How will a fight over the debt ceiling affect the market?

[ERD50]

I know this is tongue in cheek but...1/3rd of last years federal budget was debt. Can't imagine what would happen if that stopped.

So the answer is to go further in debt

-ERD50

 

[Pete]

So the answer is to go further in debt

-ERD50

If you knew me, you'd know I'm not smart enough to come up with an answer. I just have to admit the obvious and prepare for it. Debt either matters or it doesn't. If it doesn't-enjoy all the easy growth, if it does-we currently owe $45,000 each(assuming they're telling us the truth about the 14 trillion), a sum far too great to ever be repaid. Let's not even start on future unfunded liabilities. Let's ride this for all it's worth and deal with the pain later.

 

[harley]

If you knew me, you'd know I'm not smart enough to come up with an answer. I just have to admit the obvious and prepare for it. Debt either matters or it doesn't. If it doesn't-enjoy all the easy growth, if it does-we currently owe $45,000 each(assuming they're telling us the truth about the 14 trillion), a sum far too great to ever be repaid. Let's not even start on future unfunded liabilities. Let's ride this for all it's worth and deal with the pain later.

Don't be such a pessimist. Dave Ramsey could have you pay off that $45K in 3 years.

 

[Pete]

Don't be such a pessimist. Dave Ramsey could have you pay off that $45K in 3 years.

Always felt I was a realist. I'm a family of four so I actually owe $180K. I guess I could do that in 12 years. I just wonder if they're gonna need me to help all the unemployed people pay their debt off as well.

 

[Texas Proud]

I read something this weekend that said the last debt ceiling increase was during GWB... and it passed the Senate with all repubs voting for it and all dems voting against... including Senator Obama.....


I wonder how all the dems are supposed to vote for it this time with a clear conscience..... or how the repubs can vote against it... it should not matter who is in the White House... now, I can see how someone was for it back then and against it now as the debt has risen so high so quickly... but going the other way.... hmmmm...

 

[harley]

[snip]dems...[snip]repubs...[snip]conscience...

 

[Texas Proud]

I know....


I just want to see the speeches they make... I was for it before I was against it, but now I am for it again...

 

[Htown Harry]

I read something this weekend that said the last debt ceiling increase was during GWB... and it passed the Senate with all repubs voting for it and all dems voting against... including Senator Obama.....

Your source appears to be only half-right, TP. Congress has bumped it at least once since GWB was president.

From Geithner's January 6 letter to Congress, describing the consequences of not raising the debt ceiling:

Secretary Geithner Sends Debt Limit Letter to Congress

"...As you know, in February of 2010 Congress passed legislation to increase the debt limit to $14.29 trillion. As of this writing, the outstanding debt that is subject to the limit stands at $13.95 trillion, leaving approximately $335 billion of “headroom” beneath the current limit...."
​

After going through a few of the finger-in-the-dike options for buying a few weeks or months of extra time, the letter has some gloomy answers to the Op's question:

"...if Congress were to fail to act, the specific consequences would be as follows:

• The Treasury would be forced to default on legal obligations of the United States, causing catastrophic damage to the economy, potentially much more harmful than the effects of the financial crisis of 2008 and 2009.
  
• A default would impose a substantial tax on all Americans. Because Treasuries represent the benchmark borrowing rate for all other sectors, default would raise all borrowing costs. Interest rates for state and local government, corporate and consumer borrowing, including home mortgage interest, would all rise sharply. Equity prices and home values would decline, reducing retirement savings and hurting the economic security of all Americans, leading to reductions in spending and investment, which would cause job losses and business failures on a significant scale.
  
• Default would have prolonged and far-reaching negative consequences on the safe-haven status of Treasuries and the dollar’s dominant role in the international financial system, causing further increases in interest rates and reducing the willingness of investors here and around the world to invest in the United States.
  
• Payments on a broad range of benefits and other U.S. obligations would be discontinued, limited, or adversely affected, including:
  • U.S. military salaries and retirement benefits;
  • Social Security and Medicare benefits;
  • veterans’ benefits;
  • federal civil service salaries and retirement benefits;
  • individual and corporate tax refunds;
  • unemployment benefits to states;
  • defense vendor payments;
  • interest and principal payments on Treasury bonds and other securities;
  • student loan payments;
  • Medicaid payments to states; and
  • payments necessary to keep government facilities open.

