Please explain: United States Default

[nextJin]

14'th Amendment:

Section 4. The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

http://beta.congress.gov/bill/113th/house-bill/807

HR 807;

Full Faith and Credit Act - Requires the Secretary of the Treasury, in addition to any other authority provided by law, to issue obligations to pay with legal tender, and solely for the purpose of paying, the principal and interest on U.S. obligations held by the public, or held by the Old-Age and Survivors Insurance Trust Fund and Disability Insurance Trust Fund, in the event that the federal debt reaches the statutory limit after enactment of this Act.

Prohibits: (1) the use of the issued obligations to pay compensation for Members of Congress, and (2) these obligations from being taken into account in applying the current $16.394 trillion public debt limit to the extent that they would otherwise cause such limit to be exceeded.

Requires the Secretary, if such authority is exercised after enactment of this Act, to report to specified congressional committees each week the authority is in use and provide an accounting of: (1) the principal on mature obligations and interest due or accrued by the United States, and (2) any obligations issued pursuant to this Act.


We take in more revenue a month than we pay out in debt payments. Assuming Jacob Lew knows what he is doing, how can he not set the funds to the side for the next month and prioritize monthly revenue?

Can someone explain how this is simply not possible? Partisan hackery can be left at the door, I don't want Republicans shouting that it can be done or Democrats shouting it just can't. I want to know why.

 

[AViking]

I don't know. I'm not a professional on the subject. Has any professional stated that we could selectively chose to pay our debt but not the rest of our obligations under the law?

I believe the answer is no.

This seems to have stemmed from an opinion piece in forbes and gained some traction. I think the logic is flawed though. Just like Obamacare is the law we have other laws that state we have to pay a bunch of bills. I don't think there's some way to pick and choose. I think they are paid as they are due. So although, yes, we have enough money to pay our debt theoretically we could simply be in a position where other bills get paid and there is a deficit until more revenues are brought in thus leading to a default on our public debt.

 

[LTC8K6]

Well, here's an opinion from Powerline:

http://www.powerlineblog.com/archives/2013/10/the-ap-misreports-the-debt-ceiling.php

The Treasury says that without the ability to borrow more than the $17 trillion we already owe, the federal government won’t be able to “pay its bills.” What they mean by that is that spending will be cut: henceforward, it will have to equal revenue, just as though a balanced budget amendment had been enacted. When Democrats talk about “paying our bills,” they mean maintaining spending at ever-growing levels. But the AP wasn’t satisfied with that; they gratuitously added that claim that “that includes paying interest and principal on already issued U.S. Treasurys.” It doesn’t. The federal government can service its existing debt–i.e., pay the interest–on less than 10% of revenues. And it can renew the principal amount of that debt, $17 trillion, forever, simply by rolling it over. When the government issues new bonds to pay the principal on old ones that mature, there is no net increase in federal debt. So the AP’s claim that bond principal payments are somehow endangered–i.e., that default could occur–is sheer ignorance.

 

[LTC8K6]

And a reminder that we hit the debt ceiling several months ago, and so far, the treasury hasn't defaulted on anything.

http://cnsnews.com/news/article/ter...-ve-kept-debt-exactly-16699396000000-4-months

 

[AViking]

Well they are using "extra ordinary measures"

There is another way to deal with this and that is they could pass new legislation to reduce spending. They can cut programs, raise taxes, or do whatever is needed to balance the budget.

 

[diesbudt]

All the people out there in the hole in funds, because they have to keep taking more credit cards out to pay for bills, eventually default if they get too far behind.

America is like the 19yr old with 10+ credit cards maxed making just above minimum wage, and unless it can get another credit card to pay off some of the credit card bills it used to purchase; the fanciest cell phone, the big 72" flatscreen T.V., 4 huge computers, it will default. And if it doesn't now, it will eventually.

Better to hit the wall now, and SELL SELL SELL and cut spending to start fixing the issue now. Time to wake up and smell the cheap $0.79 gas station coffee and not the $6+ starbucks you like to order America, and fix this. No more kicking the debt to the Future America.

 

[Genx87]

The govt will default on the debts owed if the president of the united states decides to use what tax revenues he has to not pay it. What will happen however is whatever spending goes above our tax revenues will be cut. This will be the shock through the economy many people expect. But some also believe the president will use emergency powers to circumvent the whole deal if needed.

Personally we need to get rid of the debt ceiling all together and stop the spending when enacting laws.

 

[Anarchist420]

Did Obama ever sign HR 807 into law? It doesnt look like he did. It may be unconstitutional based upon the 14th Amendment, but 807 or anything else can be law until the Supreme Court rules otherwise.

but I think it would be ruled unconstitutional because of the 14th.

 

[diesbudt]

The govt will default on the debts owed if the president of the united states decides to use what tax revenues he has to not pay it. What will happen however is whatever spending goes above our tax revenues will be cut. This will be the shock through the economy many people expect. But some also believe the president will use emergency powers to circumvent the whole deal if needed.

Personally we need to get rid of the debt ceiling all together and stop the spending when enacting laws.

