Bernanke: U.S. would pay bondholders after August 2

[David Gill]

Source: Reuters

If the United States fails to raise the debt ceiling by August 2, it will pay creditors first and stop benefits like Social Security payments, Federal Reserve Chairman Ben Bernanke said on Wednesday.

The central banker's comments offered the first public indication of how the Obama administration will prioritize its financial obligations after August 2, when the U.S. Treasury says the government would run out of money to pay all of its bills.

Read more: http://www.reuters.com/article/2011/07/13/us-usa-debt-idUSTRE7646S620110713?feedType=RSS&feedName=politicsNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Reuters%2FPoliticsNews+%28News+%2F+US+%2F+Politics+News%29

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He's confirming what Obama suggested was a possibility yesterday. This needs to be mentioned every fifteen minutes on every news channel. If the elderly realize what the debt ceiling means they will turn their backs to Republicans on this fight, and they're the GOP's most valued constituency.

[zalinda]

1. Now I think Obama's an ass again.

Well, I tried...........damn.

zalinda

[banned from Kos]

3. Bondholders must be paid first if you value SS/Medicare

If the US defaults on bonds there will be a cold-turkey austerity cut to current tax receipt levels (60% of today's spending).

Treasury buyers today are financing 40% of all US spending. These are cold hard real numbers.

[MannyGoldstein]

8. Social Security is self-financing.

It's in fine shape, nothing need to be borrowed.

[banned from Kos]

9. SS is in Treasuries. Should a default occur SS will be forced into redemption

at much less than face value --- say .70c on the dollar.

http://www.ssa.gov/oact/progdata/fyOps.html

here are the raw numbers - $2.6 trillion today might become $1.5 trillion due to GOP idiocy.

[MannyGoldstein]

11. Probably less of a hit than if the Catfood Commission's recommendations become law

Which is what I think this whole thing is about - Shock Doctrining us into slashing benefits by the 22% recommended by Obama's commission, so the wealthiest can grab the entire Trust Fund (which will grow to more tha $4 Billion in a decade or so).

In any case, current benefits can be paid almost fully from current receipts. Any shortfall is due to the President's coincidental decision to "temporarily" cut payroll taxes this year.

[banned from Kos]

12. I agree. Shock Doctrine, Starve the Beast, Drown in Bathtub, etc

all the same GOP strategy to destroy the earned entitlement system.

[MannyGoldstein]

13. Obama's been in the vanguard of this thing

Appointing a "Deficit Commission" designed to recommend deep cuts in Social Security?

[banned from Kos]

17. No. Commissions are designed to stiff-arm undercurrents of dissent

see the 9/11 Commission.

Obama never intended to listen to the Bowles-Simpson Commission.



When I was in Big IT - we assigned a commission every time we wanted to stall for a year or two.

[No Elephants]

32. I'm not always that sure of the intent of those closest to me. Hell, I'm not always

100% sure of 100% of my own intent.

[exreformed]

23. so even if a deal is reached on the 2nd

they are still going to cut s.s. checks, because of the lowering of pay roll taxes? is that what your saying. Cuz I only get nine hundred a month, and it's hard enough living on that.

[MannyGoldstein]

24. The payroll tax change should not affect Social Security

in the near term, as long as an agreement is reached. However, Social Security may be cut for other reasons - it would be sick and it would be wrong. The good news is that the Democratic an Republican proposals to slash it phase in over a fair number of years - cuts won't be significant for 15 years or so, hopefully we'll have actual Democrats in government by that time so it can be restored.

[Igel]

27. Come to think of it, it should.

The payroll tax change reduces the amount of FICA tax collected; general revenues reimburse SS for the difference between what it would have collected without the tax cut and what it did collect. General revenues might well be put to cover other, contractual obligations.

This year SS will pay out what it collects, and probably will have to redeem some notes. In other words, current receipts don't quite cover outlays. They have a buffer that would probably cover the shortfall for a few months, but not of the general revenue "buy out" funds aren't available.

Short term, a month, no problem. After that I'd have to look at the numbers to say much more.

[MannyGoldstein]

31. I wrote "as long as an agreement is reached"

If no agreement, then we're in agreement.

[No Elephants]

34. Well, an attempt to privatize OASDI failed. How else were the rich supposed to get their hands on

much more than their fair individaul share of OASDI money?

[Igel]

26. How so?

The SS obligations aren't traded. They can only be issued by the Treasury to the SSA, and they can only be held by the Social Security Administration or sold back to Treasury.

[quakerboy]

30. That would make for the best yet reason to

remove the cap.

[MannyGoldstein]

2. "Make no mistake: rich bankers are more important than poor old people"

"Time for old people to eat their peas. And catfood. I hear paste is edible, too. They'll eat all kinds of things when their Social Security checks get diverted to Jamie and Lloyd"

[Fearless]

19. +10000

[CarmanK]

4. Don't get it!! SS funds are invested in American treasury Bonds!

We are the bond holders, so we should get paid!! I guess the President is saying what the repugs dared him to: that if we can't pay our debts, that includes SS, VA etc.. then it will be the fault of the very repuglican operatives that think they can govern better than he. Obama is making it obvious that repugs cannot be trusted to serve the american people ahead of their corporate masters. This faux crisis is of the republican/tparty making. They should have to wallow in the muck and pay the price. 2012 is looking better all the time for Obama. Rethugs cannot be trusted!!

[MannyGoldstein]

6. Even worse - almost all of the current SS benefit payments come from current payroll tax collections

not from the Trust Fund. In fact, payroll tax collections would be substantially higher than benefit payments if Obama had not pushed for a "temporary" 2% cut in payroll taxes.

