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Default Ceiling: Bluffing into the Nuts

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#1 qqqbear


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Posted 06 January 2013 - 09:18 AM

Saturday, January 05, 2013

Default Ceiling: Bluffing into the Nuts

by Bill McBride on 1/05/2013 08:49:00 PM

I wrote several posts about the "debt ceiling" debate in 2011. The debate clearly scared many Americans and impacted the economy. Hopefully this time the "debt ceiling" will be raised well in advance of the deadline.

I prefer "default ceiling" because "debt ceiling" sounds like some sort of virtuous limit, when, in reality, the vote is about whether or not to the pay the bills - and voting for default is reckless and irresponsible.

Note: Several financial articles recently have used poker terms - and the title of this post is my contribution to this sad trendPosted Image. "The Nuts" is the best possible poker hand in a given situation. Bluffing into the nuts is a losing play - and that is what the Congress is trying to do with the "debt ceiling". The sooner they fold, the better for the economy and the Congress.

From the WaPo: GOP dissension over debt-ceiling strategy

House Speaker John A. Boehner (R-Ohio) likewise insisted that Republicans hold the line, telling his members they must demand that every dollar they raise the debt limit be paired with commensurate spending cuts.

But other Republicans counseled caution, warning that pressure from the business community and the public to raise the $16.4 trillion federal borrowing limit renders untenable any threats not to do so and will weaken the GOP’s hand if their stance is perceived to be a bluff.

It is a bluff. As Republican Senator Mitch McConnell noted in 2011, if the debt ceiling isn't raised the "Republican brand" would become toxic and synonymous with fiscal irresponsibility.

Part of the problem is some congressmen don't understand economics. Look at this quote from the WaPo article:

“It may be necessary to partially shut down the government in order to secure the long-term fiscal well being of our country, rather than plod along the path of Greece, Italy and Spain,” [Senate Minority Whip John Cornyn (R-Tex.)] wrote.

First, hitting the default ceiling will not just "shut down the government", it will force the government to stop paying some bills (most of the bills are for Defense, Medicare, Social Security and interest payments on the debt).

Second, the US is not plodding along "the path of Greece, Italy and Spain". Geesh

Read more at http://www.calculate...QwQjpJDsM8ZY.99

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