cave.
“Any default today would unleash repercussions unprecedented as that of an Obamageddon. “
But continuation of current spending will eventually result in the same result.
Furthermore, even by refusing to extend the debt ceiling, there is no guarantee that we would default. We could pay debt service first and not pay other spending. Under Obama, the first thing likely to not be paid would be debt service, because that is the person he is, but that is another story.
They don’t have to do that. There is plenety of cash flow to service all the debt.
Exactly. We go down now or we go down later.
This garbage of spending more than we have coming in has to stop.
“Any default today would unleash repercussions unprecedented as that of an Obamageddon. “
But continuation of current spending will eventually result in the same result.
Furthermore, even by refusing to extend the debt ceiling, there is no guarantee that we would default. We could pay debt service first and not pay other spending. Under Obama, the first thing likely to not be paid would be debt service, because that is the person he is, but that is another story.
But there is also good news, it is not the end of the world. I was in Mongolia after the demise of USSR. It was like the frontier, all the old rules were gone and they were being entrepreneurial and making new ones. It was hard but exciting also. 80 years of Communism had not killed entrepreneurship.
Another observation was they were rediscovering their heritage. In their case, this meant Genghis Khan and Buddhism. In our case I hope it means the founding fathers, the Constitution and faith in God.
Huh? That's not true. Congress mandates all sorts of spending. When that spending exceeds revenue, you have a deficit. I'm not aware of a mechanism whereby the Executive Branch can opt not to spend money on something Congress has ordered it to do -- if you want to give Obama that kind of power, be my guest, but I don't think we'll like the outcome. But that would be the only way I'm aware of for the President to prioritize debt payments over everything else the government does.
That is true if they put debt payments at the front of the line and make entitlements and government operations secondary.
That is what this whole bogus argument is about: prioritizing spending and living on tax receipts versus borrowing to cover huge revenue shortfalls compared to what our thieving politicians WANT to spend.
They were horrendous
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