The Endgame on the Debt Ceiling

[Derechos]

snip

While the country will still be left standing after a debt default, there is one important sector that will not be standing: Wall Street. A debt default would almost certainly make all the major banks insolvent as they would have to mark down the value of U.S. government debt, which had been held as a completely safe asset. The loss of value would also apply to all the assets backed by the government, such as the mortgage backed securities issued by Fannie Mae and Freddie Mac.

Even when the economy revived, the U.S. financial sector would never hold the same place in the world as it does today. Without the ironclad financial backing of the U.S. government standing behind them, the Wall Street gang could never again be the dominant actor in international financial markets.

This fact is essential in understanding the endgame on the debt ceiling. Suppose that we get to the dates in August when the Treasury has reached the limit of its ability to shuffle accounts and literally can no longer pay its bills. Secretary Geithner will at that point make an announcement that in three days there is an X billion payment on Treasury bonds coming due. He will say that the government does not have the money in the bank and will therefore have to miss this payment.

The markets will then go into turmoil. We will see the same sort of plunge in the stock market that we saw when the House voted down the TARP the first time back in September of 2008. At that point, the Wall Street boys will be screaming their heads off at Speaker Boehner and the rest of the Republican leadership. The news media would all be running clips with depression footage, telling us that another Great Depression looms just around the horizon.

In this context the Republicans will do exactly what they did with the TARP. They will cut deals, make the threats and do whatever else is necessary to round up the votes needed to raise the debt ceiling.

When everyone remembers that this is what the endgame looks like, they will realize that there is no need to put essential programs like Social Security, Medicare and Medicaid on the chopping block to get Republican support for raising the debt ceiling. The gun is pointed most directly at Wall Street's head, and this incredibly powerful lobby is not going to let Congress pull the trigger.

http://www.huffingtonpost.com/dean-baker/the-endgame-on-the-debt-c_b_880531.html?ir=Politics

[Proud Liberal Dem]

1. I thought that the Republicans were all about "American Exceptionalism"

Yet, they're fully willing to ensure that a debt defualt- if and when it happens- makes it impossible to regain our former "exceptionalism"? :eyes: :puke:

[riderinthestorm]

2. This is an important article with a very, very valid point.

I hope it doesn't do the usual DU drop. It would be even more potent if the Dems in DC understood this message - while playing chicken would be hard, it can't be harder than playing dead donkey.

Just wait them out like the article says - it's a no brainer from that perspective.

K&R.

[damntexdem]

3. And the U.S. Government's record of never having defaulted would be gone.

That's not something that could be regained. The U.S. would permanently be knocked down a peg, or many more, in international finance.

[Derechos]

5. I think the point of this article is

that the Republicans are in a much weaker position politically than they are acting. Although they court the Tea Party, their political allegiences are two the Chamber of Commerce and the Financial Sector and thus would not let them suffer harm.

[alc]

4. Geithner has other options

Our revenue is high enough to service external debt. Medicare and SS are different classes of debt than what would cause a financial problem. Investors will be upset if "normal treasury bonds" are defaulted on.

SS trust fund has "special treasury bonds" which the government claims are the same. Investors look at the SS bonds and an internal bookkeeping gimmick (and rightly so as they are not on the books as debt and have not been managed as 2 separate books they way they a business would legally have to do). If anything, "defaulting" on SS bonds could help the stability of normal bonds. Investors will think we're serious about paying off our external debt and willing to sacrifice. Agreeing to pay off SS bonds in the class of other debt would increase our official debt by about $3.5 trillion and adding medicare will be higher.

If defaulting on external debt will hurt Geithner's friends but defaulting on SS bonds will only hurt SS recipients, which do you think he'll choose?

Also, republicans won't cut military budget, but Geithner could stop paying contractors and servicemen. While these are accounts payable, they are not debt in the sense of bonds. Or he can issue IOUs like California did a few years ago. Then he can use that money to service debt.

[riderinthestorm]

6. Defaulting on Social Security obligations would ensure Rethugs stay in power for a generation

if not forever.

While Obama may not be particularly beholden to SS recipients, it would be party suicide to let SS be raided while Wall Street skates again.

Suicide.

I just don't see it. If/when it comes down to Wall St. vs. SS recipients, Obama's gotta side with SS imho. I'm a deep cynic who doesn't trust this Admin very much anyway but even I believe he'll step up and face down Wall Street and get them to do the heavy lifting with the Rethugs to force the debt ceiling to be raised.

[socialist_n_TN]

7. Bingo. As I've said all along, ever since this

shit came up, Wall Street wants the debt ceiling raised, so it WILL be raised. Now, they also want to cut government spending on anybody, but themselves, so they'll back the bluff of the Republicans as long as they can. But when it comes down to it, it IS a bluff.

When was the last time ANY Republican went against Wall Street? So, take SS, Medicare, and Medicaid off the table and CALL THEIR BLUFF!

[riderinthestorm]

8. Bumping for the pm crowd. Great article. nt

[TNLib]

9. I still don't understand how a few wackadoos in congress are holding the GOP, Wall Street and

our nation hostage. It's just bizarre.

[socialist_n_TN]

10. They're not. Not really...........

As I said, it's a TOTAL bluff. They'll fold without even a whimper if they're stood up to. But you've got to WANT to call their bluff. I'm not sure the Dem establishment want to call.

[riderinthestorm]

11. Kick. nt