For these reasons, any default on the legal debt obligations of the United States is unthinkable and must be avoided..."
​

 

[donheff]

...From Geinther's January 6 letter to Congress, describing the consequences of not raising the debt ceiling:....
"
After going through a few of the finger-in-the-dike options for buying a few weeks or months of extra time, the letter has some gloomy answers to the Op's question:

"...if Congress were to fail to act, the specific consequences would be as follows:...<snip>

Awful Stuff...

For these reasons, any default on the legal debt obligations of the United States is unthinkable and must be avoided..."
​

Thanks Harry. That is some of the stuff that I wonder about. Could it really happen? There appear to be many in the GOP who want to take a pound of flesh from the Dems to raise the ceiling (i.e., cut programs progressives view as essential while cutting taxes for the rich or no deal). On the other hand some Dems are now talking about voting no on the ceiling or just abstain from voting yes to force the GOP to confront the problem on their own (re-live the 95 shutdown but worse?). Pretty serious stuff to play brinksmanship with.

 

[Htown Harry]

Pretty serious stuff to play brinksmanship with.

Yep. Especially when both sides have helped create the situation.

Although it can be argued that Geithner's gloomy letter has some democratic tilt, I don't believe there's any partisanship in this factual statement:

"...raising the debt limit is necessary to allow the Treasury to meet obligations of the United States that have been established, authorized, and appropriated by the Congress. It is important to emphasize that changing the debt limit does not alter or increase the obligations we have as a nation; it simply permits the Treasury to fund those obligations Congress has already established."
​

 

[myself]

Yep. Especially when both sides have helped create the situation.

Although it can be argued that Geithner's gloomy letter has some democratic tilt, I don't believe there's any partisanship in this factual statement:

"...raising the debt limit is necessary to allow the Treasury to meet obligations of the United States that have been established, authorized, and appropriated by the Congress. It is important to emphasize that changing the debt limit does not alter or increase the obligations we have as a nation; it simply permits the Treasury to fund those obligations Congress has already established."
​

While it is a factual statement, it alleviates Congress from ensuring that the gov't stops overspending.
So, whil it doesn't alter or increase the obligations as a nation, it most certainly permits Congress to continue overspending.

 

[BTravlin]

Always felt I was a realist. I'm a family of four so I actually owe $180K. I guess I could do that in 12 years. I just wonder if they're gonna need me to help all the unemployed people pay their debt off as well.

Sounding smarter all the time.

 

[ERD50]

RE: "...raising the debt limit is necessary to allow the Treasury to meet obligations of the United States that have been established, authorized, and appropriated by the Congress. It is important to emphasize that changing the debt limit does not alter or increase the obligations we have as a nation; it simply permits the Treasury to fund those obligations Congress has already established."

While it is a factual statement, it alleviates Congress from ensuring that the gov't stops overspending.
So, whil it doesn't alter or increase the obligations as a nation, it most certainly permits Congress to continue overspending.

Agreed. It's a little like if I found myself without enough money to fill my car to get to my job (back when I had one). I could make the case that someone should loan me the money, or else I lose my job and I'll be in even deeper. But if I don't have a rational plan to adjust my spending to match my income going forward, I will be out of gas next week too. Loaning me money now doesn't fix the problem, but it takes more money from the loaner.

-ERD50

 

[BTravlin]

RE: "...raising the debt limit is necessary to allow the Treasury to meet obligations of the United States that have been established, authorized, and appropriated by the Congress. It is important to emphasize that changing the debt limit does not alter or increase the obligations we have as a nation; it simply permits the Treasury to fund those obligations Congress has already established."



Agreed. It's a little like if I found myself without enough money to fill my car to get to my job (back when I had one). I could make the case that someone should loan me the money, or else I lose my job and I'll be in even deeper. But if I don't have a rational plan to adjust my spending to match my income going forward, I will be out of gas next week too. Loaning me money now doesn't fix the problem, but it takes more money from the loaner.

-ERD50

That's exactly why we need to see some serious discussions about establishing some sort of plan and then locking that plan in place before the ceiling is raised again.

 

[Htown Harry]

That's exactly why we need to see some serious discussions about establishing some sort of plan and then locking that plan in place before the ceiling is raised again.

Nothing wrong with serious discussions, but we'll see.

The president gets at least three opportunities in the next few weeks to show his intentions.

The State of the Union address is next week, on the 25th.

The day before: President Obama invites frosh to reception - Marin Cogan and Jake Sherman - POLITICO.com

The administration releases a proposed FY 2012 budget sometime later in January or early February, as I recall.

 

[sheehs1]

Just curious... When we reach the debt ceiling, and the next round of interest payments on Treasury notes are due, there are no cash reserves left to pay the interest, and perhaps some of the notes have matured and are payable, what do you call that?

