Default averted? Announcement to be made at noon

[Darwin333]

That's what they want you to think. Historical precedence does not support this at all though, especially at this point. Threatening action that hastens such an event is not the way to deal with it.

While I agree with your point about the Republicans and their historical actions regarding deficit spending, lets assume (I know I know, just play along) that they truly do believe that our current and ever expanding debt levels will very soon lead to the nations economic destruction.

How exactly would you propose they attempt to achieve those goals in the current makeup and climate of DC?

Again I realize that the above assumption has no basis in reality, I am simply curious as to your opinion.

 

[First]

Umm, this reality? We have actually just recently started extending the average duration of our bonds but up until recently our debt, all of it, rolled over on average ever 4 1/2 years or so.

Not all bonds can be rolled over and not add to the national debt for two previous reasons I gave; 1) some older bonds may have various restrictive covenants and conditions, and who knows technically how fast it could even be auctioned. 2) If we could roll over current bonds until infinity without adding to the debt that would be impressive, but is only true in theory not in practice because interest rates change and in the case of the last few months have gone up semi-significantly.

That is the reason that we paid less total money in interest payments this year than we did last year despite taking on an additional trillion in debt. Why is our debt, again on average, of such short maturity you ask? To do exactly what you said, to take advantage of lower interest rates. It doesn't come without risks though, if rates were to jump we would in a VERY short period of time see our interest payments skyrocket. Its actually been a while since I ran the numbers on what we would be paying in 5 or 6 years should interest rates simply return to historic norms but it would be a massive increase that would wipe out any and all budget cuts that have even been proposed.

Hell the US Treasury issued over 8 trillion dollars of new securities in FY 2013. We have less than $1.5T in long term T-bonds with the vast majority of the rest on the very low end of the time scale.

Well, on the topic of deficits, it's actually already down by half, $1.4T to $700B, projected to be sub-$500B in 2 years. Even if interest rates on T-bills go a full 1% higher it's not going to add more than tens of billions, which is manageable, but only if the debt ceiling is raised.

Yes it is. However, I am very interested in knowing why you believe this. Rolling over existing debt does not increase our debt one bit.

Think about what you just said to me above. You said higher interest rates would precipitate higher interest payments and therefore more debt, correct? So how can you claim we can roll over these bonds by issuing short-term notes when the coupons for short-term notes are higher now then the rates just 1 year ago? What you said makes no sense to me. Tell me how a higher face value doesn't increase national deficit? Does the gov't have some way of refinancing their bonds at higher interest rates without adding to the deficit?

Sure the Treasury has to do a tad bit of game playing but if you owe a dollar, pay off that dollar and borrow another dollar at the same time the amount of money you owe remains completely unchanged.

This is all an issue of cashflow. The US gov't has a ton of T-bills denominated at 1-year and 2-year intervals. But in a debt ceiling situation, they'd have to auction off their notes 1) quickly enough to cover the $50B+ payment on Nov. 1st (is this even possible, does anyone know?) and 2) assumes continued market appetite at the auction, which is a big unknown in a scenario where the debt ceiling has been breached. Who the eff knows how the markets react to that (likely negatively, of course).

Perhaps you could argue that, completely depending on cash flow at that time, that for a few minutes we exceeded the debt limit but by the end of the day when the Treasury makes its report everything will be kosher.

Cash flow isn't a small issue though. How to do you roll over trillions in bonds at auction all at once and not add to the national debt, since we know that the notes will now be hit by higher October 2013 coupon rates? I guess you're assuming they'd try to issue longer-term bonds at auction to lower payments and improve cash flow? Which still adds to the deficit of course, just not immediately.

 

[sandorski]

While I agree with your point about the Republicans and their historical actions regarding deficit spending, lets assume (I know I know, just play along) that they truly do believe that our current and ever expanding debt levels will very soon lead to the nations economic destruction.

How exactly would you propose they attempt to achieve those goals in the current makeup and climate of DC?

Again I realize that the above assumption has no basis in reality, I am simply curious as to your opinion.

Well, they could start by pulling their heads out of their asses and realize they are wrong. ...

Seriously though, the most reasonable thing to do is just maintain the trend of declining Deficits. The US is in no way at the edge of catastrophe. That lies decades away, usually even the Republicans state it as so. IMO, it is merely a way for them to rile up their base, using the fear of what will eventually be a crisis in order to gain favour with Voters.

