# Is this phony debt ceiling 'crisis' a LIBOR manipulation-style scheme?
**URL:** https://boards.straightdope.com/t/is-this-phony-debt-ceiling-crisis-a-libor-manipulation-style-scheme/647351
**Category:** Great Debates
**Created:** [January 16, 2013, 3:05am UTC](https://boards.straightdope.com/t/is-this-phony-debt-ceiling-crisis-a-libor-manipulation-style-scheme/647351 "2013-01-16T03:05:32Z")
**Posts on this page:** 17
**Page:** 1
### Author:  [@Try2B\_Comprehensive](https://boards.straightdope.com/u/Try2B_Comprehensive)
#### Post date: [January 16, 2013, 3:05am UTC](https://boards.straightdope.com/t/is-this-phony-debt-ceiling-crisis-a-libor-manipulation-style-scheme/647351/1 "2013-01-16T03:05:32Z")
Clearly the GOP is running with that old adage, “No one ever lost money overestimating the stupidity of the American public.” Those who are paying attention understand that the debt ceiling needs to be raised because Congress has already authorized spending more money than the limit allows, yet they go on and on pretending that raising the limit would somehow authorize new spending, and they use this as their rallying cry to dig in on their position. They got re-elected last time, so obviously the public is too dumb to figure it out.
One effect of sticking with this scheme is a repeat of what happened last time: a downgrade of the US credit rating. An effect of that is that it would probably force an increase in Treasury bond yields. Could this be what the ultra-wealthy sponsors of the GOP actually _want_? Rate manipulation seemed to work for a certain set of insiders, for awhile, in the LIBOR scheme- they made billions and AFAIK paid far less in fines than they earned. It doesn’t help the nation of course, but if you have tens of billions of dollars to invest and simply want a guaranteed return, well the fact is that Treasury yields right now aren’t cutting it. Forcing this ‘crisis’ could solve the problem (and suggests another old adage, “There is no honor among thieves”).
Is forcing an increase in Treasury bond yields the motive for this phony ‘crisis’? Are there other possible motives for this phony ‘crisis’ that might benefit the ultra-wealthy sponsors of the GOP? And, on the side, since the 14th Amendment states that the debt of the United States “shall not be questioned”, what are the potential legal consequences for a congresscritter violating that by forcing this ‘crisis’?
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### Author:  [@septimus](https://boards.straightdope.com/u/septimus)
#### Post date: [January 16, 2013, 3:24am UTC](https://boards.straightdope.com/t/is-this-phony-debt-ceiling-crisis-a-libor-manipulation-style-scheme/647351/2 "2013-01-16T03:24:04Z")
I won’t Search it down, but two years ago or so, I linked at SDMB to a news story: One of the Congressmen who deliberately forced the U.S. credit rating down _had investments in a hedge fund which shorted Treasuries_ ! (Apologists turned up with the excuse that millionaires can’t keep track of every penny, blah blah blah.)
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### Author:  [@DrCube](https://boards.straightdope.com/u/DrCube)
#### Post date: [January 16, 2013, 3:39am UTC](https://boards.straightdope.com/t/is-this-phony-debt-ceiling-crisis-a-libor-manipulation-style-scheme/647351/3 "2013-01-16T03:39:30Z")
> [@Try2B\_Comprehensive](#):
>
> Those who are paying attention understand that the debt ceiling needs to be raised because Congress has already authorized spending more money than the limit allows, yet they go on and on pretending that raising the limit would somehow authorize new spending, and they use this as their rallying cry to dig in on their position.
I don’t think they go on and pretend like that. It’s pretty obvious that they’re holding previously legislated spending hostage in order to get what they want. Yes, previous Congresses already approved the spending, but their dumbasses didn’t want to make the politically unpopular decision to pay for it. Now the current Congress says “Well, we just won’t fund the previously agreed upon spending”, essentially vetoing passed and signed legislation.
The clear solution is to go back to authorizing debt on each bill that requires it. I don’t know how they got away with shirking their Constitutionally mandated responsibility in the first place.
