Hold Fast
Let's do some myth busting. There is no chance of a default on US sovereign debt payments next week. None. Any statement to the contrary is a lie.
The federal government will take in $175 – 200 billion in August against a total interest bill of $29 billion or so. Likewise Social Security, where the trustees can redeem IOUs socked away in the much-touted “trust fund,” allowing Treasury to sell marketable securities to raise cash while remaining below the debt ceiling.
There will be no debt crisis; that is, unless we kick this multi-trillion-dollar can down the road again.
What looms next week is a partial government shutdown as Treasury is obliged to live within its means, allocating suddenly scarce funds against the endless demands of Obama administration government-by-continuing-resolution. Instead of a grand deal exchanging more borrowing today against the promise of trillions of dollars in spending cuts by the nobler politicians elected to some future Congress, under current law outlays will need to be cut by 40 percent or so. Immediately. Right now. Having spurned the Ryan Budget, Cut, Cap and Balance, and every other Republican proposal without offering any plan in return, the president will be forced by existing law to put the government he fattened on a crash diet.
Why is this a problem for fiscal conservatives?
Remember that President Obama controlled super-majorities in both houses of Congress until this year. The current debt ceiling “crisis” was visible, and easily averted, while the Democrats were in complete control of the Legislative and Executive Branches. Obama chose to saddle the Republicans with the current dilemma, introducing a wedge between tea partiers and moderates in order to institutionalize his unprecedented spending spree and cruise to reelection against a divided opposition.
But what if Armageddon is not triggered by a sudden respite from Tim Geithner spending your grandchildren's tax money on high speed rail or Green Jobs of the Future? What if August 3rd dawns and life in America goes on, apart from the dislocation experienced by a great many furloughed federal employees?
August 2nd could well go down in history as a second Independence Day for the United States, but only if Republicans hold fast to principle by refusing to sign on as junior partners at the Madoff-inspired investment firm of Obama, Biden, Pelosi & Reid.
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Jun '10
Re: Hold Fast
I thought the "trust fund" invested mainly in "special obligation bonds" that are expressly not marketable securities, they can only be redeemed by the Treasury -- with funds we don't have.
Re: Hold Fast
Joseph Stanko
I thought the "trust fund" invested mainly in "special obligation bonds" that are expressly not marketable securities, they can only be redeemed by the Treasury -- with funds we don't have. · Jul 26 at 2:47pm
The trust fund presents the special obligation bonds to Treasury, which cancels them--reducing total debt outstanding--and then sells marketable securities--increasing total debt outstanding by a like amount--presenting the cash proceeds to the Social Security Administration.
New marketable securities are sold while total US sovereign debt remains at or below the $14.3 trillion total authorized by Congress.
Aug '10
Re: Hold Fast
It drives me nuts to hear some maroon like Wolf Blitzer hyperventilate about the US going into Default on August 3rd when nothing of the sort will happen. As you correctly point out, the US will still have money with which to pay it's interest debts.
I fear the the Obama media may be hyping default as a prelude to Obama unilaterally raising the debt ceiling without congress' approval and using the default bogeyman as his excuse.
After all, who's going to stop him? SCOTUS? The Senate? He'll simply ignore the House.
Jun '10
Re: Hold Fast
I see, makes sense. And the President has the authority to order that, i.e. tapping into the trust fund, without authorization from Congress?
Can he tap the trust fund to pay other expenses too, or only Social Security benefits?
Re: Hold Fast
Joseph Stanko: I see, makes sense. And the President has the authority to order that, i.e. tapping into the trust fund, without authorization from Congress?
Can he tap the trust fund to pay other expenses too, or only Social Security benefits? · Jul 26 at 3:01pm
I'm not an attorney, of course, but I believe that the president could just order Treasury to pay Social Security checks as usual, using the $200 billion in monthly income. Assuming the president has other priorities, or there is a timing issue between receipts and expenditures, the Social Security trustees would fund benefits by redeeming some of the assets they hold in the trust fund--those non-marketable securities--for cash. I believe the trustees are charged by law to act in the interests of Social Security beneficiaries, not President Obama.
Edited on Jul 26, 2011 at 3:07pmMay '11
Re: Hold Fast
I have felt that from the start that Obama wanted this crisis so that he could institute a hard government shutdown in lieu of default. He wants to blame Republicans and boost his re-election efforts. He will still send out letters saying that social security and medicare are at risk and close every operation of government that is popular. I believe the Republican leadership may have laid the groundwork so that that strategy may backfire. I think Obama owns this crisis now. Bring it on.