Regardless, there growing habit of threatening to Default on Debt is harming the US far more than the Deficit is. The US isn't immune to outside Economic forces and if the Republicans continue living in their fantasy of total immunity they will harm the US far more than any Enemy the US has ever faced.

 

[Darwin333]

Yeah, I don't know what he is smoking but it's some powerful stuff.

Lol, no doubt. He seemed so very sure of himself too.

Technically neither can we. After printing money nearly destroyed the government we created the Federal Reserve and vested the right to print money in them. They can loan it to the government, but unless the government has the headroom to legally borrow it that doesn't work either.

You know, as much as I think the entire idea of the Federal Reserve printing our money and then loaning it to us with interest I would be scared shitless to hand the printing press to Congress.... I don't know bud, the devil that you know or the complete idiots that you know who owns?

The Republican view is that by borrowing so much money we are guaranteeing the failure of the country.

I tend to judge a person views more by their actions than by their words. I'll admit that I haven't been keeping up as much but is there any decent Republican proposal for lowering the deficit/debt that isn't completely bogus and/or uses accounting scams?

Whether or not you truly believe that a nation can borrow more money every year without eventually collapsing, at least be honest enough to admit that the Tea Party is attempting to prevent the failure of the nation, not cause it.

Honest question, have any of then ran on seriously curtailing medicare/medicaid, social security (i'll give em a pass on social security) and the DOD? Or is it more of the same talking points that won't really have much of an effect?

 

[CrackRabbit]

What War were they levying, or to which enemy were they granting Aid and Comfort?

Idiot.

A financial one, against the the very government that is paying them, providing aid and comfort to a bunch of economic terrorists in the Tea Party.



I think we can all agree that the debt is an issue, but it is a solvable one with time, effort and cooperation. Taking the nations economy hostage and attempting to crash the government is not a way to solve it and if they had pulled it off, in my (totally non legal) opinion a criminal act.

An actual act of treason it may not be, but it certainly cuts it damn close.

 

[Darwin333]

Not all bonds can be rolled over and not add to the national debt for two previous reasons I gave; 1) some older bonds may have various restrictive covenants and conditions, and who knows technically how fast it could even be auctioned. 2) If we could roll over current bonds until infinity without adding to the debt that would be impressive, but is only true in theory not in practice because interest rates change and in the case of the last few months have gone up semi-significantly.

That doesn't change the amount of money borrowed nor does it effect the debt limit. It does effect the interest rate that we pay. Those are two separate things.

Well, on the topic of deficits, it's actually already down by half, $1.4T to $700B, projected to be sub-$500B in 2 years. Even if interest rates on T-bills go a full 1% higher it's not going to add more than tens of billions, which is manageable, but only if the debt ceiling is raised.

Did you not read my previous post? A 1% jump, in the matter of a half decade or so, would increase our interest payments by over $100B, no 10's of billions. Hell just last year it would have increased the interest payments roughly 3/4 of a trillion.

Think about what you just said to me above. You said higher interest rates would precipitate higher interest payments and therefore more debt, correct? So how can you claim we can roll over these bonds by issuing short-term notes when the coupons for short-term notes are higher now then the rates just 1 year ago? What you said makes no sense to me. Tell me how a higher face value doesn't increase national deficit? Does the gov't have some way of refinancing their bonds at higher interest rates without adding to the deficit?

The debt and the deficit are two very different things. Yes, the government DOES have the ability to roll over bonds at higher rates without increasing the debt, they would have to cut spending elsewhere but thats not the question.

This is all an issue of cashflow. The US gov't has a ton of T-bills denominated at 1-year and 2-year intervals. But in a debt ceiling situation, they'd have to auction off their notes 1) quickly enough to cover the $50B+ payment on Nov. 1st (is this even possible, does anyone know?) and 2) assumes continued market appetite at the auction, which is a big unknown in a scenario where the debt ceiling has been breached. Who the eff knows how the markets react to that (likely negatively, of course).

Yes that is possible and the "market appetite" is absolutely guaranteed due to the way our bond auctions are setup. I forget what the group of banks are called but in exchange for them being first in line they basically have to purchase all of them at market rates. The only thing in question would be how "market rates" would be affected. The amount of bonds we must issue has not changed due to ANYTHING Congress just did concerning the debt ceiling assuming that we all knew that nothing drastic concerning our spending was going to change.

Edit: Primary dealers are what they are called.

You should really read up on how US Government securities work. a lot of it is rather dull but some if it makes you go "wow, really?!?!".

