Geithner: 14th says govt cant default; Redstate: Time to impeach Obama

[Torie]

The default thing is really a red herring.  As bonds mature, you just replace them with new ones, which does not increase the debt level. So you only have interest carry, and with the US debt so short term these days, and really low short term interest rates, that it is no big deal to meet that obligation (for the moment).  But you will have to slash about 35% of spending to balance the cash flow.  It just might be an interesting exercise to just do it, and see what happens. We may be going in that direction (massive spending cuts) anyway, once interest rates bounce up.  It is odd that more politicians have not rung that alarm bell.  That is the real elephant in the room, yet it seems almost invisible despite its size. 

[Torie]

... once interest rates bounce up.

That won't be happening for a very, very long time. 

Well one of us will be proven wrong I guess. I hope it's me!

[Torie]

Actually higher interest rates would be a sign of better days, better economic times. 

That sounds like an argument for not raising the debt ceiling, opebo; it's a sure-fire way to push up interest rates quickly and dramatically.

Because the default risk will go up?  Actually if we actually do slash spending by 35%, it should go down!    Sometimes, I think the word "if" is the most important one in the English language.  What would we do without it?

[Torie]

Actually higher interest rates would be a sign of better days, better economic times.  

That sounds like an argument for not raising the debt ceiling, opebo; it's a sure-fire way to push up interest rates quickly and dramatically.

Because the default risk will go up?  Actually if we actually do slash spending by 35%, it should go down!    Sometimes, I think the word "if" is the most important one in the English language.  What would we do without it?

The interest payments on the short-term bonds are not the only interest payments one would have to worry about.  If paying the interest on those bonds and renewing them is prioritized first and spending is cut in order to do that, the spending cuts apply to the current budget, not the next one.  That would trigger interest increases under the Proper Payment Act as well as the IRS if, for instance, tax refunds are delayed in the process.  Such immediate cuts would also have effects on intergovernmental finances.  There could also occur unpredictable outcomes if creditors, international and domestic, lose faith in their investments.  There is also the point that a precipitously drastic cut in government spending will have economic effects of their own.  How much is this experiment worth, and why are bond-holders the only people worth worrying about in case of a default?  Torie, I have never heard one single Republican in all the years I've been observing politics suggest that not raising the debt ceiling was a good idea before the last few months.  Maybe somebody did call for it in the past and I wasn't paying attention. but its being an "experiment" now is a new one on me.

Yes, it is uncharted ground. I just think the world will end as we know it chat if we don't raise the debt ceiling has a substantial dose of hyperbole in it.  Sure slashing spending that much this soon is a bad idea if the cuts are not mitigated down the road.  But for a relatively short period, it might be a useful exercise in getting folks focused.  Right now, we are still in the silly season, and politicians are still indulging in the rhetorical indulgence that there is a tooth fairy.