Debt Ceiling and Default Lies

Well our Secretary of the Treasury, Timothy "turbo-tax Tim" Giethner, is out talking about how a refusal to raise the debt ceiling will make the Republicans responsible for the First Default of US Treasury Bonds in history.

Geithner: GOP will bear responsibility for default

Treasury Secretary Timothy Geithner said Tuesday that if Republicans insist on passage of their budget plan as a condition for approving an increase in the nation's borrowing limit, they will be responsible for the consequences.
Speaking to a New York audience, Geithner said that Republicans would bear responsibility for the first debt default in the nation's history if they insist they will not vote for an increase in the $14.3 billion borrowing limit unless they win approval of a House Republican budget plan.

Tim-may (ala southpark as I like to refer to him) seems to be taking a page from his Republican predecessor Hank "Skeletor" Paulson's handbook by threatening TEOTWAKI if the administration (I say administration but I really mean the administrations masters on Wall Street) doesn't get it's way in regards to the debt ceiling. In case you don't remember Hank Paulson went before Congress and pretty much extorted them with threats of "Tanks in the streets" into the $800Billiion TARP at the outset of the Financial Crisis.

Giethner is obviously aware of the definition of default or he wouldn't be in the position he is in, so he must be lying for political purposes. For those not aware, default happens when either a principal or interest payment to an obligation is missed.
From Wikipedia

In finance, default occurs when a debtor has not met his or her legal obligations according to the debt contract, e.g. has not made a scheduled payment, or has violated a loan covenant (condition) of the debt contract. A default is the failure to pay back a loan.[1] Default may occur if the debtor is either unwilling or unable to pay their debt. This can occur with all debt obligations including bonds, mortgages, loans, and promissory notes.

In FY 2010 debt service was around 5% of all spending by the government. Since we ran and are running a huge deficit debt service is around 8% of total revenue. Bad but not TEOTWAKI.

So why are things so dire if the debt ceiling isn't raised? Simple they are not. Timmay is lying and counting on you being too stupid or bad at math to know the difference. Not raising the debt ceiling does not mean default it means that the government will only be able to spend what it brings in. There is still plenty of money to pay the interest on the debt. What there is not, is money to pay for two, oops sorry I mean three wars, 99 weeks of funemployment,welfare (individual and corporate), bloated beaurocracies, and a plethora of other non-essential spending.

Not only is Turbo lying about the math and default, he seems historically challenged as well. I know of at least two times that the US has defaulted if not in fact but in practice. In the 30's when the US went off the gold standard and in the 70's when Nixon closed the gold window. I believe there was once in the mid 1800's as well.

Now for an analogy that might make it understandable to most everyone. Hitting the debt ceiling is like maxing out the last credit card. But fortunately, your credit card payments are only 10% of your total income. You've been using those cards to help out some family that might be: down on their luck (basic unemployment), lazy (welfare/extended unemployment), elderly/sick (SS and Medicare), and you've got a gun fetish (defense), but now some hard decisions must be made. The bank has said no increase what do you do? A smart person brings his gun fetish under control, says Eff You to the lazy, and figures out a way to still help the helpless even if it's not as much as before.

So I understand the ramifications I think. What do you believe the outcome will be? Do you think "we" will cut government spending or print more money? I'm leaning toward the print more money scheme but I am not as versed in the subject and I'm not sure I have a full grasp on the situation.
Thanks for the info.

reply to post by dropdjones


I think they will raise the debt ceiling. The Republicans talk a good game but they are too scared to really bring it to a head. They know what must be done, but can't admit it because they want to be re-elected, and they are scared to death that whatever dire economic consequences happen will be dropped in their laps by a charismatic President. Both parties know that massive civil unrest will occur shortly after the first payments to the entitlement nation stops.

Despite all the feel good earnings reports, bailout repayment lies, and accounting tricks, The big banks are only solvent due to "mark to make believe accounting". We will not ease into the correction coming. We will smack into the wall at full speed. It will be worse than it would have been in '08. I think that the shock will come before the next election though. They thought in '08 they could keep the wheels turning until after the election. They were wrong.

Just this evening, in the WSJ op-ed pages, there was an editorial that pretty much admits that if you take out .gov spending, we've been in a DEPRESSION since '08. I agree. Fifty years from now, if there is still a civilization similar to what we have today, this time period will have a name. It will be called the "Greater Depression" or something similar. I

■ If US defaults, US Dollar must suffer the same fate as Iceland - extreme devaluation.
■ As a result, commodities prices must skyrocket.

This entire fear-mongering charade shows us what kinda clowns are running US government and congress. Eventually, they must bailout (QE3) again because they do not want such above scenarios.