US government Shutdown

[Purple]

I have a question. Say the republicans refuse to back down on the 17th and your government goes into default. Does this mean they will actually declare bankruptcy? And if so, will this happen on the 17th or the 18th?

[Dominus Atheos]

No, we have to make interest payments on our debt (just like if you had debt from a mortgage or credit cards). Since our expenditures are greater then our income we have to take out more debt to pay for our existing debt. (so does almost every country)

Come the deadline, we will miss that interest payment. That's all.

[Purple]

So why does everyone here keep talking like it's a big deal?

[Dominus Atheos]

Currently, US debt is considered literally the safest investment in the world. Seriously, if you asked any person who knows finance "What is the safest investment I can make?" they would say "US bonds". (or at least that was true previously, maybe they wouldn't say that today)

If we miss our interest payment, it would shake the foundations of the financial world. I'm not exaggerating or using hyperbole, I really can't stress enough the effects on world finances if US debt was no longer considered literally the safest place to park your money in the world.

[Broomstick]

Because there are 45+ million people without health insurance at all in this country other than emergency care, and since we, as a society are going to treat those people in the end when it's a life-threatening emergency we're going to pay for them one way or another. By getting them into the system BEFORE they're on the point of dying (which is when the ER care kicks in) it will be a fuck of a lot cheaper all around. And, oh yes, less chance of death and/or permanent disability.

Keeping people healthier is a laudable goal, as is improving access to health services. Given the above, why then did the employer mandate get pushed back?

It was part of an attempt to compromise with the Republicans who were weeping and wailing about how onerous the requirement was on business.

Apparently that's TimothyC's position.

I'm angry that he's playing games with the system. I'm angry he's trying to shut down things that he shouldn't be (such as the viewing areas around Mount Rushmore).

I find your priorties skewed to an appalling degree. You are focused on viewing areas for a nation park when programs involving education, nutrition for pregnant women and infants, and to help people obtain housing are shut down. I am much more concerned about those than being able to see a carved mountainside.

[Purple]

Currently, US debt is considered literally the safest investment in the world. Seriously, if you asked any person who knows finance "What is the safest investment I can make?" they would say "US bonds". (or at least that was true previously, maybe they wouldn't say that today)

If we miss our interest payment, it would shake the foundations of the financial world. I'm not exaggerating or using hyperbole, I really can't stress enough the effects on world finances if US debt was no longer considered literally the safest place to park your money in the world.

Hm... I still don't get it. Anyway, would this happen on the 17th or the 18th? As in, when would it officially take effect?

[Flameblade]

For an easy to understand explanation of the whole Debt Ceiling issue:

[Dominus Atheos]

Here's an expert's take on a US default:

"If they seriously default on the debt, what we're really talking about is a depression," says veteran financial sector analyst Richard Bove, VP of research at Rafferty Capital Markets. In the attached video he explains how the fallout would be a lot worse than the recession suffered in 2008 and the aftershocks would be felt for at least a decade.

"The first thing you have to do is look at who holds the debt," Bove says of the $16.7 trillion of bonds the U.S. currently has outstanding. "The first, biggest owner (of U.S. debt) is the social security fund, so you'd have all of these people who are receiving social security payments who now have to question whether they'll get their payments."

Clearly, that would cause a huge disruption to millions of Americans. But Bove says that is only the beginning since the second biggest holder of Treasuries (at about 12% of the total) is the Federal Reserve, which has "91% of its assets backed by U.S. government debt."

If the value of those assets were to decline, which they indisputably would in a default, Bove says the net effect would be that "we have nothing of value backing the dollar."

They're actually "Federal Reserve Notes" as well as the number one asset of choice held in the reserves of governments and businesses all over the world. A plunge in Treasuries would also devalue the dollar, which would instantly make everything we buy more expensive, and in turn destabilize countries and economies all over the world.

"Eleven-percent of all U.S. debt is owned by the Chinese," he says. "That $1.4 trillion represents about a third of the reserves of the People's Bank of China, so what we've now said to the PBOC is, 'Watch out, we may hit the value of a third of your assets and you can't do anything about it.'"

And this isn't even half of it.

As Bove explains, money market funds, which are used by virtually every person with a savings or investment account, are also "heavily loaded with Treasuries." So are most bond funds and so-called balanced funds (growth and income funds). A default on U.S. debt would not only cause money funds to "break the buck" --not be able to pay 100-cents for each dollar invested)-- but would also cause forced selling by countless other funds that are mandated to immediately sell any asset that has defaulted.

"That could easily put $750 billion of Treasuries on to the market" Bove says, inferring that rates interest rates would also spike, and normal borrowing/lending transactions would end.

Speaking of banks, the U.S. banking industry holds over a trillion dollars worth of Treasuries and another trillion dollars of government issued mortgage-backed securities, Bove says. If those bonds were to go down in value, he says the banks would also have to "write down the value of those assets and, in essence, wipe out their equity." It would make the banks insolvent.

To summarize, Bove asserts that a default is unthinkable because it would trigger a huge reduction in the value of U.S. debt, which would go beyond disrupting social security payments. A default would upend money markets, destroy bond funds, slam the brakes on lending, cause interest rates to spiral, make our banks insolvent, and deal a blow to our foreign trading partners and creditors around the globe; all of which would throw the U.S. and the world into economic disarray.

[Purple]

All of these speak mostly of the effect on america. But what about the rest of us in the world? Also, 17th or 18th?

[Broomstick]

What I get from that article is that if the scenario plays out as depicted it will trigger a world-wide depression. That means soaring unemployment, inability to borrow, possible episodes of inflation, and a possible domino effect on other nations where a US default triggers other national defaults. That's initially. The depression will probably last at least a decade and will involve an on-going spiral of less demand - lower employment - less demand - still lower employment - rinse and repeat.