Answer: A Government ponzi scheme. Only we don't get the chance to say no...you can't have more money.

 

[donheff]

Answer: A Government ponzi scheme. Only we don't get the chance to say no...you can't have more money.

It is a Ponzi scheme that everyone understands and is stable. But because Congress has separated the actions of obligating and authorizing a refusal of Congress to deal with this rationally could (would?) destabilize the scheme and cause a crisis. To the extent that the impacts Geithner outlined are accurate, it seems to me that Congress owes it to the American people, and the world for that matter, to raise the cap whether or not they can immediately forge a long term solution to the debt. To intentionally catapult the world into recession round 2 in a fit of partisan peak and frustration with their own incompetence actually would fit the term Glen Beck so lightly bandies about -- traitorous.

 

[ERD50]

To the extent that the impacts Geithner outlined are accurate, it seems to me that Congress owes it to the American people, and the world for that matter, to raise the cap whether or not they can immediately forge a long term solution to the debt.

If they don't come up with a long term solution now, they certainly won't do it once the cap is raised. Right back to the far back burner.

To intentionally catapult the world into recession... (ERD50 NOTE: intentionality removing partisan comments here) -- traitorous.

One could say the same (and I do) about not dealing with the root problem also.

-ERD50

 

[donheff]

If they don't come up with a long term solution now, they certainly won't do it once the cap is raised. Right back to the far back burner.




One could say the same (and I do) about not dealing with the root problem also.

-ERD50

I agree with your second statement. But I don't think they can come up with a passable solution by March. Maybe a plan to start attacking it but not a real solution.

 

[BTravlin]

I agree with your second statement. But I don't think they can come up with a passable solution by March. Maybe a plan to start attacking it but not a real solution.

Didn't the president's own commission just release a report that gave a good outline about how to attack the problem? Oh, that's right, that plan had serious options that would cut just about every program we have and cause everyone to share the pain so obviously that won't fly.

 

[donheff]

Didn't the president's own commission just release a report that gave a good outline about how to attack the problem? Oh, that's right, that plan had serious options that would cut just about every program we have and cause everyone to share the pain so obviously that won't fly.

I don't think they will be able to agree on a package of recommendations from the Commission but who knows. Maybe they can reconstitute a/the Commission with some pointers and agree to treat the final recommendation like they do base closure recommendations. They couldn't agree on that sort of mechanism during the last go around, but the people are angry - maybe now is the time.

 

[BTravlin]

I don't think they will be able to agree on a package of recommendations from the Commission but who knows. Maybe they can reconstitute a/the Commission with some pointers and agree to treat the final recommendation like they do base closure recommendations. They couldn't agree on that sort of mechanism during the last go around, but the people are angry - maybe now is the time.

I hope so too but I think most of the pols are still thinking they can get the economy growing at a fast enough clip to pay most of the debt off relatively painlessly. I just don't think the fundamentals are there for that to work this go round though. I can see modest growth but nothing fast enough in the relatively near future to alleviate our debt problems without also making serious cuts in spending levels

 

[sheehs1]

My response about it being a Ponzi Scheme was a bit "tongue in cheek". That said...like all Americans I remain disappointed in our leaders willingness to spend money we do not have. To not raise the debt ceiling would cause great disruption in world markets and otherwise.
I saw an interview over the week-end with the President of the government pension funds (can't remember his name - guess that is my age - LOL). His position is to fight and argue against federal workers taking any hits to their pensions and benefits. I ask you: Why is any interest group immune from the current situation? Everyone will have to share it the solution. But only if our leaders drive it to the point of obtaining a solution..(which unfortunately I doubt will happen).

 

[Texas Proud]

I hope so too but I think most of the pols are still thinking they can get the economy growing at a fast enough clip to pay most of the debt off relatively painlessly. I just don't think the fundamentals are there for that to work this go round though. I can see modest growth but nothing fast enough in the relatively near future to alleviate our debt problems without also making serious cuts in spending levels

Since the spending of gvmt has been going up faster than inflation for many many years... and faster than the growth of GDP.... more [-]'volume'[/-] growth will just make it worse...

There is no way we can grow out of the problem... even if growth was 10% a year...

 

[FinanceDude]

"...raising the debt limit is necessary to allow the Treasury to meet obligations of the United States that have been established, authorized, and appropriated by the Congress. It is important to emphasize that changing the debt limit does not alter or increase the obligations we have as a nation; it simply permits the Treasury to fund those obligations Congress has already established."

FUnny coming from a guy who was issues paying his own taxes............