The Result of a Federal Default?

[Admiral Yi]

New T-Bills will, of course, not be issued.

As a minor quibble, new securities could still be issued as old ones mature.

[Ideologue]

Normally if someone makes those kinds of decisions it would likely be called a fraudulent preference of one debt holder over another.  Not sure the US wants to sully its reputation any further.

Not sure how that applies.  I was thinking about the choice between various combinations of debt service and federal salaries and programs.

If by debt servicing you mean preferring some debts to others then the issue is raised.

To whom?  The bankruptcy court of God?

[Jacob]

As a minor quibble, new securities could still be issued as old ones mature.

I'll take your word for it

... and I have no idea if that's enough to make a material difference.

[Jacob]

To whom?  The bankruptcy court of God?

I'm sure people who felt ill done by would pursue all available legal means in the US.

[The Brain]

The breakup of America and a return to a sensible world order.

[crazy canuck]

Normally if someone makes those kinds of decisions it would likely be called a fraudulent preference of one debt holder over another.  Not sure the US wants to sully its reputation any further.

Not sure how that applies.  I was thinking about the choice between various combinations of debt service and federal salaries and programs.

If by debt servicing you mean preferring some debts to others then the issue is raised.

To whom?  The bankruptcy court of God?

That might have some weight with the Tea Party 



You may have missed the part where I said the US doesnt want to sully its reputation any further than this fiasco already has.

[Razgovory]

The breakup of America and a return to a sensible world order.

The German ball bearing market is never coming back.

[mongers]

Interesting stuff guys, I don't pretend to understand this, though I'm rather concerned that Obama today was highlighting this issue, is that legitimate or to some extent playing with fire ?   

[Jacob]

Interesting stuff guys, I don't pretend to understand this, though I'm rather concerned that Obama today was highlighting this issue, is that legitimate or to some extent playing with fire ?

We are seeing a shutdown of the American government over funding the government.

In about two weeks, Congress needs to raise the debt ceiling. All signs point to the Republicans following the same playbook as they have on funding.

We're hoping that saner heads prevail, but it's definitely a thing.

[alfred russel]

IIRC, revenues will cover the debt service payments. New bond auctions would stop though. That's not necessarily a default.

The thing is, T-Bills underpin pretty much all economic activity. There are tons of entities that are legally required to buy T-Bills for various purposes; T-Bills basically backstop any and all risk-management strategies once you keep digging down.

Yeah, that is going to be a real problem.  I am not sure the Tea Party understands this concept.

I don't think that is a real problem. If it were, balancing the budget would be a problem.

T Bills are popular because they are low risk highly liquid instruments. There are plenty of other low risk highly liquid investments entities can buy.

[Jacob]

T Bills are popular because they are low risk highly liquid instruments. There are plenty of other low risk highly liquid investments entities can buy.

So entities requiring low risk highly liquid investments will drop T-Bills in favour of the alternatives?

If so, what's the likely impact of this?

[The Larch]

If a significant amount of public debt is held by other branches of the federal government I guess that theoretically the government could choose to stop paying itself for it, thus gaining some more time.

[grumbler]

New T-Bills will, of course, not be issued.

As a minor quibble, new securities could still be issued as old ones mature.

Except that the new securities can't be issued until the old ones are redeemed, and you don't have the money to redeem.  Plus, the new issue is worth less than you are paying out.

But you are right; these are quibbles.

[Jacob]

If a significant amount of public debt is held by other branches of the federal government I guess that theoretically the government could choose to stop paying itself for it, thus gaining some more time.

I guess as long as the government is shut down, it won't matter that it's not getting paid anyhow.

That will suck for people getting social security, though. I think that's a pretty huge chunk of intra-governmental debt.

[alfred russel]

T Bills are popular because they are low risk highly liquid instruments. There are plenty of other low risk highly liquid investments entities can buy.

So entities requiring low risk highly liquid investments will drop T-Bills in favour of the alternatives?

If so, what's the likely impact of this?

There is a lot of government debt out there. Many trillions in fact. It is available on the secondary markets. It is all considered low risk and highly liquid. I would think that if short term T Bills were unavailable, then most entities would move into longer term government debt, secure commerical paper, or safe foreign debt securities.

If all government debt became unavailable, there could be some interesting quirks in regulated entities such as insurance companies and banks that are required to hold certain types of investments.