Thread: Article: Potential results of not raising debt ceiling.

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    Article: Potential results of not raising debt ceiling. 
    Bluelighter Belisarius's Avatar
    Join Date
    Dec 1999
    San Antonio, Texas
    A scary article, one that addresses the facts behind the "We gotta save money for teh children!" rhetoric that passes for reasoned discourse these days. What I find particularly interesting is the statement that not raising the debt limit would not have immediate consequences, which makes it more insidious.

    US default could be doomsday option for economy

    TOM RAUM, Associated Press – 1 hr 33 mins ago

    WASHINGTON – The United States has never defaulted on its debt and Democrats and Republicans say they don't want it to happen now. But with partisan acrimony running at fever pitch, and Democrats and Republicans so far apart on how to tame the deficit, the unthinkable is suddenly being pondered.

    The government now borrows about 42 cents of every dollar it spends. Imagine that one day soon, the borrowing slams up against the current debt limit ceiling of $14.3 trillion and Congress fails to raise it. The damage would ripple across the entire economy, eventually affecting nearly every American, and rocking global markets in the process.

    A default would come if the government actually failed to fulfill a financial obligation, including repaying a loan or interest on that loan. The government borrows mostly by selling bonds to individuals and governments, with a promise to pay back the amount of the bond in a certain time period and agreeing to pay regular interest on that bond in the meantime.

    Among the first directly affected would likely be money-market funds holding government securities, banks that buy bonds directly from the Federal Reserve and resell them to consumers, including pension and mutual funds; and the foreign investor community, which holds nearly half of all Treasury securities.

    If the U.S. starts missing interest or principal payments, borrowers would demand higher and higher rates on new bonds, as they did with Greece, Portugal and other heavily indebted nations. Who wants to keep loaning money to a deadbeat nation that can't pay its bills?

    At some point, the government would have to slash spending in other areas to make room for any further sales of Treasury bills and bonds. That could squeeze payments to federal contractors, and eventually even affect Social Security and other government benefit payments, as well as federal workers' paychecks.

    A default would likely trigger another financial panic like the one in 2008 and plunge an economy still reeling from high joblessness and a battered housing market back into recession. Federal Reserve Chairman Ben Bernanke calls failure to raise the debt limit "a recovery-ending event." U.S. stock markets would likely tank — devastating roughly half of U.S. households that own stocks, either individually or through 401(k) type retirement programs.

    In my op, there are only two likely outcomes to this impasse:

    Best case: Congress finally raises the debt limit, which will deal a serious blow to the Tea Party movement. However, it will also increase criticism of Obama, which could come home to roost in 2012.

    Worst case: Congress does not raise the debt limit, which will lead to results that will help no one; the resulting economic downturn (and that's putting it mildly) will again make the government look weak and incompetent (what good is it for the government to save money when you're still looking for a pot to piss in?), and will almost certainly Hoover Obama for 2012.

    Personally, I think the former is more likely, the more so since Americans are IMO more willing to accept that their elected officials are (flexible!) bullshit artists than the pundits would lead one to believe.
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    Yeah they probably will raise the debt ceiling I laughed at this though:

    "Will again make the government look weak and incompetent."
    We should prosecute our financial criminals. Held for treason and in solitary confinement. Then we will be stronger and more competent.
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    Bluelighter Joeof1's Avatar
    Join Date
    Sep 2006
    Where life takes me.
    I find the whole situation quite ridiculous.

    If they raise the debt ceiling they are still screwed, just Stagflation will rage longer before the collapse. All it's doing is kicking the can down the street. The US dollar is going to collapse under the weight of a non-expungeable credit bubble. These people are supposedly the brightest from the best Universities eh?

    It's even more depraved because the vast majority of that money left the hand's of the taxpayer's to benefit only a few people that work on K Street and Wall Street. The whole idea that the Politicians would willingly apply the debt they created to pay off the banks and foreign countrys onto the people. "Ethical foul" is the term I would used for that.
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