# Playing chicken with the debt limit? **URL:** \ **Category:** Great Debates\ **Created:** [February 21, 2011, 1:07am UTC](https://boards.straightdope.com/t/playing-chicken-with-the-debt-limit/572070 "2011-02-21T01:07:51Z")\ **Posts on this page:** 20\ **Page:** 5
**Author:** ![Lord\_Feldon](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lord_feldon/32/341_2.png) [@Lord\_Feldon](https://boards.straightdope.com/u/Lord_Feldon)\ **Post date:** [May 16, 2011, 11:21pm UTC](https://boards.straightdope.com/t/playing-chicken-with-the-debt-limit/572070/81 "2011-05-16T23:21:18Z")
> [@Leaper](#): > > So I understand we hit the debt limit today, which has (apparently; I don’t know for sure) never happened before. It happened in [1995-1996.](http://www.gao.gov/products/AIMD-96-130) ---
**Author:** ![Leaper](https://avatars.discourse-cdn.com/v4/letter/l/4bbf92/32.png) [@Leaper](https://boards.straightdope.com/u/Leaper)\ **Post date:** [May 16, 2011, 11:22pm UTC](https://boards.straightdope.com/t/playing-chicken-with-the-debt-limit/572070/82 "2011-05-16T23:22:05Z")
Aha, interesting. Are there any points of comparison between then and now that may show what’ll happen this time? ---
**Author:** ![Evil\_Captor](https://avatars.discourse-cdn.com/v4/letter/e/f17d59/32.png) [@Evil\_Captor](https://boards.straightdope.com/u/Evil_Captor)\ **Post date:** [May 16, 2011, 11:44pm UTC](https://boards.straightdope.com/t/playing-chicken-with-the-debt-limit/572070/83 "2011-05-16T23:44:48Z")
Well, cats and dogs were living together, it was raining fire, and dinosaurs walked the land. So keep an eye out! ---
**Author:** ![Duckster](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/duckster/32/1244_2.png) [@Duckster](https://boards.straightdope.com/u/Duckster)\ **Post date:** [May 17, 2011, 2:01am UTC](https://boards.straightdope.com/t/playing-chicken-with-the-debt-limit/572070/84 "2011-05-17T02:01:11Z")
> [@Leaper](#): > > So I understand we hit the debt limit today, which has (apparently; I don’t know for sure) never happened before. The Treasury began raiding the federal employees pension funds. Other funds are being raided. All of these options run out on 02 August 2011. If the debt ceiling is not raised by then, the US is then in default. ---
**Author:** ![Leaper](https://avatars.discourse-cdn.com/v4/letter/l/4bbf92/32.png) [@Leaper](https://boards.straightdope.com/u/Leaper)\ **Post date:** [May 17, 2011, 5:24am UTC](https://boards.straightdope.com/t/playing-chicken-with-the-debt-limit/572070/85 "2011-05-17T05:24:08Z")
> [@Duckster](#): > > The Treasury began raiding the federal employees pension funds. Other funds are being raided. All of these options run out on 02 August 2011. If the debt ceiling is not raised by then, the US is then in default. So I see. But as I asked in the other thread on this subject, how close can we get to defaulting before perceptions cause the bad consequences to happen anyway? We went seven months in '95; how much longer was left when action was finally taken? I’m not sure whether it’s just comparable ratio-wise or not, since this time we only have three. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [May 17, 2011, 4:28pm UTC](https://boards.straightdope.com/t/playing-chicken-with-the-debt-limit/572070/86 "2011-05-17T16:28:33Z")
> [@Le\_Jacquelope](#): > > In the words of some guy in Indiana Jones, “My soul is prepared… is yours?” > I’d like to see the debt limit frozen - or anything else that will cause the dollar can collapse. > > It will spell the _immediate_ end of jobs leaving this country, and the billionaires who control this country will instantly lose all their power. With American troops rushing home to defend their families no currency in the world will be enough to get them to defend the billionaire holdings in America. In short there will be no Army to step in here. > > Only with the billionaires who control this country stripped of their wealth, can we hope to rebuild. > > This is exactly why the debt ceiling will be raised: the billionaire power brokers know it could lead to a dollar collapse, they’d lose control of America, and afterwards there wouldn’t likely be anywhere in the world they could hide from retribution. As always the problem is the transition period. You are talking about the collapse of society and rebuilding from the ground up. ---
**Author:** ![Buck\_Godot](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/buck_godot/32/6573_2.png) [@Buck\_Godot](https://boards.straightdope.com/u/Buck_Godot)\ **Post date:** [May 17, 2011, 6:42pm UTC](https://boards.straightdope.com/t/playing-chicken-with-the-debt-limit/572070/87 "2011-05-17T18:42:27Z")
Can the US go into temporary default? Lets say gridlock means that the August deadline passes, markets plunge, interest rates spikes, angry letters are sent from China etc. In light of all this 3 weeks later, congress comes to its senses and ups the debt ceiling agreeing to backpay all interest it owed over the last 2 weeks. Admittedly a lot of psychological damage would be done to the markets, but how much real damage would there be? ---
