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FreeMarkets (97.61)

Moving In the Right Direction

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April 29, 2011 – Comments (8)

It's not always easy to get the media to move towards the truth, but while they find themselves defending gov't misinformation they sometimes have to ask questions.  This just happened at CNN, where a story was run "What happens if Congress blows the debt ceiling?"

Upon reading this story, many of you will think it is pro-Administration thinking.  And clearly the author himself is writing the story with the intent of making anti-debt ceiling Republicans look bad.  But when you read a little deeper an seismic shift has happened in thinking about the debt ceiling.

Back on April 11,  NPR's Scott Horsley made the following statements:

There are some things the government can do to buy time, and put off that day of reckoning

And you really don't want to have people start to question whether the full faith and credit of the federal government might not be all that credit-worthy. 

We need to raise the debt ceiling just to keep from bouncing the checks that the federal government has already, in effect, written.

But the old rule that if you stop - if you find yourself in a hole, stop digging? That doesn't really apply here. You know, if we just stand still and don't make some structural fixes to the hole, were going to find it caving in all around us.

Clearly NPR is drinking the gov't Kool Aid, but they weren't the only ones.  You heard it everywhere.  Including the April 10, the NY Times wrote about not raising the debt ceiling saying: "the United States would default on its debt for the first time in its history"

And just 3 days ago on April 26, Matthew E. Zames, a managing director at JPMorgan Chase, wrote an open letter to Tim Gheitner saying "Any delay in making an interest or principal payment by Treasury even for a very short period of time would put the U.S. Treasury and overall financial markets in uncharted territory, and could trigger another catastrophic financial crisis."

Considering Gheitner already believes the above quote, since he has said the same thing, it's clear the letter from Zames is for public consumption, not Gheitner's.

So what is SO special about the CNN story linked above?  Well the author had to check the numbers that those opposed to a debt ceiling first, as he wrote: "Indeed, the Treasury Department takes in about $177 billion a month on average. And interest on public debt only costs $19 billion."

Now the author had to do some math and figured out that we COULD pay the debt and we WOULD NOT default.  Which drew him to a completely different conclusion than "Catostrophic Destruction of the Economy".  He was forced by logic to write: "Since it's (it being the Debt Ceiling not getting raised) never happened before, it's not clear to anyone -- no matter what they say -- how markets, businesses or average Joes would view the country if it has to indefinitely stiff contractors or government programs."

To me this is a Seismic shift in thinking, moving away from a guaranteed catastrophe and toward just not knowing.  Now if we could just get NPR to change their tune.  As of today they are still writing this crap: " If the debt limit isn't raised by early July, the U.S. will default on its financial obligations for the first time in history."

The problem with doomsday scenarios is if you are wrong you lose all credibility.  That's why when they play this card they need to scare the bejesus out of you. Because if you don't follow along and their fraud is exposed they're done.

8 Comments – Post Your Own

#1) On April 29, 2011 at 9:44 AM, Jbay76 (< 20) wrote:

It is interesting that this article originates from CNN....it's the last place I woudl have expected to find it.  So, that is reassuring.  On the other hand, it's a bit disturbing about NPR.  I wonder if they are doing this becuase they're afraid of losing funding and are doing what they can to appease the corrupt powers that be.  It doesn't look good for them regardless.

Thanks for the post!

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#2) On April 29, 2011 at 11:38 AM, ETFsRule (99.94) wrote:

"So what is SO special about the CNN story linked above?  Well the author had to check the numbers that those opposed to a debt ceiling first, as he wrote: "Indeed, the Treasury Department takes in about $177 billion a month on average. And interest on public debt only costs $19 billion."

Now the author had to do some math and figured out that we COULD pay the debt and we WOULD NOT default. "

Interest isn't the only payment the treasury needs to make... they also need to actually re-pay the debts as they expire. Here you can see the details of their payments.

From 9/30/10 - 4/26/11 they made 118,125,686,840.37 in interest payments on the public debt, while making 3,985,094,819,467.55 in principal payments on that same debt. So the principal payments are roughly 34 times larger than the interest payments.

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#3) On April 29, 2011 at 12:09 PM, ETFsRule (99.94) wrote:

Here's a graph from the treasury which shows the situation pretty clearly.

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#4) On April 29, 2011 at 12:50 PM, FreeMarkets (97.61) wrote:

#2 & #3: All the Treasury has to do is reissue those bonds that are expiring and pay down some principle from existing bonds.  It's not rocket science, they just use the word "catastrophe" to scare you.

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#5) On April 29, 2011 at 4:25 PM, smartmuffin (< 20) wrote:

Any article about America defaulting on its debts that doesn't mention the fact that the Fed can just print more money and pay off the debt via inflation is intellectually dishonest and not worth five seconds of anyone's time.

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#6) On April 29, 2011 at 6:58 PM, rfaramir (29.57) wrote:

ETFsRule wrote: "Interest isn't the only payment the treasury needs to make... they also need to actually re-pay the debts as they expire. Here you can see the details of their payments." 

But they could issue just as many Treasuries as they retire and still stay within the debt ceiling, so they really do only have to service the interest.

You could say they *have* to do a lot of things, but the ceiling only limits what they cannot do with total debt. Which leads to the article's main insight on what they have a choice of doing: "stiff contractors OR government programs". And they (the MSM) are deathly afraid of the latter.

And anyone who thinks the Fed can just print more money with no consequences is not worth listening to. (But obviously such ignorance is worth replying to! :-) Besides, "the Fed" is not "the feds". It is the Fed which controls the money supply, and the feds who are running a deficit which is quickly reaching their legal debt limit. The Fed cannot pay off the feds' debt. They can (and do) buy it, but that doesn't make it go away. You cannot get rid of debt by creating more of it. (The EU has some education coming up soon in this regard.) The article is about the limit to the feds' issuance of more debt.

QE is about the Fed issuing more money to purchase the feds' debt. Two different things. Confusing, but true.

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#7) On April 29, 2011 at 8:44 PM, ETFsRule (99.94) wrote:

"#2 & #3: All the Treasury has to do is reissue those bonds that are expiring and pay down some principle from existing bonds.  It's not rocket science, they just use the word "catastrophe" to scare you."

If they reissue those bonds, that would be increasing the national debt. Basically, the scenario you're describing is exactly what is already happening in the treasury chart that I linked to. Unless you think they're just blatently lying?

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#8) On April 29, 2011 at 9:29 PM, FreeMarkets (97.61) wrote:

#7 If they reissue those bonds, that would be increasing the national debt

Not in the slightest.  They owe $14.3 trillion. Lets say $1 trillion in principle is about to expire.  If they paid the principle, the debt would drop to $13.3 trillion, but they are authorized by the current debt ceiling for $14.3 trillion.  They could easily reissue $1 trillion minus that months interest (~$18 billion).  That isn't increasing the debt.

Remember, their plan is to scare the hell out of you.  They want you to think they can't do this.  Theoretically not increasing the debt limit is the same as getting a balanced budget.  The only difference is the Treasury needs to decide who gets what.

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