Treasury Interest - Pecking Order

[MichealKnight]

(I am not arguing in favor or against of any policy. I am merely asking as an investor)

If it goes beyond brinksmanship, and the decision is made not to raise the debt ceiling in the future........ does that mean interest on Treasuries will go unpaid?

 

[COcheesehead]

Yes - and worse.
https://budget.house.gov/publications/fact-sheet/debt-ceiling-explainer

 

[Fermion]

(I am not arguing in favor or against of any policy. I am merely asking as an investor)

If it goes beyond brinksmanship, and the decision is made not to raise the debt ceiling in the future........ does that mean interest on Treasuries will go unpaid?

It is like the least of worries. I am more concerned about a toilet seat falling from the ISS and hitting my house.

 

[MichealKnight]

Hoping

It is like the least of worries. I am more concerned about a toilet seat falling from the ISS and hitting my house.

I know - it can never happen to us.


I hope things continue that way.

 

[Trailwalker]

It could happen someday, but if it does, there will be many other things to worry about.

 

[Lsbcal]

(I am not arguing in favor or against of any policy. I am merely asking as an investor)

If it goes beyond brinksmanship, and the decision is made not to raise the debt ceiling in the future........ does that mean interest on Treasuries will go unpaid?

The brinkmanship would show up if the current opposition in Congress is a majority. They cannot take office this year so you are OK until sometime in 2023 at the worst.

 

[Huston55]

Would bond holders be paid all interest owed in arrears when Government’s ability to pay was restored?

 

[jim584672]

No problem, they can just mint a trillion dollar platinum coin and deposit it into the Treasury, problem solved.

 

[ShokWaveRider]

I know - it can never happen to us. I hope things continue that way.

Never say never, we did last time and look what happened.

 

[Fermion]

I know - it can never happen to us.


I hope things continue that way.

I don't think they actually use toilet seats though on the ISS, at least not the traditional ones. I think we are safe.

 

[joesxm3]

Given my track record and the fact that I have started buying tresuries, you ought to be worried.

 

[RetireBy90]

Would bond holders be paid all interest owed in arrears when Government’s ability to pay was restored?

No guarantees but they always have restored any debts owed. If my memory is correct there have been times in the past when employees and suppliers haven't been paid but the money owed was paid once the resolution was passed.

 

[FLSUnFIRE]

Generally, the Treasury steals money from other accounts (the TSP G fund is a favorite) until they kick the can down the road. The house of cards will eventually fall but hopefully not for another generation or two...

 

[SecondAttempt]

The 14th amendment comes into play here. This article explains to some degree:

https://www.cato.org/commentary/defaults-debt-ceilings-14th-amendment

Basically the amendment prohibit Congress from defaulting on US public debt. There is a US Supreme Court decision from 1935 cited. But there is enough uncertainty that it would be litigated heavily if there were a default. What is clear is that the USG must honor existing debt. What is not clear is how the law applies to new debt.

I truly have no position on raising the debt ceiling long term. I do think we as a country need to start living within our means but that does not necessarily mean reducing debt in dollar terms. But we need to reduce it as a percent of GDP imho. But it does sadden me that we no longer have statesmen who work to solve the problems our country faces. They are all too concerned with their own re-election to address the real issues. I find it pathetic that they hold the country hostage every year but somehow manage to agree to delay the tough choices until after an election.

ETA: The link is from the CATO Institute which I think is partisan but I honestly have no idea which way. I cant keep up with all the partisan think tanks.

 

[Sunset]

The 14th amendment comes into play here. This article explains to some degree:

https://www.cato.org/commentary/defaults-debt-ceilings-14th-amendment

Basically the amendment prohibit Congress from defaulting on US public debt. There is a US Supreme Court decision from 1935 cited. But there is enough uncertainty that it would be litigated heavily if there were a default. What is clear is that the USG must honor existing debt. What is not clear is how the law applies to new debt.

...

The USG would lose in litigation as they wouldn't have any money to pay the lawyer for their side

 

[Ready-4-ER-at-14]

I read some article maybe last week about lack of liquidity in selling older treasuries and that they were going to be bought by the fed i believe and new debt reissued. If I remembered correctly and it was true, that would suggest interest would be paid but amounts not redeemed in a timely manner or just a minor delay that major players wish to avoid.

I also tried to purchase some older fixed income at discount (treasury) and found that that function was temporarily not working at a discount broker. I assumed it was just a glitch as the market was moving fast that day but now I wonder.

 

[lawman]

I wish I could share the optimism expressed here. By 1970 Venezuela had become the richest country in the region and one of the twenty richest countries in the world, ahead of countries like Greece, Israel, and Spain.

 

[Chuckanut]

I wish I could share the optimism expressed here. By 1970 Venezuela had become the richest country in the region and one of the twenty richest countries in the world, ahead of countries like Greece, Israel, and Spain.

IMO, Venezuela was a one hit wonder. Their one hit was a song called “oil”.