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### Author:  [@Try2B\_Comprehensive](https://boards.straightdope.com/u/Try2B_Comprehensive)
#### Post date: [January 16, 2013, 5:27am UTC](https://boards.straightdope.com/t/is-this-phony-debt-ceiling-crisis-a-libor-manipulation-style-scheme/647351/4 "2013-01-16T05:27:14Z")
> [@DrCube](#):
>
> I don’t think they go on and pretend like that. It’s pretty obvious that they’re holding previously legislated spending hostage in order to get what they want. Yes, previous Congresses already approved the spending, but their dumbasses didn’t want to make the politically unpopular decision to pay for it. Now the current Congress says “Well, we just won’t fund the previously agreed upon spending”, essentially vetoing passed and signed legislation.
I think the GOP is sending both messages- some suggest the debt ceiling authorizes new spending, others are like you say, threatening to effectively veto already-passed legislation. From [here](http://www.washingtontimes.com/news/2013/jan/15/mcconnell-obama-get-serious/), re: pretending:
> [@](#):
>
> Rep. Jason Chaffetz, R-Utah, said Republicans do not want to default. But “we are not going to give the president a limitless credit card,” he said, in a media report.
One has to assume that this guy is pandering to an ignorant public by conflating going ahead with already-legislated spending with “a limitless credit card”, which, as I say, suggests raising the debt limit authorizes new spending. Jason Chaffetz is lying. Typical GOP.
OTOH, some GOPers talk in the way you suggest, from the same cite:
> [@](#):
>
> Mr. McConnell’s reaction was abrupt.
> “The president and his allies need to get serious about spending, and the debt-limit debate is the perfect time for it,” he said.
> [@](#):
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> Conservatives in Congress say they will not lift the debt ceiling absent a dollar-for-dollar spending reduction agreement. To that, Treasury Secretary Timothy Geithner has said a fiscal collapse is forthcoming, in that the U.S. would default on its responsibilities without an increase in the ceiling amount.
So yeah, if you listen to McConnell they are threatening to hold already-passed spending hostage in order to force spending cuts. They _never_ have a specific plan for what to cut though, so let me offer a few details. Federal spending in McConnell’s district: zero. Chaffetz’s district: zero. Boehner’s district: zero. Cantor’s district: zero. Let’s cut the F-35 program back and cancel some Ford-class aircraft carriers. Where does that put us?
> [@](#):
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> The clear solution is to go back to authorizing debt on each bill that requires it. I don’t know how they got away with shirking their Constitutionally mandated responsibility in the first place.
Sounds good, but my question is: considering how stupid and dishonest this maneuver is, is the real purpose to jack up Treasury rates? Some other scheme? And assuming it is an un-constitutional move, what are the consequences for congresscritters who cravenly pursue it?
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### Author:  [@LinusK](https://boards.straightdope.com/u/LinusK)
#### Post date: [January 16, 2013, 5:38am UTC](https://boards.straightdope.com/t/is-this-phony-debt-ceiling-crisis-a-libor-manipulation-style-scheme/647351/5 "2013-01-16T05:38:13Z")
I hope so. Last time interest rates fell after the the downgrade. Maybe they’ll do it again and lose more money.
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### Author:  [@Simplicio](https://boards.straightdope.com/u/Simplicio)
#### Post date: [January 16, 2013, 5:47am UTC](https://boards.straightdope.com/t/is-this-phony-debt-ceiling-crisis-a-libor-manipulation-style-scheme/647351/6 "2013-01-16T05:47:23Z")
> [@LinusK](#):
>
> I hope so. Last time interest rates fell after the the downgrade. Maybe they’ll do it again and lose more money.
Yea, the OP is sort of bizarre. Interest rates dropped throughout the last round of debt-ceiling chicken. Reading the OP, you’d think they went up. And the business community spent most of that summer telling the GOP to knock it off.
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### Author:  [@Try2B\_Comprehensive](https://boards.straightdope.com/u/Try2B_Comprehensive)
#### Post date: [January 16, 2013, 3:04pm UTC](https://boards.straightdope.com/t/is-this-phony-debt-ceiling-crisis-a-libor-manipulation-style-scheme/647351/7 "2013-01-16T15:04:53Z")
> [@LinusK](#):
>
> I hope so. Last time interest rates fell after the the downgrade. Maybe they’ll do it again and lose more money.