Cash flow isn't a small issue though. How to do you roll over trillions in bonds at auction all at once and not add to the national debt, since we know that the notes will now be hit by higher October 2013 coupon rates? I guess you're assuming they'd try to issue longer-term bonds at auction to lower payments and improve cash flow? Which still adds to the deficit of course, just not immediately.

This has be done before and its actually not all that difficult. Again, technically speaking the rules might be "bent" for hours or so but by the time the Treasury issues its daily report all will be Kosher. Its rather simple, you use cash on hand to pay off $50B in maturing securities, this reduces the total debt by $50B, and then you sell $50B at basically the same time. The interest rate is irrelevant as far as the debt ceiling goes, it is very relevant to our budget.

And why would issuing longer term bonds lower payments? It would do quite the opposite actually since the interest goes up the longer term the bond is and there isn't a bunch of appetite for our longer duration bonds. I believe the Fed is the primary purchaser of them but I could be wrong about that detail.

 

[Darwin333]

Well, they could start by pulling their heads out of their asses and realize they are wrong. ...

Seriously though, the most reasonable thing to do is just maintain the trend of declining Deficits. The US is in no way at the edge of catastrophe. That lies decades away, usually even the Republicans state it as so. IMO, it is merely a way for them to rile up their base, using the fear of what will eventually be a crisis in order to gain favour with Voters.

Regardless, there growing habit of threatening to Default on Debt is harming the US far more than the Deficit is. The US isn't immune to outside Economic forces and if the Republicans continue living in their fantasy of total immunity they will harm the US far more than any Enemy the US has ever faced.

Oh I am not disagreeing with you, well there are some points we have slight disagreement on, but thats not the point.

This is simply a thought exercise. Lets pretend that they do believe it to be true and have reasonable reason to believe so. How would you go about it if you were them? What would you be willing to do if you thought the economic ruin of the country was at stake?

 

[First]

That doesn't change the amount of money borrowed nor does it effect the debt limit. It does effect the interest rate that we pay. Those are two separate things.

The money borrowed is the same, but the additional interest payments add to the debt, eventually requiring a debt ceiling increase. What is controversial about this statement to you?

Did you not read my previous post? A 1% jump, in the matter of a half decade or so, would increase our interest payments by over $100B, no 10's of billions. Hell just last year it would have increased the interest payments roughly 3/4 of a trillion.

You didn't post any numbers showing your work so I have little reason to believe it. Not that I doubt you could show the work. I just haven't seen it.

The debt and the deficit are two very different things. Yes, the government DOES have the ability to roll over bonds at higher rates without increasing the debt, they would have to cut spending elsewhere but thats not the question.

See now you're introducing some mythical scenario where the government would have to start "cutting spending" elsewhere. That's a nonsense argument and not one I'm making, to say nothing of it being clearly impractical and only a very temporary band-aid in the absolute best case. I'm making the argument that all else equal it adds to the national debt requiring a debt ceiling increase. There's nothing inaccurate about my statement (other than I replaced debt with deficit twice).

Yes that is possible and the "market appetite" is absolutely guaranteed due to the way our bond auctions are setup. I forget what the group of banks are called but in exchange for them being first in line they basically have to purchase all of them at market rates. The only thing in question would be how "market rates" would be affected. The amount of bonds we must issue has not changed due to ANYTHING Congress just did concerning the debt ceiling assuming that we all knew that nothing drastic concerning our spending was going to change.

Edit: Primary dealers are what they are called.

You should really read up on how US Government securities work. a lot of it is rather dull but some if it makes you go "wow, really?!?!".

I know primary dealers are obgliated, I'm just not sure why rolling over the bonds won't add to the national debt if the prevailing interest rates are higher. And that this would eventually require a debt ceiling increase. Notice how the extraordinary measures the Treasury took in May to extend the debt ceiling deadline until mid-October required that they stop issuing bonds to state governments and certain retirement funds.

This has be done before and its actually not all that difficult. Again, technically speaking the rules might be "bent" for hours or so but by the time the Treasury issues its daily report all will be Kosher. Its rather simple, you use cash on hand to pay off $50B in maturing securities, this reduces the total debt by $50B, and then you sell $50B at basically the same time. The interest rate is irrelevant as far as the debt ceiling goes, it is very relevant to our budget.