Or literally sell.

Sell California to some country. I am sure that can go for a lot of money. . . maybe?

 

[Texashiker]

We take in more revenue a month than we pay out in debt payments. Assuming Jacob Lew knows what he is doing, how can he not set the funds to the side for the next month and prioritize monthly revenue?

Can someone explain how this is simply not possible? Partisan hackery can be left at the door, I don't want Republicans shouting that it can be done or Democrats shouting it just can't. I want to know why.

Hitting the debt ceiling is no different then hitting a credit card limit. The government can no longer borrow money.

It does no mean we are not going to default on our loans. We just have to stop borrowing money to pay off debt.

What we are doing right now is borrowing money from the federal reserve to pay off debt. It is like getting a new master card to pay off your master card.

We will never be able to pay the debt off, as the government does not print its own money.

 

[fskimospy]

The govt will default on the debts owed if the president of the united states decides to use what tax revenues he has to not pay it. What will happen however is whatever spending goes above our tax revenues will be cut. This will be the shock through the economy many people expect. But some also believe the president will use emergency powers to circumvent the whole deal if needed.

Personally we need to get rid of the debt ceiling all together and stop the spending when enacting laws.

What you're describing is prioritization, but when you consider the way the treasury works it is not clear if this is even possible. In a pinch what we might need to do is simply pull the plug on most government disbursement systems entirely, and only turn them on every once in awhile when we've gotten enough money together to make payments for a single day.

This will lead to the significant delay of thousands (millions?) of legally obligated payments, and numerous lawsuits are sure to follow. It is unclear if the Treasury has the authority to not pay people the government legally owes money to if the funds are available. (and in order to stockpile enough money to make interest payments, we would at some points definitely have to have the money available but choose not to use it)

To be clear though, even under this scenario the US will be considered to be in default of its contractual obligations in a ton of different areas.

Additionally, you're looking at an immediate contraction of somewhere around 4-5% of GDP on an annual basis. On top of that, when US GDP normally goes down programs like food stamps, unemployment, etc, go into effect which mitigate this downturn. Those will not be available this time, so the contraction will likely be even more significant. Like, close to 2008 financial crisis significant. The saddest part is that this is basically the best case scenario.

 

[fskimospy]

But yes, the debt ceiling should be abolished altogether. If you want to lower spending, actually pass laws that lower spending. Don't renege on spending you already made.

 

[Texashiker]

But yes, the debt ceiling should be abolished altogether.

That is like giving a child a credit card with no limit, then sending them into a toy store.

 

[glenn1]

Hitting the debt ceiling is no different then hitting a credit card limit. The government can no longer borrow money.

It does no mean we are not going to default on our loans. We just have to stop borrowing money to pay off debt.

What we are doing right now is borrowing money from the federal reserve to pay off debt. It is like getting a new master card to pay off your master card.

We will never be able to pay the debt off, as the government does not print its own money.

You're not supposed to question the spending binge or what it gets used for, we're only suppposed to celebrate that "We're borrowing at such low interest rates! it would be foolish not to take advantage!"

So no matter what happens with the current debacle, just remember that this is the last great shopping spree for the progressive state. Once interest rates start rising then it's game over since the morning-after reality of debt service is going to smack them hard.

 

[nextJin]

What you're describing is prioritization, but when you consider the way the treasury works it is not clear if this is even possible. In a pinch what we might need to do is simply pull the plug on most government disbursement systems entirely, and only turn them on every once in awhile when we've gotten enough money together to make payments for a single day.

This will lead to the significant delay of thousands (millions?) of legally obligated payments, and numerous lawsuits are sure to follow. It is unclear if the Treasury has the authority to not pay people the government legally owes money to if the funds are available. (and in order to stockpile enough money to make interest payments, we would at some points definitely have to have the money available but choose not to use it)

To be clear though, even under this scenario the US will be considered to be in default of its contractual obligations in a ton of different areas.

Additionally, you're looking at an immediate contraction of somewhere around 4-5% of GDP on an annual basis. On top of that, when US GDP normally goes down programs like food stamps, unemployment, etc, go into effect which mitigate this downturn. Those will not be available this time, so the contraction will likely be even more significant. Like, close to 2008 financial crisis significant. The saddest part is that this is basically the best case scenario.

That can't possibly be right, you're saying we owe more to people than we take in every month if we include all entitlements and not just debt? I'm pretty sure we take in enough to cover everything with over 100 billion left to actually fund government services.

 

[Genx87]

That is like giving a child a credit card with no limit, then sending them into a toy store.

Not really, we already gave them an unlimited credit card. Now we are trying to tell the credit card company we arent paying after utlizing the credit. What are the ramification of not paying your bills on time?

 

[glenn1]

But yes, the debt ceiling should be abolished altogether. If you want to lower spending, actually pass laws that lower spending. Don't renege on spending you already made.

We can just pay "mandatory spending" recipients in IOUs. That's what those rascally ol' mean spirited Republicans do to their supply vendors and those awaiting income tax refunds in the Tea Party bastions of Illinois and California.