**Author:** ![China\_Guy](https://avatars.discourse-cdn.com/v4/letter/c/779978/32.png) [@China\_Guy](https://boards.straightdope.com/u/China_Guy)\ **Post date:** [May 17, 2011, 7:59pm UTC](https://boards.straightdope.com/t/playing-chicken-with-the-debt-limit/572070/88 "2011-05-17T19:59:06Z")
actually, could be real damage. The USD and US Treasuries are the global reserve currency. You never ever, not even once, want to raise the real specter that the US debt is NOT backed by the full faith and credit of the US Government. The global markets can and are shrugging off the current antics as political posturing. Generally speaking, no one is expecting that the debt limit will not be raised and there will be a default. The reason why a default is something to be avoided as that there is a significant percentage of funds, pensions, sovereign investment funds, etc that have legal mandates to hold only certain specific debt instruments. If the debt instrument rating or definition changes, then that fund by it’s charter sell off those positions. In other words, the day the US defaults, this should trigger selling by a significant number of funds. If a significant amount of treasuries are getting dumped at once (trillions worth), then the market is going to collapse. Coming back a week later and say “just kidding on that default thing” isn’t going to take things back to “normal.” At a minimum, 2 years later when the same political posturing starts, and probably whenever the markets are convinced political posturing \*might \*start, then there will be selling to get ahead of the mass sell off. It is very much a reputation thing, and it’s beyond asinine that we have congress critters playing this game, especially when they approved the spending that got us here. ---
**Author:** ![Leaper](https://avatars.discourse-cdn.com/v4/letter/l/4bbf92/32.png) [@Leaper](https://boards.straightdope.com/u/Leaper)\ **Post date:** [May 18, 2011, 1:12am UTC](https://boards.straightdope.com/t/playing-chicken-with-the-debt-limit/572070/89 "2011-05-18T01:12:30Z")
[A round-up of the latest rhetoric.](http://tpmdc.talkingpointsmemo.com/2011/05/paul-ryan-the-investors-i-talk-to-are-totally-ok-with-debt-default-video.php) Of course, it IS only rhetoric, and it may be far enough away from the BIG deadline that it feels safe to do (if only so the speakers can say in the end “hey, we did all we could”). ---
**Author:** ![China\_Guy](https://avatars.discourse-cdn.com/v4/letter/c/779978/32.png) [@China\_Guy](https://boards.straightdope.com/u/China_Guy)\ **Post date:** [May 18, 2011, 4:30am UTC](https://boards.straightdope.com/t/playing-chicken-with-the-debt-limit/572070/90 "2011-05-18T04:30:21Z")
Paging Scylla, you’re in the markets. Is Wall Street cool with going into default for a few days? ---
**Author:** ![RitterSport](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/rittersport/32/6326_2.png) [@RitterSport](https://boards.straightdope.com/u/RitterSport)\ **Post date:** [May 18, 2011, 1:04pm UTC](https://boards.straightdope.com/t/playing-chicken-with-the-debt-limit/572070/91 "2011-05-18T13:04:53Z")
I’m not **Scylla** , but treasury yields have been going down (implying lower default expectation, or a flight to quality, or both). It seems to me that the markets are ignoring any possibility of default. If the US defaulted for ‘a few days’, it would likely trigger lots of credit default swaps, massive sell-off of treasury and agency securities, dogs and cats sleeping together. It would be bad. “Try to imagine all life as you know it stopping instantaneously and every molecule in your body exploding at the speed of light.” “…That’s bad.” ---
**Author:** ![China\_Guy](https://avatars.discourse-cdn.com/v4/letter/c/779978/32.png) [@China\_Guy](https://boards.straightdope.com/u/China_Guy)\ **Post date:** [May 18, 2011, 2:00pm UTC](https://boards.straightdope.com/t/playing-chicken-with-the-debt-limit/572070/92 "2011-05-18T14:00:10Z")
> [@Leaper](#): > > [A round-up of the latest rhetoric.](http://tpmdc.talkingpointsmemo.com/2011/05/paul-ryan-the-investors-i-talk-to-are-totally-ok-with-debt-default-video.php) Of course, it IS only rhetoric, and it may be far enough away from the BIG deadline that it feels safe to do (if only so the speakers can say in the end “hey, we did all we could”). Assuming this [blog style](http://tpmdc.talkingpointsmemo.com/2011/05/paul-ryan-the-investors-i-talk-to-are-totally-ok-with-debt-default-video.php)report