While republcians want eveyone to talk about Anthony Weiner.......

[IM2]

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http://economix.blogs.nytimes.com/2011/04/26/what-happens-if-the-debt-ceiling-isnt-raised/

Below is a letter from Matthew E. Zames, a managing director at JPMorgan Chase and the chairman of the Treasury Borrowing Advisory Committee, which meets quarterly with the Treasury Department.  The letter gives a step-by-step account of what analysts think might happen to the economy if the debt limit is not raised, and why they fear this might lead to another financial crisis:

April 25, 2011

The Honorable Timothy Geithner
Secretary
Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220

Dear Mr. Secretary:

As Chairman of the Treasury Borrowing Advisory Committee, I am writing to express my concerns regarding the urgent need to increase the statutory debt limit. A considerable degree of uncertainty already exists among market participants given the severe and long-lasting impact that even a technical default would have on the U.S. economy.

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. It is impossible to know the full impact of such a crisis on overall economic growth and on Treasury’s financing costs. However, the lessons from the recent crisis suggest that several damaging consequences will likely result, ultimately raising Treasury’s long-term funding costs and increasing the burden on the American taxpayer. These consequences stem from five developments that could likely occur if Treasury were to default on its obligations as a result of a failure to raise the debt limit in a timely manner.

First, foreign investors, who hold nearly half of outstanding Treasury debt, could reduce their purchases of Treasuries on a permanent basis, and potentially even sell some of their existing holdings. A worrisome precedent is the sharp decline in foreign sponsorship of [government-sponsored enterprise, or G.S.E.] debt since Fannie Mae and Freddie Mac were placed under conservatorship. Despite assurances from Treasury officials regarding the U.S. commitment to these institutions, foreign sponsorship has yet to return to pre-conservatorship levels. If foreigners began curtailing their investment in Treasuries as a result of a default, Treasury rates, and thus Treasury’s borrowing costs, would undoubtedly rise. A sustained 50 basis point increase in Treasury rates would eventually cost U.S. taxpayers an additional $75 billion each year.

Second, a default by the U.S. Treasury, or even an extended delay in raising the debt ceiling, could lead to a downgrade of the U.S. sovereign credit rating. Indeed, Standard and Poor’s decision to change the U.S. ratings outlook from stable to negative this week indicates a one-in-three chance that Standard and Poor’s will downgrade the U.S. rating within the next two years. One reason cited for the change in the outlook is a material risk that U.S. policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges. It is possible that a default, or even a delay in acting on the debt ceiling, will be perceived as an increased indication of the political inability to forge a compromise on essential long-term fiscal reforms. The consequences of a ratings downgrade would be significant, with the potential for Treasury rates to rise by a full percentage point for each one-notch downgrade.

Third, the financial crisis you warned of in your April 4th Letter to Congress could trigger a run on money market funds, as was the case in September 2008 after the Lehman failure. In the event of a Treasury default, I think it is likely that at least one fund would be forced to halt redemptions or conceivably “break the buck.” Since money fund investors are primarily focused on overnight liquidity, even a single fund halting redemptions would likely cause a broader run on money funds. Such a run would spark a severe crisis, disrupting markets and ultimately necessitating the same kind of backstops that Treasury and the Federal Reserve initiated in the aftermath of the 2008 crisis. Such further increases in Treasury’s off-balance-sheet commitments are likely to be viewed negatively by investors and ratings agencies, which will potentially put further downgrade pressure on U.S. sovereign ratings.

Fourth, a Treasury default could severely disrupt the $4 trillion Treasury financing market, which could sharply raise borrowing rates for some market participants and possibly lead to another acute deleveraging event. Because Treasuries have historically been viewed as the world’s safest asset, they are the most widely-used collateral in the world and underpin large parts of the financing markets. A default could trigger a wave of margin calls and a widening of haircuts on collateral, which in turn could lead to deleveraging and a sharp drop in lending.

Fifth, the rise in borrowing costs and contraction of credit that would occur as a result of this deleveraging event would have damaging consequences for the still-fragile recovery of our economy. In 2008, placing the GSEs in conservatorship combined with a tightening of credit standards caused mortgage spreads to widen by 1.5 percent, ultimately raising mortgage rates for consumers. A similar rise in mortgage and Treasury rates would adversely impact economic growth, potentially pushing the U.S. economy back into recession.