I hear ya. I guess the question is whether treasury rates are affected by credit ratings or not. From [here](http://www.salon.com/2013/01/15/republicans_are_creating_their_own_worst_economic_nightmare/):
> [@](#):
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> even if our spending and deficits were too high, the Republican strategy of provoking debt crises is counterproductive. It doesn’t lead to less spending, and it doesn’t lead to lower debt. Instead, it destroys financial trust in the United States, and makes it more expensive for us to borrow and finance our operations.
Sounds like they are talking about treasury rates. How many times can the nation’s credit rating be downgraded before those rates go up? If somebody has a convincing argument that it just doesn’t matter then I suppose it torpedoes the OP and we’ll call it ignorance fought. I thought other factors outweighed the downgrade last time to drive down rates.
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### Author:  [@Try2B\_Comprehensive](https://boards.straightdope.com/u/Try2B_Comprehensive)
#### Post date: [January 17, 2013, 4:43am UTC](https://boards.straightdope.com/t/is-this-phony-debt-ceiling-crisis-a-libor-manipulation-style-scheme/647351/8 "2013-01-17T04:43:32Z")
I’ll bump this once. Does anybody doubt that downgrades from credit ratings can drive up treasury yields? Downgrades had that effect on Spanish yields, see [Spanish bond yields rise after Fitch downgrade](http://www.reuters.com/article/2012/06/08/markets-bonds-euro-idUSL5E8H83D420120608):
> [@](#):
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> Spanish government bond yields and prices of safe-haven German debt rose on Friday after Fitch slashed Spain’s credit rating by three notches, complicating Madrid’s quest to overcome its banking crisis.
If the US is a special case, unaffected by credit ratings, one link is all it takes to explain why.
One has to ask: In an environment of utter GOP disingenuousness regarding the motives for the stupid, phony manufactured ‘crisis’ surrounding the debt ceiling, could the motive be to force Treasury rates higher? It arguably makes sense in the context of the [$5 trillion in cash corporations are hoarding.](http://www.theatlantic.com/business/archive/2012/07/the-5-trillion-stash-us-corporations-money-hoard-is-bigger-than-the-gdp-of-germany/260006/) Wouldn’t they rather get a yield than hoard cash? I dunno- I hoped to glean some more information though debate.
I don’t see anyone else providing a clear rationale for the manufacturing of this America-harming debt ceiling ‘crisis’. My suggestion that it could be motivated by manipulating Treasury rates was characterized as ‘bizarre’, and that was it. But regardless of rates dropping after the first debt ceiling debacle, credit downgrades have ample precedent in driving up government bond rates. So, if that isn’t the motive, what explains the GOP’s bald-faced nation-damaging stupidity wrt the debt ceiling issue? And, are there legal consequences for congresscritters who pursue this path in light of the 14th Amendments statement that “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”?
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### Author:  [@Lord\_Feldon](https://boards.straightdope.com/u/Lord_Feldon)
#### Post date: [January 17, 2013, 6:56am UTC](https://boards.straightdope.com/t/is-this-phony-debt-ceiling-crisis-a-libor-manipulation-style-scheme/647351/9 "2013-01-17T06:56:04Z")
> [@Try2B\_Comprehensive](#):
>
> And, are there legal consequences for congresscritters who pursue this path in light of the 14th Amendments statement that “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”?
I don’t think members of Congress can be held legally accountable for their votes. I suppose they could be expelled if they pissed off 2/3 of their house badly enough.
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### Author:  [@septimus](https://boards.straightdope.com/u/septimus)
#### Post date: [January 18, 2013, 3:45pm UTC](https://boards.straightdope.com/t/is-this-phony-debt-ceiling-crisis-a-libor-manipulation-style-scheme/647351/10 "2013-01-18T15:45:07Z")
> [@Try2B\_Comprehensive](#):
>
> Does anybody doubt that downgrades from credit ratings can drive up treasury yields? …
> If the US is a special case, unaffected by credit ratings, one link is all it takes to explain why.
