[tminus t=”03-08-2011 00:00:01″ style=”carbonite” before=”
Time until (alleged) Aug 3, 2011 deadline
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That’s it
Please note that the real deadline is likely something between Aug. 8 and Aug. 15.
Also, please note that if and when the US hits the debt ceiling we will not have a “default”. Nor will the nation lack the fundamental capacity to pay its bills — as of this writing T-bill interest rates are low (i.e. prices are high, and rising). Rather, due to an utterly artificial block by the Congress, the US will not have the cash on hand to pay all its obligations. As a result some obligations such as monies due by contract or monies due by legislation, but almost certainly not bond debt, will not be paid on schedule. It’s as if you maxed out a low-interest credit card because you were not willing to pick up the phone and ask for a credit increase from a lender ready willing and able to give it. And you need the credit because you won’t do any of the obvious things that would raise the money you have already promised to spend.
Finally, note that there is a pretty persuasive argument that the structure of the Social Security trust fund allows an easy work-around the debt ceiling so that Social Security beneficiaries (unlike Veterans, Medicare, Medicaid, and others) can continue to be paid regularly an in full via a procedure that is not subject to the debt limit. (To make a long story short the SSA Trustees redeem their special Treasury bonds, which are counted in the debt limit, thus lowering the nation’s indebtedness. This allows Treasury to sell more bonds to the public, getting cash to make the Social Security payments.)
I wonder why there has been no serious discussion (at least as far as I can tell) of the Executive simply inflating their way around this liquidity problem. Seigniorage is a power that that the Congress could not handcuff with their juvenile antics.
Or are we still pretending that the Fed is really an apolitical independent organization?
There has. There is a limit on the paper currency the government can issue, so it cannot do it that way. There are some very ugly fed tricks they are ostentatiously not talking about, but other people are. And then there is The Platinum Coin Option.
Perhaps they can start by using the $2 billion in printed Sacajawea and US President coins the government has been (so far) unable to successfully introduce into circulation: http://www.federalreserve.gov/boarddocs/rptcongress/dollarcoin/2010/dollarcoin2010.pdf
Yes, they won’t run out of cash on Aug 2nd. That was a date projected some months back. Since that date was named, more revenue than projected came in.
But, the longer they wait to begin emergency cash management, the fewer their options are.
Already, they’ve been postponing pension fund payments they are obligated to make. that was one of the ways they devised to make it to 8/3.
I, for one, do not think that the Fed will expand the money supply unless they see that the alternative is worse. They do retain independence.