I’m not pointing to any particular post, just repeating my request to avoid partisan sniping if possible. I think it’s fine to argue that SCOTUS would disagree with the administration for partisan reasons, or Republicans in the House could decide not to cross the aisle for a discharge petition. Anyway, thanks.
The problem is, this is an inherently partisan problem. It isn’t “The US Government” that’s causing the problem, and it isn’t “The Democrats” who are causing the problem. This issue is entirely the fault of the Republicans, and not even all Republicans, specifically the Republicans in the House of Representatives. Even Republican Senators think these people should rein it in.
This whole thing is caused by the crazy faction of one party, and so any serious discussion of the issue simply must acknowledge the partisan nature of the problem. No “compromise” solution can exist until we acknowledge we’re “compromising” with the craziest people in politics, and all that that entails.
Sure, but that’s irrelevant to this thread. It starts with the supposition that the administration and House leadership don’t come to any agreement. With that as a given, how should the US avoid default?
Assume they get no help from “crazy faction.” Now what?
call the bluff and claim the 14th or mint the trillion dollar coin to show how crazy it is.
I worked in investment banking for 7 years back in the 90’s.
The US dollar is backed by the full faith and credit of the US government. Whether or not the debt limit is broaches is, for all intents and purposes, immaterial to the capital markets. Moody’s and the other credit agencies are not going to downgrade the greenback from fiat currency status. Ain’t gonna happen. There is, without a debate, no other capital market in the world that has the depth, and maturity of the US bond market.
It’s all well and good to say the dollar will lose it’s fiat status. Fact is, there is no where else in the world that is a safe haven that one can park money into in any kind of size. It is to laugh.
Biden via Obama learned this lesson before. The answer to the Republicans, who can’t deliver on this anyway, is to say “we don’t negotiate with terrorists, and talk to the hand.” Then, if needed, print the trillion dollar coin and say bite the wax tadpole.
In my life I have seen negative container rates for shipping FCLs from Europe to China. During COVID-19 rates hit unfathomably record highs, if you could get goods and space. In this years global (international) freight negotiation one container line dropped prices by 95%. I have seen negative oil prices. I have seen negative interest rates. I have seen overnight money rates over 100%.
A whole lot of “ain’t going to happen” things have happened. And will continue to.
And the moment the US bond market considers it’s interest lie in another direction it will quietly, irrevocably but maturely change horses.
Indeed, as you should, while you can.
Moody’s actually downgraded the US from AAA to AA back in 2013(? 2011?), which was the last time we had this fight.
Reserve currency status. There is a reason the US government can run decades long huge budget deficits, and an unfavorable balance of trade with no end in sight. An “exorbitant privilege” as DeGaulle called it. They’ve been able to “export” a considerable amount of monetary inflation to the rest of the world as a result.
As often has been stated, the USD is the cleanest dirty shirt in the laundry pile, as it were. One treasury secretary in the 1970s quipped “It’s our dollar, but it’s your problem.” Nice.
It’s important to watch the trends though, it is true the depth and breadth of the treasury market is unmatched but these arrangements were made decades ago, under arrangements that basically no longer exist or under considerable strain.
OK, then can you explain why Canada, the UK, and Australia can do this? See the chart in this gift article. Or, don’t, because this seems off-topic for this thread.
Anyway, it seems like the consensus here is to just ignore the limit and say “Sue me”. I think that’s a risky strategy, but if that’s what they plan to do, I wish they would already. Get SCOTUS to weigh in before they issue bonds that are potentially illegal or something.
I still prefer the premium bonds, because I don’t see any downside legally, constitutionally, or anything like that. Interested in hearing other opinions.
Simply by raising the debt ceiling and ignoring the “problem”
No one is going to default the United States. It would cause a serious worldwide recession.
There’s no way to get an advisory opinion from the US Supreme Court. There has to be a “case or controversy” to invoke federal court jurisdiction.*
That means there can’t be a lawsuit unless Biden does something, like continue to issue debt relying on the 14th Amendment, and then we wait to see if someone comes up with a law suit with standing to raise the issue.
*Unlike some states (eg Massachusetts) and some countries (eg Canada).
Biden (or the administration) could issue above the debt ceiling right now – stop the special operations (or whatever Yellen is doing) and issue more debt.
Sure, but there isn’t a way to “get SCOTUS to weigh in before they issue bonds that are potentially illegal or something”
Agreed. Still, they could do it while they have some wriggle room on the special operations.
Because Canada, UK and Australia service their creditors by paying them back, at least sufficiently for them to maintain the line of credit. Sometimes this involves selling the local currency to buy USD, thereby weakening the domestic currency and strengthening the USD.
The US can print a stash of paper or mint a dinky platinum disk and call it legal tender.
And that ties neatly back to the OP.
I would be interested in a discussion about how much the US benefits from reserve currency status, but I don’t think it’s really relevant to this thread. Of course, I’m not a moderator, so don’t let me stop you.
In the interest of keeping that reserve currency status and not defaulting, which path do you think makes the most sense? Are there ones that I haven’t mentioned?
I would say the 14th Amendment one. It’s much more compelling to me than the trillion dollar coin.
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.
There will likely be a debate about the phrase “authorised by law”, but the argument will be that Congress has authorised by the debt by authorising the spending, so the President has an obligation to service that debt.
Trillion dollar coin does strike me as smoke and mirrors.
Ignore the political chicanery, it’s merely an Band-aid on a festering wound.
The only viable option (apart from actually running a balanced budget) is the bond market.
But whilst the US may aspire to “sell it for much more than the face amount, maybe 130”, you need to find somebody who is prepared to pay that premium. And nothing but nothing puts the frighteners up the bond market like the specter of inflation.
Yep.
Personal example. When we bought a new car a decade ago, we did all the paperwork and drove home with it. The dealer interest agreement was 1%, which was an incredible deal, better than the banks.
When we got home, we got a frantic call from the dealer - there was a typo in the paperwork and the interest rate was listed as 0.1%, not 1%; could we come back and fix it.
We did, and laughed with the dealership guy about it. No-one would loan money at 0.1% interest!
Then during the pandemic, I drove past the dealership and saw that they were offering loans at 0%.
One Saskatchewan premier commented on his experience on floating bonds on the US market: “There’s nothing in the world as nervous as a million dollars.”