The House of Representative passed a one-year extension to the United States’ debt limit on Tuesday evening.
Tag Archive for Debt Ceiling
Contributors- Economic and Financial, Must Read, Taken Down
Republicans to lower the cost of raising the debt ceiling – Sober Look
by Sober Look • • 0 Comments
In all likelihood the US debt ceiling will need to be raised no later than this coming March. The question now is whether we are going to see a repeat of last October’s game of chicken. According to Deutsche Bank, the US sovereign CDS spread has stabilized, with market participants not anticipating a major disruption (note that US CDS is fairly illiquid with “lumpy” trading activity).
Contributors- Economic and Financial, Must Read, Taken Down
US debt ceiling risk: out of sight, out of mind – Sober Look
by Sober Look • • 0 Comments
The impasse over the US debt ceiling came and went – and with it the public’s interest in the subject. The short-term treasury curve which became inverted back in October (see post) went back to normal.There is a budget deal now in place that should pr…
Money Morning, Must Read
Will United States Debt Holders Bail on Treasuries? Money Morning
by Guest Admin • • 0 Comments
Since the mid-1990s, China and a host of other foreign governments have quietly acquired one-third of all United States public debt. Foreign holders of United States debt held more than $5.6 trillion in Treasury securities as of August 2013.
But continued debt-ceiling drama in the United States is starting to change that.
Contributors- Economic and Financial, Must Read, William Black
What Happens Now? New Economic Perspectives
by Joe Firestone • • 0 Comments
In the aftermath of the great 2013 government shutdown/debt ceiling crisis, and the kicking of the can down the road while maintaining austerity once more, the subject on many minds is where do negotiations over fiscal policy go from here? Will the new “budget committee” produce more austerity and do a grand bargain including the “chained CPI”? Will Congress finally turn towards economic growth and job creation, or will we continue to have more shutdowns and debt ceiling crises in 2014?
Contributors- Economic and Financial, Must Read
Off the Debt Limit Hook for at Least the Next Four Months – New Economic Perspectives
by Joe Firestone • • 1 Comment
Provided that the Senate and House follow through on the scenario now on the table, it looks like the game of chicken worked for the Democrats this time. We’re off the hook on default and Government shutdown for now, and Washington village pundits are in full-throated cries of celebration.
Money Morning, Must Read
A Debt Ceiling Deal May Not Stop a Fitch Downgrade – Money Morning
by David Zeiler • • 0 Comments
While the markets heaved a sigh of relief today (Wednesday) over a last-minute debt ceiling deal to avert a U.S. default, the threat of a downgrade from Fitch Ratings has not gone away.
Contributors- Economic and Financial, Must Read
A Few Quick Thoughts – James Kwak – The Baseline Scenario
by James Kwak • • 0 Comments
By James Kwak It pains me to see so much blogging fodder passing before my eyes and not have any time to do it justice. But here are a few thoughts: Why does anyone think that anyone cares about what … Continue reading →
Contributors- Economic and Financial, Must Read, Taken Down
"Radioactive" treasury bonds: the "least unconstitutional" path? Sober Look
by Sober Look • • 0 Comments
The Gallop sentiment index is now at the lowest level since 2011, when doubts about Italy’s ability to roll its debt posed risks to EMU’s stability. It took the first 3-year LTRO program to bring some calm to the markets and to consumer sentiment. Now, in a matter of days we are back to those lows again.
This is a serious blow to the US economy, with the full damage becoming visible in months to come. While there isn’t much that can be done about the shutdown without some sort of a deal, academics have been desperately searching for a solution to what amounts to a constitutional crisis – the debt ceiling impasse. One such proposal came from Columbia University (Neil Buchanan and Michael Dorf).
The authors argue that the executive branch is presented with two competing directives. The Obama administration is required to spend money on programs appropriated by Congress (including paying on government debt, paying for Social Security, Medicare, etc.). At the same time the president is not allowed to issue incremental debt. Complying with both is an impossibility, forcing the president to violate the constitution one way or another. The two Columbia law professors argue that in such a situation the president should choose the “least unconstitutional” path. And that would be issuing additional debt without the approval from Congress (see paper below).
The problem with this solution is the market. Selling “unconstitutional” treasuries will encourage traders to short these bonds against older (constitutional) vintages. Inevitably someone will challenge the paper’s constitutionality – potentially all the way to the Supreme Court. In the mean time yields on such paper may end up being quite high. Ultimately it will push up rates across the board as more of these bonds hit the market. Such a scenario could make the Fed’s “taper” feel like child’s play. The authors call these bonds “radioactive” and admit this solution could be problematic. Nevertheless they argue it is better than an outright default and could potentially pacify the markets.
It took the 3-year LTRO to calm global markets in 2011. Now we talking about “radioactive” bonds to help us do the same in 2013?
Enjoy!
Columbia Law Review
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Money Morning, Must Read
The Most Important Numbers to Know Today – Money Morning
by Guest Admin • • 0 Comments
200 Democrats and 19 Republicans support passing a continuing resolution with no strings attached to re-open government, according to a CNN poll of Congress. With three vacancies among 435 Congressmen, 217 votes is the minimum required to pass the measure. Senate claims it’s close to a deal, but the question is how House Republicans will react – as the shutdown continues into its fifteenth day.