Joseph Stanko: I see, makes sense. And the President has the authority to order that, i.e. tapping into the trust fund, without authorization from Congress?
Can he tap the trust fund to pay other expenses too, or only Social Security benefits? · Jul 26 at 3:01pm
Those treasury funds only apply to social security because of the language establishing a trust fund for it.
Dec '10
Re: Hold Fast
George Savage
Let's do some myth busting. There is no chance of a default on US sovereign debt payments next week. None. Any statement to the contrary is a lie.
Is the President REQUIRED by black-letter law (Constitutional or statutory) to use available funds to pay interest and required principal repayments first?
Or can he choose to trigger a default by spending those funds on other things?
Jun '10
Re: Hold Fast
I posted this earlier on NRO. It relates directly to your post, Dr. Savage:
It seems a lot of poeple are worried about this August 2nd "deadline". Why? This date is brought down from heaven by no less an angel than little Timmy Geitner. Pooey on him. Congress needs to take its time and get it right (relatively speaking). Personally I would get a nice chuckle seeing 08-02 come and go without a hitch. The revenue comes in and the checks get written, just like always. Wouldn't it be interesting to see how long it would take for the Feds to run out of cash? Wouldn't it be interesting to force Obama to actually take the responsibility of deciding who gets paid and who doesn't? A direct look into his soul, that would be, wouldn't it? Does it matter if a deal happens two weeks later? When you're 14 trillion in debt what does another couple of weeks matter? Aren't we already buying 70% of our own debt? What a joke. We are already singing the Banana Boat song.
Jun '10
Re: Hold Fast
Stuart Creque
Is the President REQUIRED by black-letter law (Constitutional or statutory) to use available funds to pay interest and required principal repayments first?
Or can he choose to trigger a default by spending those funds on other things? · Jul 26 at 3:43pm
There was a rather sobering article in the WSJ on Saturday that said the Treasury processes 114,000 payments per hour and suggested that the government's computer systems might not be up to the task of prioritizing some payments ahead of others even if the President ordered it. It said a "lengthy process of changing the computer coding" would be required.
Re: Hold Fast
Stuart Creque
George Savage
Let's do some myth busting. There is no chance of a default on US sovereign debt payments next week. None. Any statement to the contrary is a lie.
Is the President REQUIRED by black-letter law (Constitutional or statutory) to use available funds to pay interest and required principal repayments first?
Or can he choose to trigger a default by spending those funds on other things? · Jul 26 at 3:43pm
My understanding is that the 14th Amendment compels the president to prioritize our sovereign debt obligations ahead of other bills.
But I suppose we shall see.
Edited on Jul 26, 2011 at 3:57pmDec '10
Re: Hold Fast
I'm with you in principle, but want to mention the drawbacks.
The media is still solidly behind the socialists, as exemplified by this poll data currently being pushed out. Notice the complete absence of any demographics in that article, indicating whom may have been polled. This sort of thing will influence millions of Americans and will not be adequately countered by Republicans.
We are already beyond the limits of what the treasury has to spend on a cash-flow basis and have been since May. The Treasury has been robbing the pension funds and annuities of federal retirees since May, just to cover the gap since May. That money is about to run out, which is why Geithner needs a new source of cash. They need to sell more Treasury bonds to cover what they already have spent, plus be able to replace what they stole from federal retirees.
Everybody likes to pretend that the $200 B we may get per month will keep us current, but we are already 2 months behind on actual cash expended, without the 40% haircut.
Re: Hold Fast
Yikes. Good point. I hadn't factored in the smoke and mirrors since May.
But that brings up another complaint: We are being treated like mushrooms. Where are the hearings? Where is the information? Instead of open debate in Congress we have secret negotiations and scare-the-public press conferences. All this in a republic running into its third year without a duly debated and enacted budget.
We are on autopilot and flying towards a cliff. If there are to be dislocations, better now than when our debt balloons to $16, 18, 20 trillion or more.
Dec '10
Re: Hold Fast
Joseph Stanko
Stuart Creque
Is the President REQUIRED by black-letter law (Constitutional or statutory) to use available funds to pay interest and required principal repayments first?
