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Politics : President Barack Obama -- Ignore unavailable to you. Want to Upgrade?

To: Road Walker who wrote (138374)	10/8/2013 5:10:59 AM
From: Road Walker	Respond to of 149317

Why the Debt Ceiling Matters By JOE NOCERA The word we keep hearing is “catastrophe.” “A U.S. Default Seen as Catastrophe, Dwarfing Lehman’s Fall,” screams the headline in Bloomberg Businessweek. “A default would be unprecedented and has the potential to be catastrophic,” says a Treasury Department report issued on Thursday — two weeks before the government is expected to begin running out of cash. But what does “catastrophic” actually mean in this context? In the summer of 2011, when Republicans refused to raise the debt ceiling unless President Obama caved to their extortionist demands, the same word was bandied about. It scared the political class enough that they kicked the can and avoided a default. This time around, the need to raise the debt ceiling doesn’t seem to be generating nearly the same concern. Indeed, Tea Party Republicans seem to be almost rooting for the government to default, as if that would somehow bring about the smaller government they so yearn for. But this is incredibly wrongheaded. A failure to raise the debt ceiling, should it come to that, would likely inflict a different kind of pain than sequestration or even a shutdown of the federal government. It won’t make the government smaller. But it does have the potential to diminish the value of one of America’s greatest assets — the backing of its debt — while throwing the world economy into chaos. The first point worth making is that the 14th Amendment to the Constitution, which declares that “the validity of the public debt of the United States . . . shall not be questioned,” was added precisely to avoid what is happening now: a faction of Congress using the debt ceiling as a bargaining chip. That basic truth, as Fortune’s Roger Parloff noted in a recent blog post, “ought to weigh very heavily in the minds — and on the consciences — of the House Republican faction that is now unambiguously violating its letter and spirit.” The second point worth making is that U.S. government debt is the only risk-free asset in the world. That debt undergirds the entire world financial system — precisely because the whole world has such faith in it. There is always demand for U.S. government debt. Almost every other asset you can think of is in some way measured against it. A default would destabilize the market for Treasuries. And that, in turn, would likely destabilize every other asset. The stock market would fall. Interest rates would rise — meaning, for instance, mortgages would become more expensive just as the housing market is starting to revive. Treasuries themselves would likely have to pay higher interest to investors, which would create a rather sad irony: a default would exacerbate the country’s long-term debt (the very problem the Republicans claim to care about). Let’s move to the havoc a destabilized Treasury debt would have on the banking system. “The plumbing of the global financial system depends on Treasuries,” says Karen Petrou, a banking expert at Federal Financial Analytics. Remember what happened to Lehman Brothers? As the market lost faith in the company’s ability to meet its obligations, Lehman lost access to the “repo” market, which is the way banks are funded on a short-term basis. Treasuries make up a great deal of the collateral in the repo market. If a default were to cause the repo market to freeze, the entire banking system would find itself in crisis. Meanwhile — more shades of Lehman Brothers — the ratings agencies would likely downgrade Treasuries, forcing money market funds to start dumping government debt. Painful choices would have to be made. Right now, the Treasury Department says it does not have the authority to pick and choose which creditors to pay. But, in the event of a default, it is hard to imagine that the government wouldn’t make some tough decisions about who should get paid in the short term — and who would have to wait. And, though this would infuriate millions of Americans, bondholders in China would likely get their money ahead of, say, Social Security recipients. “From a purely cost-benefit analysis,” says Mark Zandi of Moody’s Analytics, “not paying bondholders would wind up costing the U.S. much more than not paying Social Security recipients” — because if bondholders lost faith in Treasuries, it would cost the government billions more in interest payments each year. During the 2011 debt-ceiling crisis, consumer confidence dropped by 22 percent. When consumer confidence falls, people are less willing to spend and businesses are less willing to hire. That’s how recessions — or depressions — begin, and that may be the most important consequence of all. For as long as anyone can remember, the ability of the United States government to pay its bills on time has given the rest of world tremendous confidence. At the same time, to have the one asset everyone in the world trusts has given America great advantages. Why on earth would we ever risk that? Why?

To: Road Walker who wrote (138374)	10/8/2013 9:31:25 AM
From: ChinuSFO	Respond to of 149317

The shutdown led by the T party folks focuses on Obamacare. They spoke too soon on this issue and made an ass of themselves. This is very similar to what they did with the "birther issue" where they made a big issue about where he was until he produced his birth certificate. Now that the ACA is having growing pains, they have realized that they have backed themselves into a corner and are trying to divert the attention towards tax reforms, COLA etc. csmonitor.com What a bunch of clowns these folks are.

To: Road Walker who wrote (138374)	10/8/2013 10:20:42 AM
From: Alighieri	Read Replies (1) \| Respond to of 149317

Yet the Obama administration has repeatedly suppressed any talk of invoking the Constitution in this emergency. Last Thursday Jay Carney, the White House press secretary, said, “We do not believe that the 14th Amendment provides that authority to the president” to end the crisis. Treasury Secretary Jacob J. Lew reiterated the point on Sunday and added that the president would have “no option” to prevent a default on his own. I think the reason the WH is very reluctant to entertain the 14th amendment possibility is because "theoretically" the US debt can be serviced with incoming revenue, even as failing to raise the debt limit has other practical disastrous consequences. I suspect that the WH believes that following the 14th reasoning path in the public domain lends credence to this republican talking point and potentially allows them a stronger negotiating and PR position...I can easily see republicans ambiguously float the idea "that the president himself has the power to stop a default by invoking the 14th (wink wink)", only to then precipitate a constitutional crisis at a SCOTUS with a conservative majority. It's a messy and very dangerous path at best... Al

To: Road Walker who wrote (138374)	10/8/2013 12:32:37 PM
From: R2O	1 Recommendation Recommended By FJB Read Replies (4) \| Respond to of 149317

“the validity of the public debt of the United States, authorized by law” is sacrosanct and “shall not be questioned.” Then, we must conclude, that the law establishing a debt ceiling is unconstitutional. But alas, it is not ( or is it? ) You don't get a default until you don't pay according to obligation. The obligation is spelled out in law/contract. Generally, for US debt, one need only pay the interest and bonds due. True, the President can decide to renege and NOT pay the interest that is due ( maybe ). ( I have had that happen to me in the private sector ... money on hand president of company just refused to pay. That company was legally in bankruptcy and that resulted in destruction of shareholders ... company pres walked away with many millions.) In any case, US can pay present interest demands using current inflows, hence, afaik, no default. "repudiation of debts already accrued" can only occur via an action of the President, not congress. No present debt will be repudiated. That is why it is a debt limit. If congress would attempt to REDUCE the debt limit (to less than it is now) then we have a problem w. 14th amendment. What you can't pay for is anything NEW. So stop spending for NEW things, right now. R2O