At the moment, we are still hearing from the Treasury that October 17th is the deadline for passage of the debt ceiling increase. Failure to act may lead to a "default" by America, or so we are warned. The truth, however, is something quite different.
First of all, a default on the nation's debts is not going to happen. Bond interest will get paid; there is plenty of money for that. If any of the bonds are maturing, then new bonds can be sold in equal amounts, so again there will be no default there. The Constitution explicitly requires the payment of debt obligations, so there will be no legal way around the payment of interest or principal. Even president Obama will not be able to "delay" that requirement.
Second, since the start of October, federal expenditures ought to have fallen to a great extent. All those activities which are part of the partial shutdown should be things that used government cash. The amount of these savings ought to be helping the feds to build up more cash which will extend the shutdown date.
There are also timing issues that come into play which could further delay the need for cash.
So there will not be any default in the legal sense of the word. Those people holding American debt will get paid in full. The government will not actually even run out of cash on October 17th.
None of this is the most important part of the debt ceiling debate, however. The main issue America is facing is not technical default; it is instead the worldwide perception of the safety of an investment in America. The mainstream media may be brain-dead, but they have done a great job of telling the world that a default by the United States is imminent. President Obama and his political allies have also announced repeatedly that failure to raise the debt ceiling will lead to default. If you ask the average investor in Europe or Asia about an American "default", the likely answer you would receive is the message being sent out by Obama, the Democrats and their allies in the media. In other words, even though a delay in raising the debt ceiling will not cause a default, most of the rest of the world thinks that it will.
Let's forget for a moment the idiocy of the president of the United States creating a perception of danger for America where there really is none. That only pertains to the wisdom of Obama's conduct. Right now, the country has to deal with the after effects of that conduct.
The United States cannot allow foreign investors to worry about the security of American Treasury obligations. Think about that. We currently have 17 trillion dollars of debt outstanding. If worries about the safety of American debt obligations result in the increase in the interest rate on our debt by just one-quarter of one percent, that will come to an additional 45 billion dollars of interest each year. Even worse, if there is a real increase in concern about the safety of our debt, the interest rates will increase by much more than that. Interest costs could easily increase by 300 billion dollars per year. An amount that large would mean the end of any chance of ever ending the federal deficit. It would also slow economic growth. In short, the folks in Washington have to deal with the debt ceiling, and they have to do it now.
First of all, a default on the nation's debts is not going to happen. Bond interest will get paid; there is plenty of money for that. If any of the bonds are maturing, then new bonds can be sold in equal amounts, so again there will be no default there. The Constitution explicitly requires the payment of debt obligations, so there will be no legal way around the payment of interest or principal. Even president Obama will not be able to "delay" that requirement.
Second, since the start of October, federal expenditures ought to have fallen to a great extent. All those activities which are part of the partial shutdown should be things that used government cash. The amount of these savings ought to be helping the feds to build up more cash which will extend the shutdown date.
There are also timing issues that come into play which could further delay the need for cash.
So there will not be any default in the legal sense of the word. Those people holding American debt will get paid in full. The government will not actually even run out of cash on October 17th.
None of this is the most important part of the debt ceiling debate, however. The main issue America is facing is not technical default; it is instead the worldwide perception of the safety of an investment in America. The mainstream media may be brain-dead, but they have done a great job of telling the world that a default by the United States is imminent. President Obama and his political allies have also announced repeatedly that failure to raise the debt ceiling will lead to default. If you ask the average investor in Europe or Asia about an American "default", the likely answer you would receive is the message being sent out by Obama, the Democrats and their allies in the media. In other words, even though a delay in raising the debt ceiling will not cause a default, most of the rest of the world thinks that it will.
Let's forget for a moment the idiocy of the president of the United States creating a perception of danger for America where there really is none. That only pertains to the wisdom of Obama's conduct. Right now, the country has to deal with the after effects of that conduct.
The United States cannot allow foreign investors to worry about the security of American Treasury obligations. Think about that. We currently have 17 trillion dollars of debt outstanding. If worries about the safety of American debt obligations result in the increase in the interest rate on our debt by just one-quarter of one percent, that will come to an additional 45 billion dollars of interest each year. Even worse, if there is a real increase in concern about the safety of our debt, the interest rates will increase by much more than that. Interest costs could easily increase by 300 billion dollars per year. An amount that large would mean the end of any chance of ever ending the federal deficit. It would also slow economic growth. In short, the folks in Washington have to deal with the debt ceiling, and they have to do it now.
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