Finally, I would emphasize that because the long-term risks from a default are so large, a prolonged delay in raising the debt ceiling may negatively impact markets well before a default actually occurs. This is because investors will likely undertake risk-management actions in preparation for a potential default. For example, borrowers who rely on short-term funding markets, including the GSEs, may attempt to pre-fund themselves or hold excess liquidity through July, distorting money market rates. Additional effects could include large auction concessions, especially if Treasury were forced to delay auctions for cash management purposes. I would also expect to see weaker demand for Treasury securities as uncertainty increases on whether the debt limit will be raised. Both of these effects would negatively impact Treasury’s borrowing costs.

Given the magnitude of the adverse consequences a default would have on Treasury borrowing costs and the health of the broader economy, action is urgently needed to increase the statutory debt limit. Swift action would also help ease the existing uncertainty in financial markets that could begin translating into real market impacts well before Treasury exhausts extraordinary actions at its disposal to postpone a default. Notwithstanding your significant efforts to date, your continued attention to this important issue is greatly appreciated.

Sincerely,

Matthew E. Zames
Chairman
Treasury Borrowing Advisory Committee

http://economix.blogs.nytimes.com/2011/04/26/what-happens-if-the-debt-ceiling-isnt-raised/

[Observer]

The object is to DECREASE the debt, not INCREASE it.

You do that by spending less. We could start by ending the 60 million dollars a month we spending in Libya.

[ivanm]

"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."

This is telling me they are borrowing more money to refinance debt that is maturing and they are borrowing money to pay the interest on the debt.

[foodserver]

I'm down with whatever it takes to get rid of Obama.

I'd even support the rich paying their fair share it that could make it happen.

...and when Obama is gone, there will be nothing but HAPPY DANCING RICH PEOPLE! HAPPY DANCING RICH PEOPLE! HAPPY DANCING RICH PEOPLE! HAPPY DANCING RICH PEOPLE!

Bu hu hu ha ha ah ahhhh! 

[IM2]

Observer,

The object is to DECREASE the debt, not INCREASE it.

You do that by spending less. We could start by ending the 60 million dollars a month we spending in Libya.

Maybe we would never have had the debt in the first plece if we had never invaded Iraq. You are talking about 60 million per month, when Iraq has cost us now over 300 million per day. And you supported our invasion of Iraq.

So maybe you need to be quiet about decreasing cost because you are not truly for it. You are simply anti anything Obama does.

Foodserver,

I'm down with whatever it takes to get rid of Obama.

And replace him with who? Sarah Palin?

You need rehab.

[foodserver]

Observer,

Maybe we would never have had the debt in the first plece if we had never invaded Iraq. You are talking about 60 million per month, when Iraq has cost us now over 300 million per day. And you supported our invasion of Iraq.

So maybe you need to be quiet about decreasing cost because you are not truly for it. You are simply anti anything Obama does.

Foodserver,

And replace him with who? Sarah Palin?

You need rehab.

I'd take Palin as Prez in a heartbeat but I actually would rather see her as the cabinet buster.  I want President Pawlenty to appoint her as head of the EPA, so she can dismantle it.  Then transfer her over to the department of Education--so she can dismantle that.  Then Department of Energy--dismantle--then.  Then IRS--dismantle...Dress her up in a black robe and give the woman a Scythe.  Then teach her to fly so she can bomb the UN building--yeah that's what I'm talkin; about 

[IM2]

foodserver,

Rehab only takes 30 days.

[ivanm]

The object is to DECREASE the debt, not INCREASE it.

You do that by spending less. We could start by ending the 60 million dollars a month we spending in Libya.

I assume you are speaking of the annual deficit, which does add to the national debt.  If we cannot balance the annual budget then we have little chance of ever reducing the national debt.  The revenue stream  has slacked off due to the recession, while in the meantime the pols continue to spend like drunken sailors.  And this is not a partisan issue to me as most pols have their pet projects to serve.  Until they get some fiscal discipline I cannot see how even raising the taxes, the revenue stream, can help to balance the budget.  When the eggheads project deficits for four years out into the future that tells me they are not serious about balancing the budget.  These numbers can be seen in an official budget document that is submitted each year.