It won't be good.

[Broomstick]

As for the exact date - I'm thinking the 18th, as the powers that be will spend the entirety of the 17th hoping that Clowngress will get its shit together. Due to the international date line's location, that actually means the date will be the 19th in some places when the shit hits the fan.

That's all a guess, of course. I'm not a finance expert and anyhow, since the US has never defaulted before there is limited data on which to rest any prediction.

[Justice]

If it actually gets to the point that Boehner can't pass a debt limit raise with the help of the Dems, I fully expect Obama to say "Fuck it", invoke the 14th Amendment, and dare Republicans to impeach him for not letting the country default.

[Broomstick]

Of course the Republicans would impeach him, but impeachment is merely an accusation. It takes actual conviction by the Senate, which is much less likely, for it to have any real effect.

[Justice]

Of course the Republicans would impeach him, but impeachment is merely an accusation. It takes actual conviction by the Senate, which is much less likely, for it to have any real effect.

Exactly. And I'm sure Obama will love a trial that is about whether or not he is allowed to not let the US go bankrupt. That'll go over GREAT with the public.

[Borgholio]

The 14th amendment issue already came up in 2011 but it never got that far, so it was never put before the Supreme Court. If Obama is forced to enact the 14th Amendment to raise the debt ceiling because the house is stonewalling, GOP can kiss the next several elections goodbye...especially if they try to impeach him for, in effect, doing their job for them.

[Flameblade]

Oh, invoking Section 4! At first I thought Justice was meaning an invocation of Section 3! Which would be... spectacular in a really morbid sense. I mean, bloodless coup attempt met with that would make sense, but that's a sort of political hardball I'd rather not see become the norm here!

[Fiji_Fury]

Another thing to remember about when economic trouble will hit (IF the US debt limit is not increased) is that the economic disruptions will be preceded by financial markets shivering in fear. The thing about financial markets is that... they're often made by many investors and represent the trend of those investors and therefore are influenced (though not controlled) by perceptions. We will likely see a lot of worry, fear and erratic behavior before October 17th if the debt limit/default scenario remains unresolved. This doesn't mean that the US national economy will begin to wobble before October 17 (although having nearly 850,000 employees for the government not paid during that time may already be having discernible effects) but the financial markets will become edgier and edgier the closer the 17th gets without a debt limit solution passed by the US government.

[Patroklos]

On the default issue, perhaps one of you more educated on this sort of thing can help me out with something. I understand that the immediate concern with raising the ceiling is to pay interest as we can always just reduce things to manage operating costs (easier said, I know) but the interest on previous debt comes regardless of anything we do. However, not all of our debts require repayment or have their interest due at the same time, so do we have any idea just what the bill needing payment is for say the rest of October?

I ask because the way I understand it the debt limit deadline itself isn't what triggers the default, but the actual act of not paying the bills (obviously). From what I have read the debt limit increase is based on the Treasury's predictions for needing money based on a full funded and functioning government running of last years appropriations (since we didn't pass a FY14 budget) plus debt service. So if we are not running the government on that predicted basis, could we not push the default days to weeks by either funneling money from defunded operations to pay whatever debt sevice is due at this particular time? Or is this more like a credit card bill instead of a loan where we have basically floated a check and this debt limit increase and associated borrowing is also to serve a certain period of previous operation costs? The long and the short of it: what do we owe on October 18th?


Could that be a compromise, to raise the ceiling just to pay for debt service but not to cover deficit spending where we may have more leeway for action until a budget is passed (which should include further debt limit increase to cover whatever that is?

[Zaune]

That would create more problems than it solved by dragging the shutdown out. People aren't going to wait for their wages forever, you know?

[Patroklos]

Now that all national security personnel, including all of DoD, are back to work its ony about 400-500K federal employees furloughed last I heard which is less than .5% of the US workforce. Those are now looking to get back pay if the Senate approves it (Obama said he'd sigh it) and they have six more days to do so before affecting the next payday, so it looks like they may end up with nothing more than a free vacation.

Whatever the effects of a debt default it will certainly have more impact than that.

[Broken]

Basically if nothing happens and we hit the debt default stage, President Obama would have to choose between watching a national, and almost certainly global, depression kick off and provoking a Constitutional crisis (the House's power of the purse vs "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". Who wants to guess the ramifications of a Constitutional crisis involving a Democratic President and the current line-up on the Supreme Court? I certainly don't want to see if they'll pull another Citizens United out of their ass.

[Borgholio]

The 4th clause of the 14th amendment is actually pretty straightforward if taken literally.

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

The validity of the public debt shall not be questioned. Sounds like it's actually unconstitutional for anybody to allow us to default on our debts. The House might raise holy hell, but I think Obama would be legally able to at least raise the debt ceiling if Congress can't stop squabbling.

[Patroklos]

That would only allow it to be raised to cover interest payments or any checks we have floated for other purposes. That is not what the debt ceiling is all about since we have a 900+ billion deficit in just our planned budget going from FY13 numbers. We have to pay for more than debt service.

[Simon_Jester]

Yes, but as long as we can pay for debt service we're not in default. Hopefully this will prevent the worst effects of crashing through the debt ceiling.

Hopefully.

If Boehner allows this to arise, though, he really should step down, because he explicitly said he wouldn't let the country go into default. If he can't even keep that promise, he has no business pretending to be Speaker of the House.

[Patroklos]

All he has to do is pass a debt increase to cover the debt service and if the Dems won't take it he is off the hook. I believe they will take it, as neither Boehner or Reid or Obama want to stand on what might turn out to be an actual disaster when all three are getting all the political theater they want standing this most demomstrably non disaster the shut down has tunred out to be.