Treasury Says U.S. Could Face Default

[Tony]

http://www.washingtonpost.com/wp-dyn/articles/A56227-2003Apr29.html full article

WASHINGTON - The Treasury Department says the United States could face the prospect of not being able to pay its bills in late May unless Congress raises the government's borrowing authority, now capped at $6.4 trillion.

Treasury's debt managers have taken a number of steps since February to prevent the government from defaulting on the national debt, but "on current projections, the extraordinary measures taken since Feb. 20, 2003, will only be adequate to meet the government's needs until the latter half of May," said a statement released Tuesday.

After that - absent a boost in the government's borrowing authority by Congress - Treasury would breach the current $6.4 trillion ceiling on the national debt.

"The Treasury will continue to work with Congress to ensure the government's ability to finance its operations," Treasury said.

Treasury has asked Congress to boost the government's borrowing authority, although it has not suggested a specific amount. A proposal is pending on Capitol Hill that would raise the debt ceiling to $7.38 trillion.

Last year, Congress boosted the old debt limit by $450 billion, from $5.95 trillion to the current $6.4 trillion.

At that time Treasury warned that Congress would need to again increase the government's borrowing authority.



Who is the government going to borrow the money from?

[Tricky]

Originally posted by Tony
http://www.washingtonpost.com/wp-dyn/articles/A56227-2003Apr29.html full article



Who is the government going to borrow the money from?
Banks, just like everybody else.

[JeffR]

Originally posted by Tony
Who is the government going to borrow the money from? In essence they borrow it from your children, their children, their children's children and so on. That's assuming the debt will be paid back some day, but that's not for our generation to worry about.

[Ladewig]

Who is the government going to borrow the money from?

Well, 3 ¾ trillion is held by the public. A quick trip to the Bureau of Public Debt (http://www.publicdebt.treas.gov) will explain more. People are always willing to lend money to the U.S. government by buying savings bonds, treasury bills, and treasury bonds because they know if the government defaults on those, then stocks, bonds, and greenbacks will sink like a rock with a hole in it.

[corplinx]

Originally posted by Ladewig


Well, 3 ¾ trillion is held by the public. A quick trip to the Bureau of Public Debt (http://www.publicdebt.treas.gov) will explain more. People are always willing to lend money to the U.S. government by buying savings bonds, treasury bills, and treasury bonds because they know if the government defaults on those, then stocks, bonds, and greenbacks will sink like a rock with a hole in it.


Correct sir. Most people dont even understand what the debt is or how its financed. People think "paying down the debt" is a good idea.

However, paying down the debt means calling bonds early. Instead, if you merely get the federal budget into balance you can allow the natural redemption rate of the debt to pay itself off.

I was really dismayed by politicians who wanted to "pay down the debt" with a government surplus since running a surplus in and of itself is paying down the debt. I wouldnt vote for a clown who doesnt even understand how the government works.

[Tony]

Originally posted by Ladewig


Well, 3 ¾ trillion is held by the public. A quick trip to the Bureau of Public Debt (http://www.publicdebt.treas.gov) will explain more. People are always willing to lend money to the U.S. government by buying savings bonds, treasury bills, and treasury bonds because they know if the government defaults on those, then stocks, bonds, and greenbacks will sink like a rock with a hole in it.


Why would people buy saving bonds, treasury bills ect.. just so they would be worthless in the future?

[Ladewig]

Why would people buy saving bonds, treasury bills ect.. just so they would be worthless in the future?

I meant to say that those government issued securities are the safest investment available. If the stock market tanks, government bonds will still be paid, if the private bond market drops, government bonds will still be paid. Some might argue that it is possible for the government to default on their notes, but if that happens all other investments (excepting gold and silver bullion) will be worth a fraction of the their current value. It is this safety and assurance of appreciation that prompts people to buy T-bills, T-bonds, T-notes, etc. (despite their paying less than market interest rates).

[a_unique_person]

There have been complaints from the financial sector about the lack of Government bonds available, due to it running a cash surplus for several years now. There is nowhere that is 'safe' to put your money now.

BTW, the cash surplus really has a massive underlying deficit, but they haven't finished selling off the farm yet.