[Pepsi]

The object is to DECREASE the debt, not INCREASE it.

You do that by spending less. We could start by ending the 60 million dollars a month we spending in Libya.

I guess we can never get back the $4 billion we spent a month in Iraq for years and years huh?

[Observer]

I guess we can never get back the $4 billion we spent a month in Iraq for years and years huh?

That really has nothing to do with today's spending, does it?

It is typical of Leftists when they have no valid arguments, to trot out the "They did it too" defense.

[Pepsi]

That really has nothing to do with today's spending, does it?

It is typical of Leftists when they have no valid arguments, to trot out the "They did it too" defense.

We're spending a heck of a lot more in Iraq still to this day than Libya.

[Observer]

Hmmm.... who is the Commander in Chief these days?

[IM2]

That really has nothing to do with today's spending, does it?

Well since Obama inherited a huge debt/recession that was casued in no small part by the Iraq war, it does have everything to do with todays spending.

It is typical of Leftists when they have no valid arguments, to trot out the "They did it too" defense.

Considering that righties have been wrong about every MOTHER FUCKING thing they have said, perhaps yor asses need to being listening to us lefties, because it appears that we have it right.

Hmmm.... who is the Commander in Chief these days?

Wrong question. (As usual)

The Iraq war was started by Bush, not Obama. Right wingers never want to take responsiblity for their fuck ups.  Its so easy for you right wing slobs to push off all of Bush's fuck ups on Obama. This poor guy inherited a fucking huge mess, maybe a mess we can never clean up, and you assholes pile on like everything that's happening now is his fault.

Then you want to increase the incompetence by actually thinking that Sarah fucking Palin is capable of doing this job. That bitch would quit 9 months into the presidency because of the quagmire Bush has left behind.

[Observer]

Well since Obama inherited a huge debt/recession that was casued in no small part by the Iraq war, it does have everything to do with todays spending.

No, it doesn't.

Obama has spent absurd amounts of money on projects that yielded little or no return.

Considering that righties have been wrong about every MOTHER FUCKING thing they have said, perhaps yor asses need to being listening to us lefties, because it appears that we have it right.

You don't have anything right.

Wrong question. (As usual)

The Iraq war was started by Bush, not Obama. Right wingers never want to take responsiblity for their fuck ups.  Its so easy for you right wing slobs to push off all of Bush's fuck ups on Obama. This poor guy inherited a fucking huge mess, maybe a mess we can never clean up, and you assholes pile on like everything that's happening now is his fault.

The Idiot in Chief has been command two and a half YEARS now. If he wanted us out of Iraq, we could have been out long ago. We are there because OBAMA WANTS US THERE.

Then you want to increase the incompetence by actually thinking that Sarah fucking Palin is capable of doing this job. That bitch would quit 9 months into the presidency because of the quagmire Bush has left behind.

That sums up your entire life quite nicely... blame others for your own inadequacies.

[IM2]

Observer,

No, it doesn't.

Obama has spent absurd amounts of money on projects that yielded little or no return.

The money has been spent to revive a dead economy left by your boy Bush.  No return, like the auto compnaies paying back the money early. No return, like saving the country from a depression.

You don't have anything right.

Well kinda seems like we do. Made record surpluses out of a record deficit created by two republican conservative administrations from 1980 unitl 1992. Saved America from a republican induced great depression in the 1930's, and stopped a republican induced depression from happenging now. Then  the liberal president captured and killed the man the conservative president before him gave up on chasing.

The Idiot in Chief has been command two and a half YEARS now. If he wanted us out of Iraq, we could have been out long ago. We are there because OBAMA WANTS US THERE.

Wrong answer again.

It's time for you to man up. Bush started this shit for no reason, and it has cost us over one trillion dollars.  We are there because BUSH put us there. And thats the truth you need to deal with.

That sums up your entire life quite nicely... blame others for your own inadequacies.

Your answer is a classic example of white conservative psychosis. You are nothing more than another right wing nutjob son.