Or can he choose to trigger a default by spending those funds on other things? · Jul 26 at 3:43pm
There was a rather sobering article in the WSJ on Saturday that said the Treasury processes 114,000 payments per hour and suggested that the government's computer systems might not be up to the task of prioritizing some payments ahead of others even if the President ordered it. It said a "lengthy process of changing the computer coding" would be required. · Jul 26 at 3:51pm
That doesn't worry me so much. The "coding" is most likely database entries that can be deleted pretty quickly. Even entries in hard-coded data tables can be commented out pretty fast.
Dec '10
Re: Hold Fast
George Savage
But that brings up another complaint: We are being treated like mushrooms. . · Jul 26 at 4:02pm
Who turned out the lights?
Oh, well, at least I have something warm and squishy to stand in.
Dec '10
Re: Hold Fast
George Savage
Stuart Creque
George Savage
Let's do some myth busting. There is no chance of a default on US sovereign debt payments next week. None. Any statement to the contrary is a lie.
Is the President REQUIRED by black-letter law (Constitutional or statutory) to use available funds to pay interest and required principal repayments first?
Or can he choose to trigger a default by spending those funds on other things? · Jul 26 at 3:43pm
My understanding is that the 14th Amendment compels the president to prioritize our sovereign debt obligations ahead of other bills.
But I suppose we shall see. · Jul 26 at 3:57pm
Edited on Jul 26 at 03:57 pm
The three least reassuring words in the English language: "We shall see."
Mar '11
Re: Hold Fast
Wait a minute - I distinctly remember Mr Obama saying that he couldn't guarantee that grannies wouldn't start disappearing off cliffs - or am I confused?
Edited on Jul 26, 2011 at 4:23pmMay '10
Re: Hold Fast
Could we navigate this "crisis" in a sensible way that minimizes pain and damage? Of course. I'm sure of it. I'm less sure that the Obama team is competent or even motivated to steer us through this well.
These folks seem to think entirely in political terms, so I fear they will want to give the populace a good scare and a painful lesson. It's a dangerous gambit, if it's reported that bloated bureaucracies are in place while personal checks are held back, but with the press in his pocket, won't he be tempted to try it?
Jan '11
Re: Hold Fast
Does anyone here know why one of the demands made by House Republicans did not consist of insisting that the Senate pass a budget prior to any debt ceiling votes? I assume it is because doing so would then force the House & Senate into conference and that the Senate Dem's were actually able to get continuing resolution (greater) levels of funding.
I mean, without a budget, who's to say that whatever amount the debt ceiling is raised will last two months, six months or two years?
I'm starting to think that not raising the ceiling, or just raising it the difference between projected receipts and using say 2008 FY spending levels may be the best way to enforce some discipline and 'shrink'/hold down spending. Let Obama prioritize which checks get cut while letting everyone know that more than enough has been authorized - so he owns the disruptions. We don't need HS rail, ethanol, cowboy poetry, life-size protest puppets, NPR, Obamacare, Planned Parenthood.....
Jan '11
Re: Hold Fast
Does anyone here know why one of the demands made by House Republicans did not consist of insisting that the Senate pass a budget prior to any debt ceiling votes? I assume it is because doing so would then force the House & Senate into conference and that the Senate Dem's were actually able to get continuing resolution (greater) levels of funding.
I mean, without a budget, who's to say that whatever amount the debt ceiling is raised will last two months, six months or two years?
I'm starting to think that not raising the ceiling, or just raising it the difference between projected receipts and using say 2008 FY spending levels may be the best way to enforce some discipline and 'shrink'/hold down spending. Let Obama prioritize which checks get cut while letting everyone know that more than enough has been authorized - so he owns the disruptions. We don't need HS rail, ethanol, cowboy poetry, life-size protest puppets, NPR, Obamacare, Planned Parenthood.....
Jul '10
Re: Hold Fast
George Savage
Yikes. Good point. I hadn't factored in the smoke and mirrors since May.
But that brings up another complaint: We are being treated like mushrooms. Where are the hearings? Where is the information? Instead of open debate in Congress we have secret negotiations and scare-the-public press conferences. All this in a republic running into its third year without a duly debated and enacted budget.
We are on autopilot and flying towards a cliff. If there are to be dislocations, better now than when our debt balloons to $16, 18, 20 trillion or more. · Jul 26 at 4:02pm
Where is the press? This is the sort of thing where the WSJ is supposed to shine.