Sunday, October 13, 2013

For GOP "default deniers", "Rollover Risk" could prove fatal to the economy (Stansberry again?)

Saturday evening, before “going out”, I held a mock negotiation with Ezra Klein of the Washington Post on Twitter, as we posed the major questions that it seems Congress and the president won’t face when facing one another. I played the GOP side.
   
So, Democrats, why do you maintain that it’s “extortion” to negotiate over the debt ceiling when so many previous presidents did.  I said, ask Bill Clinton.  One thing that makes this difference is that “extremists” tried to overturn existing law (the Patient Protection and Affordable Care Act, or “Obamacare”) rather than simply enforce a future budget negotiation. Another difference is that the Internet is available now, and makes the “extortion” argument get much more traction with the public. The president maintains that only Congress can raise the debt ceiling to pay bills previously incurred from spending it had already appropriated. So it is Congress's "job" to do this, not the Executive Branch's.  So it would be Congress's "fault" if there is a debacle soon. But since "negotiation" has been acceptable in the previous presidents, it may be hard for the general public to understand why this time it is "different".  The president should not count on the public's seeing it this way forever.  
        
I said that Treasury really can prioritize payments, because modifying mainframe I.T. systems would enable segregating payments and sequencing them before they go out.  I had jobs doing this for thirty years.  However, there is a really serious risk of “rollover risk”, as suggested in this link from the Bipartisn Policy Center, here  or explained in dire terms on CNN here.  While Lew has admitted that the Rollover can lead to higher interest rates quickly, CNN suggests that the rollover, even on Oct. 17, could fail completely, leaving the Treasury much shorter than expected on Oct. 18. Is this related to the theories of Porter Stansberry about the dollar as a reserve currency?  If the rollovers work, there probably is no real risk of missing any payments until at least Nov. 1. 

Treasury Secretary Lew mentioned the rollover risk before the Senate Thursday, but not by name amd not in quite these dire terms.  There is a fear that if you throw the term around it goes viral, it really could spook the markets early.  So I'll throw it around to help shock the Congress into stopping this game of playing with people's lives for partisan or power-grabbing reasons.  Do you want to seize power over a devastated economy?  That's like wanting nuclear war or "Revolution" so that you can rule what's left. 
  
There is a legitimate reason to resist automatic extension of the debt ceiling (or to have it at all) if there is a risk of a financial freeze anyway if debt becomes excessive.  That's what Stansberrry and even Orin Hatch say.  It's hard to predict where that point is.  
  
I also raising the question again about the Social Security Trust Fund, it’s legal standing, and the apparent lack of legal status of Social Security beneficiaries with respect to any future benefits.  A sudden cutoff of many beneficiaries with other assets or income could be part of a necessary deal.
All in all, I don’t think that the GOP position is as weak as the media believes, and the belligerence of both sides is downright dangerous. 
  
Reid and McConnell are supposed to be talking Sunday and we hope there is some outline of a deal before the markets open Monday morning for Columbus Day.  The GOP is not as weak as the mainstream media (outside of Fox) presumes, and if there is an economic meltdown, some of the blame will indeed fall on Democrats and the president.  It seems that the Democrats do need to accept the idea of "negotiation" on budget issues with respect to the dent ceiling, because that is established practice, supposedly to prevent dangerous debt explosion -- even if it means that there is always a remote risk that some individual parties can get stiffed after the fact.  That's true with any creditor.  In two days, there is little that could be done, except maybe a slight upping of Social Security retirement age, a chained CPI, or something like that.  Maybe a small concession on Obamacare is appropriate.  There needs to be an immediate repopening of the government, and a quick if relatively short term extension of the debt limit (through the end of 2014 at the most) but a new framework for how these problems will be solved long term.  Maybe the Gang of Six should try again. 



Update: 1 PM. Harry Reid addressed the Senate on CNN live.  


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