Wednesday, October 09, 2013

Major default on bonds would occur by Nov. 15, but Stansberry's "No-No" on dollar as reserve currency could happen suddenly at any Treasury rollover

Here’s your wakeup news this morning.  Brad Plumer gives us a (liberal’s) take on the debt ceiling timeline on the Wonkblog, link (url) here

Actually, the US hit the ceiling May 19.  Extraordinary measures are exhausted Oct. 17 ( a week from tomorrow) although there is a chance of miscalculation. 

The US probably doesn’t default on Oct. 18.  But on Oct. 31 the first big bond interest payment is due.  Social Security is due a payment on Oct 23 of $12 billion, and a much larger one of $25 billion on Nov. 1.  I got my payment this morning.  Without Social Security getting the Nov. 1 payment, I might not get the next one Nov. 13.  The bond interest payment Oct. 31 is small, $6 billion.  There’s a huge balloon payment on the debt Nov. 15 (that sounds like something a lot of churches deal with, in my experience).  That’s the big one.

But the Treasury has to roll over securities Oct. 17, 24, and 31.  What if it is unable to do so because of market turmoil right before default?  That’s the so-called Porter Stansberry scenario.  The rest of the world could suddenly stop accepting the dollar as "reserve currency" at all, and that's permanent, folks,  It's like a super "No-No".  
That’s why some hardline conservatives say that raising the debt ceiling alone doesn’t save us.  We may not have much time before we really have to go cold turkey on entitlements.  As I wrote on the Retirement Blog Oct. 7, I might never see another Social Security deposit again, in some scenarios, because technically the government is not obliged to pay it, the way it has to pay China.

Treasury Secretary Lew will lay out the timetable before the Senate Thursday, probably on C-Span.  What will Ted Cruz say?
It’s a good thing that Obama reportedly is willing to accept a short-term clean deal to get discussions going. CNN covers this story here.
Still, this morning, the two biggest questions are (1) why won’t Boehner call a vote when media counts show that a clean bill can (barely) pass in the House, and (2) Why won’t Obama honor the precedent that previous presidents have indeed negotiated on the debt ceiling?  What was different in the past is that there was no Internet and social media to keep the “hostage” idea up front in front of the public. 

Update: Later, Oct. 9

I'm not sure how much power the hardliners within the Tea Party have, but some are saying "No" to backing off from anything less than total defunding of Obamacare.  They till tank the country, to keep it a "Right wing" republic, just to prevent another "entitlement" from being accepted. Unbelievable! ABC's story is "Inside the Tale-no-prisoners Behind the Shutdown". I don't know if I've seen this before.

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