Debt | - Part 6

On Debt Ceilings and Defaults

There appears to be some confusion about the relationship between not raising the debt ceiling on October 17th and the timing of a credit default, news outlets seeming to jump to the conclusion that one naturally follows the other and, in at least one case, immediately.

Not surprisingly, CNN jumps the gun a bit when opening with:

As the partial shutdown of the federal government enters its seventh day Monday, the countdown to a government debt default drops to ten days.

A debt default, if the debt ceiling isn’t raised by October 17th (i.e., ten days from now) was apparently based on these comments from the Treasury Secretary:

Treasury Secretary Jack Lew said on CNN’s “State of the Union” that the government risks more than its credit rating if the debt ceiling is not increased by Oct. 17. He dismissed suggestions that the government could avoid default by making only interest payments.

The Bloomberg report isn’t much better as the certainty expressed in the report’s title belies the carefully chosen words by the Treasury Secretary:

Treasury Secretary Jacob J. Lew said Congress needs to pass a debt-ceiling increase by Oct. 17 or the U.S. will be “dangerously low” on cash and risk defaulting on its payments.

“On the 17th, we run out of our ability to borrow, and Congress is playing with fire,” Lew said on CNN’s “State of the Union” today. “If they don’t extend the debt limit, we have a very, very short window of time before those scenarios start to be played out.”

“If the United States government, for the first time in its history, chooses not to pay its bills on time, we will be in default,” Lew said. “There is no option that prevents us from being in default if we don’t have enough cash to pay our bills.”

We are sure to hear more about this in the days ahead but, one thing seems certain, if not raising the debt ceiling by October 17th automatically leads to a default, someone should tell the Republicans because many of them don’t believe it.

Moreover, after reading all of the above a couple times, it’s easy to understand why.

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Born to Be on Disability

This 60-Minutes piece on the nation’s swelling disability rolls answered a lot of questions about how so many people can be receiving this government benefit that, now, is widely seen as just a bridge from unemployment to collecting social security at age 62.

One question that wasn’t really answered was how social security disability lawyers get paid and this story appears to settle that – they get $6,000 per successful claim and the money comes from the U.S. government, not the claimant.

An opposing view of the state of the government’s disability program is offered up here.

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Boehner Stands his Ground

This is kind of what Rep John Boehner (R-OH) did earlier today on This Week with George Stephanopoulos, leading many to think that we’re headed right toward a debt ceiling crisis.

From the Steve Sack archive at the Minneapolis, St. Paul Star Tribune.

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How to Bypass the Debt Ceiling

Virtually no one is talking about the government shutdown anymore as attention turns to the much more dangerous debt ceiling and this has prompted all sorts of new ideas about how to get around it. Here’s one view of how things might play out via the Daily Ticker.

One notable improvement on the debt ceiling debate from earlier in the year is that the idea of minting a $1 trillion coin and depositing it at the Treasury Department to balance the books seems to be getting little attention, though, the extraordinarily high coupon Treasury bill idea discussed above (a.k.a. Lew Bonds) seems to be almost as wacky.

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