And why would issuing longer term bonds lower payments? It would do quite the opposite actually since the interest goes up the longer term the bond is and there isn't a bunch of appetite for our longer duration bonds. I believe the Fed is the primary purchaser of them but I could be wrong about that detail.

You say it's not difficult to do issue all of them yet the Treasury in 2011 and 2013 under Geithner and Lew decided specifically not to do this; both them suspended re-issuance, using essentially the same measures. I don't understand why they'd do that if you're saying issuing new debt to pay off old debt via rollover is a way not to breach the debt ceiling.

And from my understanding, if you're borrowing the same principle for a 30-year T-bill versus, say, a short-term T-note, you're obviously going to be redeeming viewer dollars on a monthly/annual basis with the longer-term bond. I'm not sure that's controversial though I could be wrong.

 

[sandorski]

Oh I am not disagreeing with you, well there are some points we have slight disagreement on, but thats not the point.

This is simply a thought exercise. Lets pretend that they do believe it to be true and have reasonable reason to believe so. How would you go about it if you were them? What would you be willing to do if you thought the economic ruin of the country was at stake?

Then I might do something crazy. I'd be wrong to do so and I'd(as mys non-crazy self) would hope that the Voter would turf my ass.

 

[werepossum]

Lol, no doubt. He seemed so very sure of himself too.

You know, as much as I think the entire idea of the Federal Reserve printing our money and then loaning it to us with interest I would be scared shitless to hand the printing press to Congress.... I don't know bud, the devil that you know or the complete idiots that you know who owns?

I tend to judge a person views more by their actions than by their words. I'll admit that I haven't been keeping up as much but is there any decent Republican proposal for lowering the deficit/debt that isn't completely bogus and/or uses accounting scams?

Honest question, have any of then ran on seriously curtailing medicare/medicaid, social security (i'll give em a pass on social security) and the DOD? Or is it more of the same talking points that won't really have much of an effect?

Yeah, I would be terrified to hand the printing presses over to Congress. At the same time, I very much dislike the system where bankers create money, pay the overhead, loan it to the government, and keep the profit. It's like saying I can't be trusted with liquor, so I'm going to pay you to hold this gun on me and make me take a drink.

Republicans are definitely trying to lower spending to reduce the deficit, but right now they have devolved into only arguing for keeping the sequester cuts in place. That's good I suppose, but it's hard to see that it helps much. And if history under Bush is representative, even that lasts only as long as there is a Democrat President - although it's also possible that most people who stay in power in D.C. for six years inevitably morph into the party of big government regardless of the appended suffix. Basically the Republican position seems to be that they don't have to be fiscally responsible, just slightly less fiscally responsible than the Democrats. "I don't have to outrun the bear, I just have to outrun you." Going off a cliff Thursday week is obviously better than going off a cliff tomorrow, but as a plan to not go off a cliff it has little to recommend it. It's "maybe if we dig the hole a tiny bit more slowly a miracle will happen" versus "maybe if we dig the hole a lot more quickly a miracle will happen".

The Tea Party on the other hand definitely wants to cut spending and reduce the deficit, but all I've seen is a generalized demand, not a workable plan. Killing Obamacare is all well and good, but it sacrifices the people that Obamacare helps without really fixing the underlying situation. We owed in excess of our GDP before Obamacare, and we'll soon owe even more in excess of our GDP even were Obamacare Obolished.

Frankly at this point I'm not sure there can be a workable plan other than small cuts to everything, but even with that we have to remember that most of the federal government spending is on auto-pilot. We need fundamental entitlement reform, but with a crappy economy, stagnant or falling incomes, historically low employment, and reduced economic opportunity as jobs are out-sourced, automated away, or moved to low wage (usually illegal) immigrants it's hard to see how we do that without basically becoming a Third World nation. It's a good thing to force people to pull their own weight if they are able, but if there is no opportunity we just stop preventing current misery by buying future misery and begin causing current misery to avoid future misery. I see no sure way to once again produce more wealth than we consume, and no possible way without a lot of short-term pain, and no will in either party to take on that sort of challenge. Further, we Americans are simply spoiled; we want what we want without any risk or responsibility. Considering the stock market's volatility, I don't see us embracing such a sensible move as privatizing Social Security, and given that we already owe in excess of our GDP I don't see how we'd fund current payments even if we found the will. Social Security is one of our biggest line items; moving accounts to real wealth requires replacing that income stream.

Two things seem undeniable.
1) There are no good choices left.
2) The available choices are only going to get rapidly worse.