The Debt Ceiling Theater Script

Mish recently prepared a quick and easy script for all involved members to follow in case they forget their role in this cherade:

1. Obama will chastise Congress with talk of financial Armageddon if Congress does not raise the debt ceiling.
2. Congress will pretend to hold the president hostage
3. The secretary of the Treasury will get into the act with its own version of the default debate
4. Perhaps a few payments on non-critical budget items will be temporarily skipped
5. Wall Street will feign panic
6. Constituents will pressure Congress to approve a new debt ceiling
7. Congress will raise the ceiling with another useless warning about next time

Next time: Repeat 1-7.

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US Public Debt Limit Reached

The AP reports Debt limit reached, US halts 2 pension investments:

Treasury Secretary Timothy Geithner said Monday that he will immediately halt investments in two big government pension plans so the government can continue to borrow money.

Geithner informed Congress of his decision in a letter stating that the government had officially reached its $14.3 trillion borrowing limit. He repeated a warning that if lawmakers do not increase the borrowing limit by August 2, the government is at risk of an unprecedented default on its debt.

The debt limit is the amount of money the government can borrow to help finance its operations. The nation has reached its debt limit because the federal government has grown accustomed to borrowing massive amounts of money. The latest estimate is that it borrows 40 cents for every dollar it spends.

Republicans have said they will not vote to raise the borrowing limit until Congress and the White House agree on a plan to reduce the deficit through spending cuts. House Speaker John Boehner last week those cuts should be larger than any increase in the debt ceiling.

The deficit is the difference between what the government spends and what it takes in through taxes and other revenue. The Congressional Budget Office projects that this year’s deficit will total $1.4 trillion. That’s would nearly match 2009’s record imbalance and mark the third straight year in which the federal deficit has exceeded $1 trillion.

Vice President Joe Biden is holding negotiations with lawmakers over the types of deficit-cutting measures that need to be approved to win congressional approval of a higher debt limit.

Even though the government has reached its official borrowing limit, Geithner said unexpected revenue and bookkeeping maneuvers will allow the Treasury to continue auctioning debt for another 11 weeks.

Geithner has suspended pension payments in the past when Congress has held off raising the debt limit. The money that the two pension funds will lose will be replaced when Congress votes to raise the borrowing limit.

I’ve mentioned this before, but I still love that great logic behind threatening to vote not to raise the debt limit unless “significant cuts” are agreed upon. If significant cuts were to take place, there would be no need to raise the debt ceiling in the first place! :)

Another nice example for good old political hypocrisy is on this matter is of course Obama vs Obama on Raising the Debt ceiling.

All the threats about the US potentially defaulting in its national debt are rather unimpressive to me and the bond market is once again shrugging it off today with a drop of another 3 BP to currently 3.15 percent as these lines are written.

The US government is not going to default on its public debt, at least not before defaulting on virtually everything else as I outlined in The Government’s Insolvency.

The pension plans that payments have been suspended into (Service Retirement and Disability Fund) might give you a nice little snapshot as to who’s a low on the totem pole in terms of the seniority order I mentioned in that post.

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Obama vs Obama on Raising the Debt Ceiling

Senator Obama in 2006 when the debt ceiling was at $8,965 billion or 64.2% of GDP:

The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. … Increasing America’s debt weakens us domestically and internationally. Leadership means that ‘the buck stops here. Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.

And of course as a standup and incorruptible agent of change, President Obama in 2011 (via spokesperson), with a debt ceiling at $14,294 billion or 92.1% of GDP:

Obama “thinks it was a mistake,” presidential spokesman Jay Carney told reporters. “He realizes now that raising the debt ceiling is so important to the health of this economy and the global economy that it is not a vote that, even when you are protesting an administration’s policies, you can play around with.”

Ah, the idiocy of politics in all its beauty …

I wonder if this is the kind of “CHANGE” he was talking about all along. ;)

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