>
> … what explains the GOP’s bald-faced nation-damaging stupidity wrt the debt ceiling issue? …
I won’t hunt for a cite, but I think it’s well known that financial crises in the U.S. have the paradoxical(\*) effect of strengthening the dollar! The reason is that a U.S. financial crisis will become, due to U.S. strength, a worldwide crisis and, due to U.S. strength, the U.S. is the safest haven in tough times! I don’t know how far into the future this “safe haven” effect can be projected to continue.
I don’t know of any major group rooting for continuing U.S. crisis. Obviously some speculators have bets that will win, and smart “blood on the streets” traders will do well during panics, but I think [Hanlon’s Razor](http://en.wikipedia.org/wiki/Hanlon's_razor) is probably the best model for most GOP Congresscritters. Still it is offensive to see such critters make anti-dollar bets. These days I’m often as outraged by the lack of outrage as anything else.
-
- Is there a generic name for this type of paradox? Another example of such a paradoxical reversal would be that lowering the price of a country’s cheapest staple food _reduces_ consumption of that food! (Consumers now have more money to spend on expensive foods.)
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### Author:  [@Try2B\_Comprehensive](https://boards.straightdope.com/u/Try2B_Comprehensive)
#### Post date: [January 20, 2013, 8:27am UTC](https://boards.straightdope.com/t/is-this-phony-debt-ceiling-crisis-a-libor-manipulation-style-scheme/647351/11 "2013-01-20T08:27:32Z")
> [@Lord\_Feldon](#):
>
> I don’t think members of Congress can be held legally accountable for their votes. I suppose they could be expelled if they pissed off 2/3 of their house badly enough.
I have dwelt on it for days and I can’t think of any legal consequence to it either (though of course IANAL), other than the ostensible fact that the President may ignore the debt ceiling altogether on the grounds that the 14th Amendment takes precedence and renders the debt ceiling formally unconstitutional. But Obama has ruled out that option, for reasons one can only speculate about. My theory? The fallout from crossing Congress in this way would be too great, namely, certain parties would loudly declare him to be behaving as a king or tyrant as they are already attempting to do in the context of the gun control issue. So, perhaps, even though the President would be within his legal rights to simply bulldoze this obstacle, he is afraid that the general ignorance of the American people could nonetheless be successfully used against him if he were to do so.
> [@septimus](#):
>
> I won’t hunt for a cite, but I think it’s well known that financial crises in the U.S. have the paradoxical(\*) effect of strengthening the dollar! The reason is that a U.S. financial crisis will become, due to U.S. strength, a worldwide crisis and, due to U.S. strength, the U.S. is the safest haven in tough times! I don’t know how far into the future this “safe haven” effect can be projected to continue.
Well I wish you would hunt for a cite- that sounds interesting. ISTM that the debt ceiling move is an economy-killer no matter how you slice it (except, perhaps, in the case of people who want to invest trillions in Treasuries), see[US Economy Not So Fragile After All:](http://money.msn.com/business-news/article.aspx?feed=MSTAR&date=20130119&id=16014565)
> [@](#):
>
> The economic news this week was shockingly good–almost too good to be true. Just as the economic indicators in August and October were just too bad to possibly reflect reality, December numbers, while excellent, probably include some statistical tailwinds.
> Housing starts hit a recovery high, housing prices jumped more than 7% in 2012, inflation remained tame, and official retail sales refuted previous rumors of a disastrous holiday season. Manufacturing even looked better as industrial production had its second large improvement in as many months. (However, year-over-year data seems to be forming a rut at about 3% manufacturing growth.)
>
> Initial unemployment claims hit a new recovery low, but massive seasonal factors provided a bit of a tailwind. And while difficult conditions in Europe remain (Germany’s fourth-quarter GDP was very disappointing), China looks to be accelerating off its bottom with a fourth-quarter GDP estimate (year-over-year growth of 7.8%) higher than third-quarter (7.3%) growth.
> [@](#):
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> **Even Congress seemed to be more willing to cooperate on debt ceiling issues,** giving the market another reason to cheer on Thursday and Friday.
Bolding mine, see [here](http://www.huffingtonpost.com/2013/01/18/eric-cantor-debt-ceiling_n_2505001.html).
