A Billion Here, A Billion There…
1) The interest can easily be paid for …
Bachmann is making the argument here that the U.S. can choose to pay its creditors — the various holders of government-issued debt — first, and thus not technically be in default. It’s an open question whether credit rating agencies and bond investors will accept that technicality. China might get paid in full, but millions of Americans would immediate get stiffed. Of course, Bachmann doesn’t mention that choosing such a strategy would require extraordinarily severe and immediate spending cuts — around $4.5 billion a day — in programs such as Social Security, Medicare, defense, unemployment benefits, et cetera. Economists generally agree — the negative economic impacts of such drastic short-term cuts in government spending would almost surely drive the U.S. straight back into recession.
Furthermore, a failure to reach agreement on the debt limit would guarantee bond market jitters, pushing up interest rates and raising the cost at which the U.S. government can borrow funds — and thus end up increasing the deficit.
So what happened today? There was a seven-year Treasury auction:
Today the 7 yr saw a yield of 2.43%, 3 bps above the when issued
The WI is where that same note was trading even as it was being auctioned. Which works out to be about a 19.2 cent reduction per $100 of security.
19.2 cents doesn’t sound like much, but there was almost $30 Billion in securities issued. So that’s $55,642,171
that didn’t get paid to the U.S. Treasury (or $57,433,536 if you’re counting the Open Market Activities).
Even if you want to be generous and assume—it’s crazy optimistic, but let’s be really generous—that half a basis point of that is just a long tail (not entirely unreasonable, but rather generous), there are still $46,376,844 (or $47,869,918) that just got left on the table out of fear of near-term deficit issues.
Not incidentally, that’s $46-57+ million dollars that isn’t available for maneuvering to avoid an official default (as opposed to the practical default that has been in effect for almost two months now). From just one of the nearly 300 auctions that are held every year.
But not raising the debt ceiling won’t mean anything. Michelle Bachmann assures us that just because Social Security/Disability/Medicare etc. payments won’t be made for August 3rd, it’s not a problem.
Sooner or later, we’ll be talking about really money. Right now, it’s just your mother’s livelihood. But at least that money has been saved by those who are investing in seven-year Treasuries. Maybe they’ll loan her some of that savings. Oh, right:
At least we know where they got the money to buy the notes.
Bachmann said that?!?!? Man, that’s almost as bad as this quote by… I forget his name:
“History will not judge this record kindly. My vote against the debt limit increase cannot change the fact that we have incurred this debt already, and will no doubt incur more. It is a statement that I refuse to be associated with the policies that brought us to this point.“
Or this guy, I can’t recall his name either:
“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.”
Or this dude, my memory is shot:
“Why is it right to increase this Nation’s dependence on foreign creditors? They should explain this. Maybe they can convince the public they are right. I doubt it, because most Americans know that increasing the debt is the last thing we should be doing. After all, I repeat, the baby boomers are about to retire. Under the circumstances, any credible economist would tell you we should be reducing debt , not increasing it.”
Just remember, according to the first mediocre guy:
“There is just so much of our debt other nations want to hold. The more of it they accumulate, the closer we are to the day when they will not want any more. When that happens, slowly or rapidly, our interest rates will go up, the value of their U.S. bonds will drop, and we will all have big problems. We need both more awareness, and more understanding, of this fundamental threat to our economic well being and the global economy.“
But let’s keep going after Bachmann, cause it’s more fun…
Target rich environment!
We cannot make up some of the stuff that could be put up about Bachmann.
Kevin, are you suggesting that Bachmann can’t defend herself from these vicious attacks? Poor dear, they treats her so mean! She wants to be the President of the United States. The President! Last I heard, that’s a pretty important job that affects all of us. And, she thinks default is no big deal because we’ll screw our own citizens and pay the Chinese. Yeah! That’s the ticket.
There is ignorant and there is stupid. And, you know where I’m going with that. NancyO
How do you wind up with that conclusion when I just posted quotes from Biden, Obama, and Reid when they voted AGAINST raising the debt ceiling? Maybe you didn’t get it.
I find it funny that some point to Bachmann’s stance against raising the debt ceiling as a sign of her shortcomings, yet they forget what their own idols said on record, taking the same stance on the identical subject.
Sorry if pointing this out has caused you such grief. Since you’re waiting for Bachmann to visit Angry Bear and defend herself, you should actually look up the position Biden and Obama took on the issue. Have a great weekend!
Ken quite apart from the 14th amendment argument that would hold that prioritizing one debt to another (absent some definitive ruling that ‘debt’ was limited explicitly to payment on government notes and bonds and not to contractual obligations backed by appropriations) was unconstitutional on its face, there is also the argument that the Social Security Amendments of 1939 explicitly reserve all FICA receipts and associated revenues from interest and the like to the Trust Funds for the purposes of paying benefits and administration associated therewith. Some guy at Angry Bear quoted from the First Annual Report of Social Security (1941) in this post, imaginatively called: http://www.angrybearblog.com/2011/01/first-report-of-trustees-of-social.html
I won’t quote the language, people can click through, but there is a very good argument that when it comes to specific receipts to Social Security that benefit checks and even admin are in a senior position to any other use of the funds by Treasury. Now even if this was on solid legal grounds there is some argument that all other receipts to Treasury could be reserved for debt service on regular Treasuries while FICA collections would be limited to paying SS benefits leaving the broad middle (Medicare B & D, military pay, federal contracts etc) in payment limbo so the practical political effect might not be any different than if SS benefits were included in the moratorium. On the other hand it is not clear that absent FICA receipts that Treasury could reliably service Debt Held by the Public, since after all a lot of income tax is paid quarterly or annually and not as a result of withholding. Which means that the scoring of the Bi-Partisan Policy Center showing Social Security at a huge disadvantage on August 3rd might not be true at all, it might well depend on what receipts to Treasury were actually being credited to which account. And off the top of my head I would say that the flow of funds to Social Security via FICA, being fully calculable and so apart from self-employed people, fully payable on a pay period basis, might mean that account being full up even as the General Fund was temporarily dry and so unable to pay interest on Ten Years held by Wall Street and the CCB that month.
Quite apart from Geithner’s appeal to the 14th today, even statutory provisions might not be quite as slam-dunk as the Default Deniers would have them be. Wanting debt service to occupy the senior position is not the same as having legal backing for it. And since we have never defaulted in modern times I doubt there is a lot of relevant judicial rulings on this issue.
As I had asked on the Open Thresd, why would the decision of what to pay (routine expenses, programs, debt service, etc) and when to pay it not be an Executive Office perogative? Certain specific payments have dedicated funding streams, as spelled out by legislation, such as the Social Security Act, but general expenses only require Congressional specification not prioritization. So why can’t the President via the Treasury Dept outline the priorities in regards to payments for expenses and debt.