Raising the Debt Ceiling

Any thoughts on this hot topic? Is it going to become a political hot potato or potatoe if you're a Dan Quayle fan?

 

I'm not well-versed on the subject so I'm curious to hear from those that are .

In a sentence, if the United States defaults on its debt service, or even makes a default seem imminent, it would result in a financial calamity for the United States.

 

Essentially, the US is able to maintain its levels of spending through borrowing and it is able to borrow, quite cheaply and copiously, because it is automatic in making its payments. Threatening that reputation would likely send financial markets into an upheaval and force the United States to pay higher interest rates on future debts or otherwise see creditors less willing to lend. That would cost the United States tremendously in both forcing some level of austerity on government spending overnight and it would leave the dollar reeling. That would likely be the end of economic primacy for the US.

 

Raising the debt ceiling essentially allows the US to continue meeting its budget obligations and debt payments. Refusal to raise the debt ceiling won’t automatically lead to a default as the Treasury department can prioritize and use money to pay on the debt before or instead of meeting other obligations. I’m not sure if it has ever come to that or what level of certainty exist that Treasury could do that efficiently. From what I understand, the Treasury can do that until July 8th where it will be forced to default on something. But, if it came to that, the market and speculators would already be reacting as though a default were imminent and it would take a while to pull out of that, if it did.

 

Debt and spending are a problem, but risking or forcing a default is not the solution. Those issues must be tackled separately. Apparently John Boehner met last week with some financial experts on Wall Street to ask how close the US can get to a default without it causing panic in the market and they were not encouraging. A bank executive said “They don't seem to understand that you can't put everything back in the box. Once that fear of default is in the markets, it doesn't just go away. We'll be paying the price for years in higher rates.” Boehner has also sounded like he’s not particularly willing to drive over that cliff. On the other hand, Jim DeMint swears he is going to fight tooth and nail against raising the debt ceiling (and presumably for a default) and put his career on the line if he must. Though, I think an agreement will be reached, especially if the public realizes what is at stake.

Sen. DeMint says he will filibuster any attempt to raise the debt ceiling without a balanced budget agreement.

Debt ceiling has been raised an average of something like once a year over the past 50 years. The party in the white house votes for, the other party against.

Standard & Poors has downgraded the US debt from "stable" to "negative" due to budget concerns, both short and long-term. The US continues to have a AAA rating, but S&P says it is considered slightly weaker than other AAAs. This is somewhat related to the debt ceiling/default issue in that when the market begins to doubt the US's ability to service its debt the consequences are incredibly negative. Wall Street saw a downward dip today over something as basic as the re-wording of the US's AAA rating. Though, I do agree with S&P that it appears no budget deal that would actually begin to reign in long-term debt is anywhere in sight at the moment.

If the US misses a payment on its debt S&P will downgrade US Treasury bills from AAA to D. Moody's would act similarly. It is maniacal to be flirting with this.

Is this the same Moody's that assured us there was no home mortgage problems ?

Is this the same Moody's that assured us there was no home mortgage problems ?

 

I trust you realize that you’ve just cited an example of the incredible influence of a bond rating agency’s dictates on the market as evidence that the dictates of a bond rating agency will have no effect on the market.

We have enough taxes coming in to pay our outstanding debts. They may have to close the national parks, maybe lay off Obama's czars, shut down the EPA, Education Department and the Energy Departmen to start with. We will find out what we can do without. They will find a way to pay Social Security, pay our military and basic welfare services.

Why is there a debt limit if they keep raising it? Why not just pass legislation to eliminate the debt ceiling altoghter?

Revamp the tax system, reduce spending, and focus on what is best for our country and not my party, contributors, or lobbyist and we would be ok. Great explanation BTW.

We have enough taxes coming in to pay our outstanding debts. They may have to close the national parks, maybe lay off Obama's czars, shut down the EPA, Education Department and the Energy Departmen to start with. We will find out what we can do without. They will find a way to pay Social Security, pay our military and basic welfare services.

Why is there a debt limit if they keep raising it? Why not just pass legislation to eliminate the debt ceiling altoghter?

 

The debt ceiling is paying off past debts by past Congress' actions. You can't spend it in 2006 or 2008 and then say you're not going to pay it in 2011. The treasury markets would be hit hard if the debt ceiling fails to pass.

 

This is much more than "shut down the Ed Dept." This has a high probability of worsening an already fragile economy.

 

Why risk it other than to make a political stance?

We have enough taxes coming in to pay our outstanding debts. They may have to close the national parks, maybe lay off Obama's czars, shut down the EPA, Education Department and the Energy Departmen to start with. We will find out what we can do without. They will find a way to pay Social Security, pay our military and basic welfare services.

Why is there a debt limit if they keep raising it? Why not just pass legislation to eliminate the debt ceiling altoghter?

 

Good point. I suspect it's politicts. They can claim they are limiting the debt or at least they don't open the door for the other party to claim unlimited debt looming with no ceiling.

Revamp the tax system, reduce spending, and focus on what is best for our country and not my party, contributors, or lobbyist and we would be ok. Great explanation BTW.

 

Exactly, too much politics going into figuring out the budget. It's sad really.

It's purely political... Obama keeps stalling so he can blame the GOP..

It's purely political... Obama keeps stalling so he can blame the GOP..

 

How is he stalling?