is correct: Worried about the debt ceiling fight coming down to the wire and freaking out the world’s financial markets? Don’t be, says Rep. Paul Ryan (R-WI). The investors he talks to could apparently care less about the country failing to pay its short-term debts, for a little while at least. Paul Ryan is a complete idiot. He either lives in a bubble world or could care less how bad a global economic crisis he creates. It’s kinda like taking marriage vows, cheating on your spouse, and then declaring “sorry, won’t happen again, don’t worry.” \*Most \*marriages change dramatically after that first cheating incident comes to light. A sovereign credit default would be somewhat analogous. Anyone that thinks a default, even a temporary one, would not be a big deal is delusional and talking to the wrong people on Wall Street and the global markets. ---
**Author:** ![wmfellows](https://avatars.discourse-cdn.com/v4/letter/w/c2a13f/32.png) [@wmfellows](https://boards.straightdope.com/u/wmfellows)\ **Post date:** [May 18, 2011, 2:40pm UTC](https://boards.straightdope.com/t/playing-chicken-with-the-debt-limit/572070/93 "2011-05-18T14:40:14Z")
Yeah, I meant what I wrote that it is scary to see Sr. US elected officials behaving with all the political wisdom and maturity of 1980s Latin American leadership. The American right has really gone off the deep end, they are not serious, mature thinkers. This is adolescent temper tantrum politics. Gives me the terrible sense that USA is going the way of Argentina in the late 19th century. ---
**Author:** ![Leaper](https://avatars.discourse-cdn.com/v4/letter/l/4bbf92/32.png) [@Leaper](https://boards.straightdope.com/u/Leaper)\ **Post date:** [May 18, 2011, 6:28pm UTC](https://boards.straightdope.com/t/playing-chicken-with-the-debt-limit/572070/94 "2011-05-18T18:28:48Z")
And as someone online (I forget where) pointed out, what difference is a few days gonna make if the impasse continues to August? But if the markets don’t see any default happening yet, how long will they wait? At what point, and what in general, could cause them to change their minds? Personally, I don’t see confidence going off a cliff all at once; it seems to me we (and by “we” I include Congress) will see warning signs first. True? If so, what? Oh, and more [rhetoric](http://tpmdc.talkingpointsmemo.com/2011/05/toomey-top-republicans-not-raising-the-debt-ceiling-no-biggie.php) along previous lines. (Partisan source, but you can follow links to quoted material.) ---
**Author:** ![China\_Guy](https://avatars.discourse-cdn.com/v4/letter/c/779978/32.png) [@China\_Guy](https://boards.straightdope.com/u/China_Guy)\ **Post date:** [May 18, 2011, 7:48pm UTC](https://boards.straightdope.com/t/playing-chicken-with-the-debt-limit/572070/95 "2011-05-18T19:48:53Z")
Let’s use another example. You don’t want your car payments to go into a “technical default.” Sure, you might be able stall for time, pay some penalties, have to make the payments current, work to convince the loan company that you’ll be good, field some harrassment from loan collectors and have a small risk that your car gets repo’d. Or you could keep the loan “current” somehow and not go into default in the first place, thus saving yourself a lot of hassle, uncertainly and risk of losing your car. Triggering a “technical default” has immediate ramifications, even if it is just for a few days. Many mutual funds, retirement portfolios, government investment authorities, etc have bi-laws and requirements that mean they must theoretically sell if a technical default is triggered. Now maybe they won’t sell automatically but it is a very real risk. There are plenty of hedge funds, directional traders, investment banks that would trade in advance on the threat of a default. If there is a default and this triggers related portfolio selling, then no one wants to be holding the bag. The US debt market is huge. Right now, there are not enough people selling off treasuries to cause the price to drop and yields to rise. IIRC the benchmark 30 year yields of 4.39% are near or at the lowest point of 2011 right now. When the markets start worrying about a default the yields will start going up dramatically (bond prices will plummet - inverse relationship). The cost to hedge will rise dramtically. The "markets’ are not worried yet because it is obvious political posturing, the default wouldn’t actually happen until July/Aug sometime, there is no consensus view of when the default would occur (is it July 19 or July 20), etc. And there are accounting gimmicks that could push out the actual “default” on treasuries weeks or months later. Different funds can have differnt ways of marking when the debt