Debt Ceiling & Default - what's going to happen?

[citizen k]

So in your view all the default discussion is essentially political posturing rather than an accurate description of possible consequences?

Sounds like most issues when you put it that way.
In other words, the U.S. has a placebo government.

[Jacob]

So in your view all the default discussion is essentially political posturing rather than an accurate description of possible consequences?

Yep.

From what I've been reading that view seems to be gaining currency amongst GOP legislators. This, combined with what you're saying and Rasputin's posts, makes me inclined to think that the debt ceiling will not be raised before it's reached.

I expect that whatever the consequences of not raising the debt ceiling will be, we'll find out first hand.

[MadImmortalMan]

Look at it this way--The bureaucracy isn't going to default without being instructed to do so. For them to get that instruction, some politician must be in power who does the instructing. What US politician is in favor of doing that and has enough popular support to get in a position powerful enough to make it happen? I can think of none. Not even the crazies.

[Jacob]

Look at it this way--The bureaucracy isn't going to default without being instructed to do so. For them to get that instruction, some politician must be in power who does the instructing. What US politician is in favor of doing that and has enough popular support to get in a position powerful enough to make it happen? I can think of none. Not even the crazies.

So what happens when treasury doesn't have enough cash on hand? As I understand it, on Oct 17th the US Treasury will have $30B on hand, and daily obligations of $60B.

I guess you're saying it won't be a default, it will just be a "we'll pay you later, we're good for it - honest" where it really matters?

[Admiral Yi]

I think what Mimsy is saying is that other parties besides bond holders will get stiffed.

[MadImmortalMan]

I think what Mimsy is saying is that other parties besides bond holders will get stiffed.

Pretty much.

Not everything will be paid. Some of it might be in IOUs like California did. Other things might be shut down for a while. The last time, the Treasury was able to significantly increase the cash on hand by delaying some things and managing the payouts differently.

Some things in the budget won't happen because there isn't money for them. That's a far cry from a default though. The debt obligations will be paid.

[Ed Anger]

We need to hold a deathrace.

[11B4V]

We need to hold a deathrace.

http://www.youtube.com/watch?v=o2x7gHxQYYE

[Ed Anger]

We need to hold a deathrace.

[DGuller]

I think what Mimsy is saying is that other parties besides bond holders will get stiffed.

Pretty much.

Not everything will be paid. Some of it might be in IOUs like California did. Other things might be shut down for a while. The last time, the Treasury was able to significantly increase the cash on hand by delaying some things and managing the payouts differently.

Some things in the budget won't happen because there isn't money for them. That's a far cry from a default though. The debt obligations will be paid.

Correct if I'm wrong, and I may be, but isn't failure to meet obligations for anyone considered a default?  It doesn't have to just be bondholders.

[Jacob]

The last time, the Treasury was able to significantly increase the cash on hand by delaying some things and managing the payouts differently.

My understanding is that that's what they're doing now, and the Oct 17th deadline is when that will no longer suffice.

Not everything will be paid. Some of it might be in IOUs like California did. Other things might be shut down for a while. 

Some things in the budget won't happen because there isn't money for them. That's a far cry from a default though. The debt obligations will be paid.

Other than bonds, the other two big ticket items are social security and medicaid, right? It's not going to be too pretty if those aren't paid out either, is it?

Interesting times.

[Admiral Yi]

I know that the Supreme Court has ruled that Social Security is not a legal obligation.

[Jacob]

I know that the Supreme Court has ruled that Social Security is not a legal obligation.

If only Minsky was here right now 

[MadImmortalMan]

Correct if I'm wrong, and I may be, but isn't failure to meet obligations for anyone considered a default?  It doesn't have to just be bondholders.

Default only refers to debt obligations. Unpaid salaries for time already worked and such counts as part of that category I suppose. Stuff we planned to spend money on but haven't yet does not count.

[Jacob]

I wouldn't mind seeing a nuts and bolt overview of what will happen if the debt ceiling is breached, without little focus on how the markets might react and more on exactly what chunks of money the US will pay to whom and what will stop functioning due to an absence of funds.