> [@septimus](#):
>
> I don’t know of any major group rooting for continuing U.S. crisis. Obviously some speculators have bets that will win, and smart “blood on the streets” traders will do well during panics, but I think [Hanlon’s Razor](http://en.wikipedia.org/wiki/Hanlon's_razor) is probably the best model for most GOP Congresscritters. Still it is offensive to see such critters make anti-dollar bets. These days I’m often as outraged by the lack of outrage as anything else.
>
> -
> - Is there a generic name for this type of paradox? Another example of such a paradoxical reversal would be that lowering the price of a country’s cheapest staple food _reduces_ consumption of that food! (Consumers now have more money to spend on expensive foods.)
Interesting theory. One the one hand, [the 113th Congress is one of the most inexperienced ever:](http://www.usatoday.com/story/news/politics/2013/01/17/113th-least-experienced-congress/1842265/)
> [@](#):
>
> Nearly two in five lawmakers in the U.S. House, 39%, have served for less than three years, according to data compiled by the non-partisan Cook Political Report. It’s the least experienced House since at least 1995, when an election wave swept the Republicans into power.
>
> The experience gap is more acutely felt within the GOP, which controls the House, where 46% of the 233 Republicans have served for less than three years. Among the 200 House Democrats, 61 lawmakers, or 31%, have three or fewer years on their résumé. There are two vacancies.
>
> That means junior lawmakers now hold positions it once took years to reach. For example, two freshman Republicans, Reps. David Joyce of Ohio and David Valadao of California, were given seats on the Appropriations Committee, which determines federal spending. Another freshman, Rep. Richard Hudson, R-N.C., already chairs a Homeland Security subcommittee.
OTOH, the GOP seems ruled by oaths and rules and obedience to certain dictates from known or unknown parties, and so their inexperience/inability becomes in fact a _virtue_ to their ultra-wealthy sponsors/handlers, in that it prevents them from questioning things deeply, regardless of their extreme position of authority.
Paradoxical? I dunno. Maybe ‘ironic’ is more to the point. Probably there is yet a better description if we mull it over some more…
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### Author:  [@Try2B\_Comprehensive](https://boards.straightdope.com/u/Try2B_Comprehensive)
#### Post date: [January 20, 2013, 8:39am UTC](https://boards.straightdope.com/t/is-this-phony-debt-ceiling-crisis-a-libor-manipulation-style-scheme/647351/12 "2013-01-20T08:39:27Z")
BTW, if you are not familiar with the LIBOR scandal, [here](http://www.rollingstone.com/politics/blogs/taibblog/why-is-nobody-freaking-out-about-the-libor-banking-scandal-20120703) is one cite. I haven’t followed up on all the hyper-links, but it gives a decent overview.
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### Author:  [@septimus](https://boards.straightdope.com/u/septimus)
#### Post date: [January 20, 2013, 8:44am UTC](https://boards.straightdope.com/t/is-this-phony-debt-ceiling-crisis-a-libor-manipulation-style-scheme/647351/13 "2013-01-20T08:44:42Z")
> [@Try2B\_Comprehensive](#):
>
> [QUOTE=septimus]
> I won’t hunt for a cite, but I think it’s well known that financial crises in the U.S. have the paradoxical(\*) effect of strengthening the dollar! The reason is that a U.S. financial crisis will become, due to U.S. strength, a worldwide crisis and, due to U.S. strength, the U.S. is the safest haven in tough times! I don’t know how far into the future this “safe haven” effect can be projected to continue.
Well I wish you would hunt for a cite- that sounds interesting.
[/QUOTE]
From [here](http://www.ft.com/cms/s/0/f4d0a5b0-2806-11e1-91c7-00144feabdc0.html#axzz2IVEBVrGV):
> [@](#):
>
> “US dollar liquidity has become the preferred asset class, even outpacing gold, which was so often viewed as the ultimate asset class in times of risk aversion,” say analysts at Morgan Stanley.
> That is not because things are looking rosy for the US economy. Growth is stagnant, with consumer prices failing to rise in November. While there was a dip in jobless claims last week, overall unemployment is still at dangerous levels, hovering around 9 per cent.
