Lori Montgomery, Paul Kane, Richard Blackden, London July 23, 2011
WASHINGTON: The Federal Reserve has started making contingency plans should the US government default on its debt as talks over raising the debt ceiling continue to drag on.
The United States will not be able to pay all its bills unless the $US14.3 trillion ($13.2 trillion) ceiling is raised by August 2. Financial regulators are working through the possible consequences, a Federal Reserve official said.
''We are in contingency planning mode,'' Charles Plosser, president of the Philadelphia Federal Reserve Bank, told Reuters. ''We are all engaged … It's a very active process.''
Despite repeated warnings of the financial disruption that is likely to follow a default, the White House, and both parties in Congress, appeared no closer to striking a deal as the week drew to an end.
On Thursday the President, Barack Obama, and the House Speaker, John Boehner, rushed to strike agreement on a far-reaching plan to reduce the national debt but faced a revolt from Democrats furious that the accord appeared to include no provision to raise taxes.
With 12 days left until the Treasury begins to run short of cash, Mr Obama and Mr Boehner were closing in on the most ambitious plan to restrain the national debt in at least 20 years. Talks focused on cuts in agency spending and politically painful changes to cherished health and retirement programs aimed at saving roughly $3 trillion over the next decade.
Even if the debt ceiling is not raised it does not imply an automatic default.
A default will be announced if the US fails to make due bond interest payments and pay due bond redemptions. But they have quite enough ongoing revenue to meet those costs. They can choose to prioritise the bond payments and there will be no default.
The problem is that if they use the revenue to make all the due bond payments they will have to cut expenditure on other things like social services or whatever. But they do have a choice over whether to default on the bonds even without the debt ceiling being raised. Of course, some may say that not making due social security payments would also be some kind of default. It would but it would not be the kind of default that the ratings agencies would be ruling on.
Even if the debt ceiling is not raised it does not imply an automatic default.
A default will be announced if the US fails to make due bond interest payments and pay due bond redemptions. But they have quite enough ongoing revenue to meet those costs. They can choose to prioritise the bond payments and there will be no default.
The problem is that if they use the revenue to make all the due bond payments they will have to cut expenditure on other things like social services or whatever. But they do have a choice over whether to default on the bonds even without the debt ceiling being raised. Of course, some may say that not making due social security payments would also be some kind of default. It would but it would not be the kind of default that the ratings agencies would be ruling on.
That is correct. I am not sure why so called economic journalists have not made this point - you would think from listening to them that the inability to continue to pay its public servants or welfare benefits is the same as a bond default, when it clearly isn't. Given a choice between not paying bond committments v cutting government expenditure overnight I believe that they will clearly choose the latter.
My name is based on a Seinfeld character, not on a belief of a housing bubble.
Even if the debt ceiling is not raised it does not imply an automatic default.
A default will be announced if the US fails to make due bond interest payments and pay due bond redemptions. But they have quite enough ongoing revenue to meet those costs. They can choose to prioritise the bond payments and there will be no default.
The problem is that if they use the revenue to make all the due bond payments they will have to cut expenditure on other things like social services or whatever. But they do have a choice over whether to default on the bonds even without the debt ceiling being raised. Of course, some may say that not making due social security payments would also be some kind of default. It would but it would not be the kind of default that the ratings agencies would be ruling on.
That is correct. I am not sure why so called economic journalists have not made this point - you would think from listening to them that the inability to continue to pay its public servants or welfare benefits is the same as a bond default, when it clearly isn't. Given a choice between not paying bond committments v cutting government expenditure overnight I believe that they will clearly choose the latter.
They may want to change that 'right to bear arms' bit pretty quickly if they withhold social security payments.
Look at New Orleans - look how fast a stable democracy turns to dust. They are between a rock and a hard place.
But as b_b says - why can't they just print and keep printing?
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
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