Hey guys
So I just have a question: if US government defaults on October 17 it means all of our dollars will become a tissue paper? Should I start buying Euro or gold or something like crazy?
If you feel the need go for it… I don’t think it will make the dollar worthless just worth less than it is now… It is like someone who does not pay there bills… Yes they can’t get a loan for a new car or fancy new weapon of mass destruction or go looking for them. However, this is the whole point… overspending needs to stop. If it goes anything like it did earlier they will just pass a temporary spending bill to make to elections.
Like back in Clinton’s presidency… It was the end of the Gulf War… Similar spending cuts need to happen now as well. A lot of people give the guy credit for long bull market afterward… I have would say it might not have been the case if the Republican Congress then did not force these cuts.
Cheers
I’m really inclined to believe that Obama won’t let a default happen but it won’t hurt to prepare for the worst case scenario. Just wondering if the risk off environment that’d result from that would be positive for the safe-haven dollar? So confusing!
[B]There will be no default.[/B] Even if Congress refuses to raise the debt ceiling, there will be no default.
Default means [I]failing to pay the interest which is due[/I] on the debt obligations of the federal government.
The federal government takes in about 5 times as much revenue each month as is required to pay all of the interest due on all of their various debts. This includes all the interest owed to the Chinese, all the interest owed to Americans who own Treasury obligations, etc.
[B]Payment of this interest is not optional for the government: it is mandated by the Constitution.[/B] It cannot be defaulted, and it cannot be delayed.
Notice that repayment of [I]principal[/I] does not figure into this. Treasuries (T-bills, T-notes, and T-bonds) which mature now, or anytime in the future (whether the debt ceiling has been raised, or not) [I]will be paid in full[/I] with the principal being paid out of proceeds from the sale of new Treasuries, which — as rollover replacements — [I]will not constitute new borrowing,[/I] and thus will be possible under the existing debt ceiling.
The current “partial shutdown” of the federal government has removed the funding for approximately 17% of the federal government’s activities. If Congress refuses to (or fails to) raise the debt ceiling by October 17, the “defunded” portion of the federal government will increase to approximately 25%, but will not affect the payment of the government’s debts.
We may be making a spectacle of ourselves in front of the rest of the world; but, we are not about to default on any U.S. government debt obligations — to the Chinese, to our own citizens, or to anyone else.
Furthermore, senior citizens who collect Social Security retirement benefits are not at risk for loss or delay of those benefits. The so-called Social Security Trust Fund (which should hold a couple trillion dollars) has been raided by Congress over the years, and all that money has been replaced by federal government IOU’s (more federal government debt). If and when the Social Security Administration needs to tap some of the imaginary funds in the fictitious “Trust Fund” in order to pay Social Security recipients, they will simply cash in some of those IOU’s, which the Treasury will then pay in the same way that they will pay maturing T-bills, T-notes, etc., as described above, again without exceeding the current debt ceiling.
We won’t know how markets are going to react to any of this, until they react.
There is plenty of doom-and-gloom being spouted by the talking-heads in the media; and some market participants will likely believe the gloom-and-doom and react as if this debt debacle means the end of everything. If these market participants constitute a large enough faction, markets could turn violent. That may or may not be a bad thing, depending on whether you adopt the Chinese proverb, “In crisis there is opportunity”.
Very interesting, Clint!
If the US makes plenty to pay the interest on debt, how come they don’t begin paying it off so we can quit worrying about the debt?
When you say “the U.S. makes plenty”, you’re referring to [B]U.S. government revenues (essentially, taxes collected).[/B]
The U.S. government doesn’t take in [I]nearly[/I] enough revenue to satisfy the spending appetite of the Ruling Class. So, after they have paid the mandatory interest on U.S. government debt, [I]they spend every remaining penny, plus the proceeds of new monthly borrowing.[/I]
And, still, they aren’t satisfied. They want to spend even more — which is why they want the debt ceiling raised.
The last thing the Ruling Class would ever consider is (1) doing no new borrowing (i.e., abiding by the current debt ceiling), and (2) using some of the government’s [I]legitimate[/I] revenue to pay down the principal on our debt.
Here’s an interesting article in [I][B]ForexLive[/B][/I] by Louise Cooper on the possibility of U.S. government default —
A debt ceiling solution is coming, here’s when analysis Oct 11 2013 | ForexLive
Here’s a bio on Louise Cooper — About me - coopercity.co.uk
The result of keeping a tight rein on govt spending - this quote from yesterday.
“Tonight I can confirm that Ireland is on track to exit the EU/IMF bailout on December 15. And we won’t go back,” said Mr Kenny.
"It won’t mean that our financial troubles are over. Yes, there are still fragile times ahead. There’s still a long way to go. But at last, the era of the bailout will be no more. The economic emergency will be over.
Addressing those most affected by the years of austerity, the Taoiseach (prime minister) said their “huge sacrifice” was paying off.
<end quote>