>
> In fact, the dollar tends to dip on positive news from the US, because investors feel more positive about the overall global economy so move into riskier currencies.
or [from here](http://articles.marketwatch.com/2012-12-21/markets/35937485_1_fiscal-cliff-taxes-on-top-earners-rate-on-capital-gains):
> [@](#):
>
> The U.S. dollar steadily made gains against other currencies in a safe-haven bid Friday as the growing political drama over avoiding the U.S. fiscal cliff made investors more pessimistic that a deal will be reached by the end of the year…
> The failure of Plan B was not the sole trigger for the dollar’s rise. The expectation that lawmakers will not reconvene until after the Christmas recess to sort things out is also driving investors into the more liquid asset …
Other pages to appear with a Google search for “dollar safe haven [paradox]” are
[http://www.troymedia.com/2011/10/02/the-paradox-of-the-u-s-dollar/](http://www.troymedia.com/2011/10/02/the-paradox-of-the-u-s-dollar/)
and comments on the “Triffin Paradox.”
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### Author:  [@Try2B\_Comprehensive](https://boards.straightdope.com/u/Try2B_Comprehensive)
#### Post date: [January 21, 2013, 1:27am UTC](https://boards.straightdope.com/t/is-this-phony-debt-ceiling-crisis-a-libor-manipulation-style-scheme/647351/14 "2013-01-21T01:27:33Z")
> [@septimus](#):
>
> and comments on the “[Triffin Paradox](http://en.wikipedia.org/wiki/Triffin_dilemma).”
Wow. I was not familiar with that. That is the kind of response that keeps me coming back to the 'dope,\*\* septimus\*\*. I will have to chew on that one.
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### Author:  [@LinusK](https://boards.straightdope.com/u/LinusK)
#### Post date: [January 21, 2013, 5:22am UTC](https://boards.straightdope.com/t/is-this-phony-debt-ceiling-crisis-a-libor-manipulation-style-scheme/647351/15 "2013-01-21T05:22:54Z")
The thing about the dollar isn’t just that we have to run a trade deficit to finance foreign acquisitions of US dollars; we have to run a government spending deficit as well. We can’t be a net supplier to the rest of the world of dollars without creating new ones here at home for our own use as well.
The US is not a special case, as far as credit ratings are concerned. Take Japan. Their rating has been cut more often than ours. It’s lower than ours, and their debt is higher than ours. Yet they pay a much lower interest rate on their debt than we do.
Spain is a special case, because of its membership in the EU.
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### Author:  [@foolsguinea](https://boards.straightdope.com/u/foolsguinea)
#### Post date: [January 21, 2013, 9:33pm UTC](https://boards.straightdope.com/t/is-this-phony-debt-ceiling-crisis-a-libor-manipulation-style-scheme/647351/16 "2013-01-21T21:33:43Z")
> **[Eric Cantor's glaring conflict of interest](https://www.salon.com/2011/06/28/eric_cantor_conflict_of_interest/)**
>
> He's the GOP's chief debt ceiling negotiator. He's also invested in a fund that will skyrocket if there's a default
> [@](#):
>
> Last year the Wall Street Journal reported that Cantor, the No. 2 Republican in the House, had between $1,000 and $15,000 invested in ProShares Trust Ultrashort 20+ Year Treasury EFT. The fund aggressively “shorts” long-term U.S. Treasury bonds, meaning that it performs well when U.S. debt is undesirable. (A short is when the trader hopes to profit from the decline in the value of an asset.)
>
> According to his latest financial disclosure statement, which covers the year 2010 and has been publicly available since this spring, Cantor still has up to $15,000 in the same fund. Contacted by Salon this week, Cantor’s office gave no indication that the Virginia Republican, who has played a leading role in the debt ceiling negotiations, has divested himself of these holdings since his last filing. Unless an agreement can be reached, the U.S. could begin defaulting on its debt payments on Aug. 2. If that happens and Cantor is still invested in the fund, the value of his holdings would skyrocket.
So, in a way, yes, but the mechanism is different than described by the OP.
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### Author:  [@foolsguinea](https://boards.straightdope.com/u/foolsguinea)
#### Post date: [January 21, 2013, 10:00pm UTC](https://boards.straightdope.com/t/is-this-phony-debt-ceiling-crisis-a-libor-manipulation-style-scheme/647351/17 "2013-01-21T22:00:36Z")
On second thought, I think the OP is possibly right.