So retirement money will be taken directly from workers, and handed to bankers.

[damntexdem]

5. Hey, Social Security IS a bondholder, too.

Our payments into the massive SS trust fund, with its large surplus, are held in U.S. bonds.

[Samantha]

7. Aren't "bonds" the same as US Treasury Notes?

Pardon my ignorance, but do not Social Security participants have 2.6 Trillion Dollars in reserve as the Social Security surplus was invested in Treasury Notes? This is the reserve baby boomers build up as a result of the reform in the early 80s to prepare for the onslaught of massive retirements in that age group. They overpaid their portion of the payroll tax in preparation for this "rainy day." Now that the day has come when the retirements start, why are not their financial interests protected during this crisis as holders of those notes?

And please do not come back with an answer like the U.S. Government spent that money on wars, etc. That is not the problem of those expecting their retirement and health care benefits when in fact they "saved" for it for the last two and one-half decades. They are creditors of the U.S. government just like other investors, correct?

This is a serious question, no sarcasm intended....

Sam

[banned from Kos]

10. you are not ignorant at all! here is a table with SS assets (Treasury bonds)

http://www.ssa.gov/oact/progdata/fyOps.html

and $2.6 trillion is right on the mark (see table)

[Samantha]

14. Geez, what a relief -- thank you

Hey, I went to the Congressional Budget Office site for information on this subject before the public controversy hit. I knew the number. I just was sick and tired of hearing everyone say President Obama ran up a 14.3 Trillion Dollar Debt. I wanted to know exactly how much of that was debt kept off the books by George Bush* and while I was in this area, checked out the Social Security surplus.

I don't know why people think they can be so disingenuous with their words and get away with it. Do they think we don't do any homework on these areas?

Thanks.

Sam

[Lucky Luciano]

16. You are living in an idiocracy full of low information voters.

Those thoughtless folks have a vote equal to yours and they can be fooled so easily since their homework is based on watching American Idol.

[Igel]

28. They're treasury notes.

But they're special issue treasury notes. Most T-notes have redemption dates on them. These don't. They're indefinite, at fixed interest.

Yes, the SS gets income from the interest. That would be part of the debt that would have to be honored, I'd imagine--depends on exactly how Art. 14 is worded since the debt is 'public' in one sense but not privately owned. Now, whether SS could redeem any of the bonds is a question. Whether Obama could stop them from redeeming any of the bonds is also a question--unitary executive with the president the source of all executive authority versus having a quasi-independent executive-branch agency.

[earcandle]

15. DUDES>>> how many times do we have to put the 14th amendment in front of your face to get it?

We don't have to have any cuts.  We don't have to default. It
is against the law to default. 
The government's responsibility is to levy taxes on its
people, and its corporations to pay our debt.

Do your job.  Or be impeached.  

What does it take for Americans to take the easy way out by
hollering  real LOUD?  

[Igel]

33. Read the text.

"Section 4. The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

"Section 5. The Congress shall have power to enforce, by appropriate legislation, the provisions of this article."

In the first clause, the debt has to be authorized by law. We have two sets of laws, one of which is taken to imply authorization of debt and the other of which explicitly authorizes debt. People are trying to make the novel argument that the implied authorization of an approved budget bears more weight than the explicitly stated intent and will of Congress. If not for nearly a century's track record of interpretation, it might be supportable.

The second reaffirms that Congress' legislation controls how this provision is enforced. We see Congress now talking about making sure it's enforced in the way it's been enforced in the past. Do we accept that the Amendment calls for *legislation* to enforce it, or just say that the Amendment has a typo and it really meant "the President shall have the power to enforce, by appropriate decrees, the provisions of this article."

[earcandle]

36. Thanks... look like the congress needs to do its job. Wasn't debt authorized already in a budget?

[earcandle]

35. 44% of our debt is with the Federal Reserve? WTF????

[cppuddy]

18. bernanke has no say.

The fed has no say in who gets payed first, the prez and tresury does. The prez can pay anything they want. He can pay ss, medicare bills etc...., ancd bondholder can get payed last or not at all. This is a bernanke feel good session to stablize stock for one or two days. Will be forgotten in 48 hours.

[Scottybeamer70]

20. Federal Reserve Chairman........

of a PRIVATE BANK is now holding seniors hostage. I don't remember making payments to the
Federal Reserve. There is nothing FEDERAL about a private bank. They print money out of
thin air, and then charge interest to use it.
I think the US can print it's own money if it wants to. How long are we going to allow
a private bank to hold us hostage? Actually, they are pretty much holding the entire
globe hostage at the moment.......except for Iceland.....who prints their own money.

[banned from Kos]

21. Ridiculous - the Fed is a branch of government

I am well aware of the Paultard infiltration into supposed 'progressives' who are joining forces with Norquist, FDL, Alex Jones, The Birchers, etc.

But Obama has appointed a controlling liberal majority onto the seven Fed Board of Governors.

[roamer65]

37. Delete.

[Klietzlander]

22. Might be what the GOP wanted all along.

To kill Social Security and Medicare they would need a significant crisis like the US defaulting.

[freshwest]

29. They've always wanted it and bragged about bringing it to pass under Reagan. Welcome to DU

[daleo]

25. Lifeboat politics, 21st century style

Women and children last (metaphorically speaking - it is actually "old and sick last").

Investors and war profiteers get first place in the lifeboat.

[roamer65]

38. Default on US gov't debt obligations is a national emergency.

Obama can and does have the power to declare a national emergency. Congress will then be powerless to stop the isssuance of new debt.

Do not think for one second that Bernanke and Obama have not discussed this option.