 

[Texashiker]

Not really, we already gave them an unlimited credit card. Now we are trying to tell the credit card company we arent paying after utlizing the credit. What are the ramification of not paying your bills on time?

We are going to pay our debts.

We can just pay "mandatory spending" recipients in IOUs.

That is what we have been doing for a hundred years.

Every dollar in circulation has been borrowed from the federal reserve.

We write the federal reserve an IOU, then borrow money to pay for something.

 

[dank69]

14'th Amendment:

Section 4. The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

http://beta.congress.gov/bill/113th/house-bill/807

HR 807;

Full Faith and Credit Act - Requires the Secretary of the Treasury, in addition to any other authority provided by law, to issue obligations to pay with legal tender, and solely for the purpose of paying, the principal and interest on U.S. obligations held by the public, or held by the Old-Age and Survivors Insurance Trust Fund and Disability Insurance Trust Fund, in the event that the federal debt reaches the statutory limit after enactment of this Act.

Prohibits: (1) the use of the issued obligations to pay compensation for Members of Congress, and (2) these obligations from being taken into account in applying the current $16.394 trillion public debt limit to the extent that they would otherwise cause such limit to be exceeded.

Requires the Secretary, if such authority is exercised after enactment of this Act, to report to specified congressional committees each week the authority is in use and provide an accounting of: (1) the principal on mature obligations and interest due or accrued by the United States, and (2) any obligations issued pursuant to this Act.


We take in more revenue a month than we pay out in debt payments. Assuming Jacob Lew knows what he is doing, how can he not set the funds to the side for the next month and prioritize monthly revenue?

Can someone explain how this is simply not possible? Partisan hackery can be left at the door, I don't want Republicans shouting that it can be done or Democrats shouting it just can't. I want to know why.

Source for the bolded? How much do we take in each month?

 

[fskimospy]

That can't possibly be right, you're saying we owe more to people than we take in every month if we include all entitlements and not just debt? I'm pretty sure we take in enough to cover everything with over 100 billion left to actually fund government services.

Huh? I'm not sure what you're asking.

 

[nextJin]

Huh? I'm not sure what you're asking.

You said other entitlements would be significantly delayed, the actual debt only takes up 5-10% iirc. That leaves a huge pool to give to SS, Medicare, Military retirement, etc. If we meet all of our actual obligations we still have (I believe) 100 billion to fund the government.

The point there is that if Sec. Lew can pay our debts owed he most certainly can pay other obligated payments at the same time. The only question then would be what would Congress and the Executive Branch do with the remaining funds.

From the sound of your post it's as if our monthly income couldn't even support entitlements which would be a gigantic problem.

 

[xBiffx]

Treasury is taking in roughly $225 billion a month. Debt service is roughly $35 billion a month. We are a long ways from a default.

Discussing a default right now is like having a $1200 mortgage every month when you take in nearly $8000 in income and you are saying you need to open another credit card in order to pay for it. The mortgage should be safe in this scenario, as for other expenditures that eat up that nearly $8000/mo, who knows. But you don't need a credit card to cover the mortgage payment, that much is certain.

 

[fskimospy]

You said other entitlements would be significantly delayed, the actual debt only takes up 5-10% iirc. That leaves a huge pool to give to SS, Medicare, Military retirement, etc. If we meet all of our actual obligations we still have (I believe) 100 billion to fund the government.

The point there is that if Sec. Lew can pay our debts owed he most certainly can pay other obligated payments at the same time. The only question then would be what would Congress and the Executive Branch do with the remaining funds.

From the sound of your post it's as if our monthly income couldn't even support entitlements which would be a gigantic problem.

No, what I'm saying is that our monthly income isn't enough to cover all of the US's legal obligations. Think about it. If we could meet all our obligations without issuing more debt we wouldn't need to raise the debt ceiling to begin with. It's not just mandatory spending. (unless you plan on disbanding the military, etc).

What I was also saying though is that even if that's what you wanted to do it would be an unmitigated catastrophe, 2008 style. Our deficit as a percentage of GDP for the next year is somewhere around 4-5%. Simply eliminating that would...well... obviously cause a contraction of somewhere around 4-5% of GDP. Then on top of that we lose much of our stabilizing mechanisms because they are largely funded by discretionary funds. That means an even bigger contraction. Back to depression territory.

And remember, that's the GOOD outcome.

 

[Texashiker]

Treasury is taking in roughly $225 billion a month. Debt service is roughly $35 billion a month. We are a long ways from a default.

Discussing a default right now is like having a $1200 mortgage every month when you take in nearly $8000 in income and you are saying you need to open another credit card in order to pay for it. The mortgage should be safe in this scenario, as for other expenditures that eat up that nearly $8000/mo, who knows. But you don't need a credit card to cover the mortgage payment, that much is certain.

The government does not take in more than it owes.

Every dollar in circulation has been borrowed from the reserve.

 

[Genx87]

We are going to pay our debts.

.

Debts in this context is authorized spending that has to be paid.