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IPFS News Link • Government Debt & Financing

Treasury Warns: Mutually Assured Destruction and the Debt Ceiling

After in the past week, the blogosphere had been hobbled by one after another mindless oped claiming that the US can easily avoid default by just paying the interest on its obligations, and thus does not have to worry about the debt ceiling, we decided to put some sense to this debate when we pointed out that the "US Debt-to-Deficit Difference Hits Fresh Record, As Treasury Continues To Issue 50% More Debt Than Needed To Fund Deficit" meaning that i) it is not a debt ceiling, it is a debt target (© Lizzie363), and ii) the hundreds of billions of monthly obligations that are funded through debt, are "legal" obligations of the US government that have to be paid in full every month or a default will occur regardless. Neal Wolin, Deputy Secretary of the Treasury, has just released a statement on the Treasury's blog saying pretty much just that. Which, however is certainly not a good thing, as it merely confirms just how totally screwed this country is, and that absent a hike in the ceiling to $15.5 trillion (which we believe is where the debt ceiling will be through March of 2012 when it will be raised to $17 trillion), the dollar will be backed by several trillion in insolvent Federal Reserve Notes, er, assets (that should quickly end all debate about EUR-USD parity). It also confirms that Bernanke has no choice but to continue monetizing debt, through QE and to do that, he needs to make it palatable to the general public, which in turn will mean either a material economic deterioration, or, as the two are apparently identical in the Chairbeast's mind, the Russell 2000.

2 Comments in Response to

Comment by Olde Reb
Entered on:


Well, Lucky, you do not understand that the economy set up in 1913 is a giant Ponzi scheme. Every “dollar” in circulation is a debt bearing instrument. Interest on the earlier investors (buyers of Treasury securities) must be paid by principal generated from later investors. If new debt is not issued, there is no new principal to pay the interest due except to consume some of the principal from the initial investments. But that reduces the amount of base money in circulation that allows bankers to make loans using the fractional reserve scheme; i.e., the money in circulation starts to be dramatically reduced which will collapse the economy. Just as in any Ponzi scheme, it is expansion or collapse---but collapse is inevitable when new investors (buyers of issues of T-securities) cannot be found. Ref.

Comment by Lucky Red
Entered on:

So, lemme see if I get this right.  According to the rationale of the author of this article, the solution to our problem is to, essentially, raise the debt ceiling?  How in the world do you propose that will take care of it?  For example, say a person makes $50,000 and has $100,000 in debt.  How in the world does raising that individual's credit to $150,000 fix his problem exactly?  Really, people!  I don't know what's worse if your stupidity or your delusions.