triggers a default. Drucker seems to be the only high profile guy coming out on the “default” won’t matter if a deal gets done eventually. (I could be wrong but a quick search didn’t show up any others). He could also be planning on how to capitalize on a default led panic, and wouldn’t be the first fund manager in the world to say one thing in order to make money by doing the opposite. So, his view needs to be taken with a grain of salt. Markets hate uncertainty. And having debt ceiling limits drag on for days that turns into weeks that turns into months (and starts cutting off funding to certain programs in an effort to kite the check), while maybe not “technically in default” would not be viewed positively by the markets. ---
**Author:** ![Le\_Jacquelope](https://avatars.discourse-cdn.com/v4/letter/l/e0b2c6/32.png) [@Le\_Jacquelope](https://boards.straightdope.com/u/Le_Jacquelope)\ **Post date:** [May 19, 2011, 2:17am UTC](https://boards.straightdope.com/t/playing-chicken-with-the-debt-limit/572070/96 "2011-05-19T02:17:02Z")
> [@Damuri\_Ajashi](#): > > As always the problem is the transition period. You are talking about the collapse of society and rebuilding from the ground up. Ayup. I personally prefer that to the continued progression into a plutocracy which is going on right now. I don’t want to live in Mexico 2.0; and the collapse of the US economy is the only hope we have of re-thinking our system, or at least allowing some of the working class to break free, break off or emigrate. ---
**Author:** ![Leaper](https://avatars.discourse-cdn.com/v4/letter/l/4bbf92/32.png) [@Leaper](https://boards.straightdope.com/u/Leaper)\ **Post date:** [May 20, 2011, 2:01am UTC](https://boards.straightdope.com/t/playing-chicken-with-the-debt-limit/572070/97 "2011-05-20T02:01:10Z")
[Is the rhetoric spreading?](http://wonkroom.thinkprogress.org/2011/05/19/nunes-calls-for-default/) (Partisan blog, but with links to sources.) If so, will it “inure” the politicians, and cause them to vote against the ceiling raise? Maybe, but I’m not sure it will. And again, it’s far enough out that saying such things is still seen as consequence-free. It’s still off-putting, though. ---
**Author:** ![Damuri\_Ajashi](https://avatars.discourse-cdn.com/v4/letter/d/898d66/32.png) [@Damuri\_Ajashi](https://boards.straightdope.com/u/Damuri_Ajashi)\ **Post date:** [May 20, 2011, 2:12pm UTC](https://boards.straightdope.com/t/playing-chicken-with-the-debt-limit/572070/98 "2011-05-20T14:12:34Z")
> [@Le\_Jacquelope](#): > > Ayup. I personally prefer that to the continued progression into a plutocracy which is going on right now. I don’t want to live in Mexico 2.0; and the collapse of the US economy is the only hope we have of re-thinking our system, or at least allowing some of the working class to break free, break off or emigrate. And you think that the result of the collapse of society is a more just and egalitarian society? That’s not how societies tend to evolve. I’m pretty sure that a well informed democratic society can figure out how to change the trajectory we are on, we just need a more informed and engaged citizenry. ---
**Author:** ![Ravenman](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ravenman/32/2929_2.png) [@Ravenman](https://boards.straightdope.com/u/Ravenman)\ **Post date:** [May 20, 2011, 2:45pm UTC](https://boards.straightdope.com/t/playing-chicken-with-the-debt-limit/572070/99 "2011-05-20T14:45:09Z")
> [@Le\_Jacquelope](#): > > Ayup. I personally prefer that to the continued progression into a plutocracy which is going on right now. I don’t want to live in Mexico 2.0; and the collapse of the US economy is the only hope we have of re-thinking our system, or at least allowing some of the working class to break free, break off or emigrate. So, you think the 1994 Mexican currency crisis allowed Mexico to “re-think” its “system” and move away from plutocracy? Are you serious? ---
**Author:** ![Evil\_Captor](https://avatars.discourse-cdn.com/v4/letter/e/f17d59/32.png) [@Evil\_Captor](https://boards.straightdope.com/u/Evil_Captor)\ **Post date:** [May 20, 2011, 9:31pm UTC](https://boards.straightdope.com/t/playing-chicken-with-the-debt-limit/572070/100 "2011-05-20T21:31:44Z")
Am I the only one paranoid enough to think that a general economic crash triggered by a refusal to raise the debt ceiling is a way the Republicans are repaying all the conservatives who’ve been heeding certain conservative commentators and buying gold? I’VE been wanting to buy gold … the cons are so fucking scary-stupid sometimes [Previous page](https://boards.straightdope.com/t/playing-chicken-with-the-debt-limit/572070.md?page=4) [Next page](https://boards.straightdope.com/t/playing-chicken-with-the-debt-limit/572070.md?page=6)