Impact of Debt Ceiling Failure

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Adam Taggart's picture
Adam Taggart
Status: Peak Prosperity Co-founder (Offline)
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Posts: 3281
Impact of Debt Ceiling Failure

This presentation from is worthwhile reading for those of us trying to understand the implications of not raising the debt ceiling:

It analyzes the questions:

  • What is the date after which Treasury will not have sufficient cash to pay ALL of its bills (the “X Date”)?

If we pass the X Date, and Treasury is forced to "prioritize” its payments to avoid a debt default:

  • What would be the effects on government operations?
  • What would be the market risks?

(I wasn't familiar with before, so can't speak strongly to the source here. They claim to be the only DC-based think tank devoted to encouraging bipartisanship & the analysis conducted appears acceptably open-minded)

Johnny Oxygen's picture
Johnny Oxygen
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Posts: 1443
Re: Impact of Debt Ceiling Failure

This is Michael Hudson's observation/belief of the 'debt crisis' which I posted earlier in The Path to Debt in America:

MICHAEL HUDSON: Now, how—the question is, how can a Democratic president put forth a Republican program? There has to be a crisis. Now in reality there is no crisis at all. In reality, raising the debt ceiling has been done for a hundred years automatically. There is no connection between raising the debt ceiling and arguing over tax policy. Tax policy takes many years to work out. All of a sudden, Mr. Obama is going along with the charade of saying, “Wait a minute, let’s create a crisis.” As his former manager Rahm Emanuel said, a crisis is too important an opportunity to waste. But Wall Street doesn’t like real crises, so there’s an artificial non-crisis that Obama is treating as a crisis so that he can put forth the recommendations of the Deficit Reduction Commission to get rid of Social Security that he has supported all along. That’s the problem. He believes it.

JUAN GONZALEZ: You know, I wanted to ask you specifically about that, because every time you turn on the TV now or you read a mainstream newspaper, there are all these quotations from Moody’s and this rating agency and this expert that August 2nd will be a financial Armageddon for the country. And I’m saying to myself, we’ve already been through a financial Armageddon for the last couple of years, and now they’re suddenly saying that, on this date, if this stuff is not passed, if a deal is not reached, suddenly the entire world financial system will be under severe strain.

MICHAEL HUDSON: Well, you had this kind of debt ceiling come up, I think, maybe 20 times under Bush’s administration. It’s a non-threatening thing. It’s something automatic. It’s technical. It’s sort of like going to the corner and having a notary public certify what you’ve done. It’s a technical thing that has nothing to do with real economy or policy at all. They’re pretending it’s a crisis because they have a plan. And the plan is what Mr. Boehner has put forth. Just like after 9/11, the Pentagon pulled out a plan for Iraq’s oil fields, Wall Street has a plan to really clean up now, to really put the class war back in business and get rid of Medicare, get rid of the programs for the poor, and say, “There’s no money for you. We’ve given it all away in the bailouts.”

Skat's picture
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Idealog vs Politicalog?

 The goal of both parties should be to address our potentially-nation-destroying 14 trillion dollar debt. Anyone with a calculator will agree that cutting spending, and restructuring entitlements, is unavoidable if you want to do more than put a patch on the problem. It's obvious that there should be agreement to cut and restructure, and the compromise should be where to cut, and how to restructure. Our first problem is that we don't have a president/leader that really wants to cut spending and/or restructure entitlements in the first place.  


Obama let the republicans lead on the issue, creating a negotiating environment where the republicans are supposed to give him something for doing what he should have been doing in the first place... cutting spending and restructuring.  In return for Obama' dealing with the debt, he brilliantly demanded tax increases for the rich creating a class warfare style debate, (that we just had). He knew that the freshman republicans signed a no-tax pledge. So, knowing that if the republicans compromise, and agree to raise taxes, they hurt the economy and jeopardize their chance of reelection ...guaranteeing an impasse on the issue that he didn't really want to deal with in the first place, while making the republicans look inflexible and unreasonable. 


The icing on Obama's political cake, was when he gallantly "put entitlements on the table". But that's a no-brainer... entitlements are 3/4th of the debt and are insolvent. And that doesn't even count the future entitlement promises that bring us to over 60 trillion in unfunded liabilities. Everyone except the majority of the democratic voting public knows that you can't solve our national debt crisis without restructuring entitlements. Obama wins again. 

Ready's picture
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Adam Taggart's picture
Adam Taggart
Status: Peak Prosperity Co-founder (Offline)
Joined: May 26 2009
Posts: 3281
Corrected link

Thanks, Ready.

Corrected the link in my original post above. 

dshields's picture
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Joined: Oct 24 2009
Posts: 599
there is a lot to say

There is a lot to say on this topic.  The politicians of both parties have over spent way too much for years.  It is my personal opinion that the dems are worse about this but the repubs are right in there also - just think about the cost of wars.  Of course the dems do wars also - that can not be forgotten - just look at what is going on in Libya right now.  And, Clinton when backed into a corner signed the 1996 welfare reform act which was very good.  The current crop of dems have basically reversed that.  So it goes both ways.

As of late however, the repubs have definitely been on the right side of spending.  They are confused and scared as can be seen.  The cut, cap, and balance bill was on the right track.  The current plan is insufficient.  Several other repubs have sponsored alternatives which do not cut enough so those will fail.  I find it unsettling that the repub leadership appears to have lost rudder control at this point and are proposing multiple plans.  They should have stuck behind the cut, cap, and balence plan.  That was actually a decent plan.  It only failed the senate vote by 3 votes.  They should re-vote it and send it back to the senate and then stand their ground.  With enough pressure from the people the senate will pass it.  At that point it will all be on obama.  If he vetos it, the repubs should just go home to their districts and wait.  If he vetoes it then no more talk.  Time to go home and wait.

You see the truth is that the over spending is self regulating.  Spending will be cut one way or another.  It would be better if it was cut in an organized manner.  But, if the dems are not for that, then it can be cut in a disorganized manner.  At that point it would be up to the dems how they want to do it.

One way or another, spending is going to be cut.


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