Previous U.S. Treasury Default

King of the Americas · 28th July 2011, 07:30 PM

Yep, that's right, the U.S. Treasury defaulting on payments to its bondholders is NOT a new or unheard of thing.

This was the subject of my blog this week:
http://betterliberalarguments.blogsp...sequences.html

Here's a snip-it:

"...The previous U.S. Treasury default was over a mere $120 million dollars, and occurred in the middle of a debt ceiling debate, similar to the one occurring now. Even though the Treasury had some $800 billion outstanding at the time, the amount actually defaulted on was a very small proportion of the debt. At issue was the fact, that a few checks just didn't get written and sent out, due to bookkeeping and or computer problems, and this caused the federal interest rate to rise by .6%. This raised interest rate was not applied only to the $120 million that was defaulted on, but rather to the entire debt at the time, which was close to a trillion dollars. So, missing the $120 million in payments to bond holders cost the Treasury alone about $6 billion in increased interest...."

---

I just found the whole "no one knows what will happen if we default" argument, wholly WRONG. It is KNOWN as to what will happen if we default to bondholders... It is just that Tea Party folk don't read modern history.

Bri · 28th July 2011, 08:16 PM

I think the Tea Party argument is that we have enough money to pay bondholders. The question is what happens if we default on other obligations which, to my knowledge, has never been tested.

-Bri

Emperor_Gestahl · 28th July 2011, 09:51 PM

Well we defaulted on precious metal obligations several times.

mhaze · 28th July 2011, 10:32 PM

I think it's perfectly fine if interest rates rise. People with savings would make more money, which they should have been doing for some time now. It'd be bad for the US Government yes, but that's them paying for the errors of their ways.

Ideally, interest should pace inflation by a percent or two. Since the lowest paid rate has been T bills, we'll likely see something else be the "good bonds". T bill rates could be higher than those. Big deal, so what.

Look at the problem pension funds are having right now. They are insolvent, because the continued forced low interest by the FED has caused them to be unable to earn the return on their portfolios to be liquid....on the average, they need to earn 8%.

So moving back to higher interest rates would fix some of the definite imbalances in the economy. The US Gov. certainly doesn't want the rates to rise, but they never really controlled the economy anyway. Probably just made it worse. If you can consider the Government to have a "selfish motive", a motive for it's own good, and not that of the citizens of the country, then this is a good example of that. Keep interest rates ridiculously low, inflation higher, that's just a form of stealing from the people.

eeyore1954 · 29th July 2011, 05:10 AM

Originally Posted by King of the Americas

Yep, that's right, the U.S. Treasury defaulting on payments to its bondholders is NOT a new or unheard of thing.

This was the subject of my blog this week:
http://betterliberalarguments.blogsp...sequences.html

Here's a snip-it:

"...The previous U.S. Treasury default was over a mere $120 million dollars, and occurred in the middle of a debt ceiling debate, similar to the one occurring now. Even though the Treasury had some $800 billion outstanding at the time, the amount actually defaulted on was a very small proportion of the debt. At issue was the fact, that a few checks just didn't get written and sent out, due to bookkeeping and or computer problems, and this caused the federal interest rate to rise by .6%. This raised interest rate was not applied only to the $120 million that was defaulted on, but rather to the entire debt at the time, which was close to a trillion dollars. So, missing the $120 million in payments to bond holders cost the Treasury alone about $6 billion in increased interest...."

---

I just found the whole "no one knows what will happen if we default" argument, wholly WRONG. It is KNOWN as to what will happen if we default to bondholders... It is just that Tea Party folk don't read modern history.

How was it determined that the clerical error caused treasury interest rates to rise .6%. This was in the spring of 1979. from 1978 to 1980 interest rates were raising at a fast rate without any clerical errors. The prime rate rose from around 8% to 16% between the beginning of 1978 and 1980.

Bri · 29th July 2011, 05:27 AM

Originally Posted by mhaze

I think it's perfectly fine if interest rates rise. People with savings would make more money, which they should have been doing for some time now. It'd be bad for the US Government yes, but that's them paying for the errors of their ways.

The government has to borrow money for some time even under the Ryan plan (which doesn't balance the budget until some 30 years from now). So higher interest rates would increase the debt and the time it will take to balance the budget (assuming we don't raise more revenue to offset the difference, which I think we can safely assume you're against). So your argument is that we have to balance the budget, but you want to do so by taking more money away from the government in the form of higher interest rates. Have you really thought this through?

Or maybe you have. According to your theory, allowing the government to default on its obligations might be a great way for the rich to get even richer at the expense of everyone else. I tend to disagree. I don't think anyone -- including the rich -- will benefit from government default.

-Bri

King of the Americas · 29th July 2011, 06:35 AM

Originally Posted by Bri

I think the Tea Party argument is that we have enough money to pay bondholders. The question is what happens if we default on other obligations which, to my knowledge, has never been tested.

-Bri

My point was that the previous default to bondholders was 'an accident', and not intentional at all...

That Tea Partiers are hellbent on stopping ANY debt level increase is a real sign that they just don't get the consequences of such an action. They want to 'save' money, but default will cost billions, for everyone.

Nosi · 29th July 2011, 06:44 AM

Originally Posted by King of the Americas

My point was that the previous default to bondholders was 'an accident', and not intentional at all...

That Tea Partiers are hellbent on stopping ANY debt level increase is a real sign that they just don't get the consequences of such an action. They want to 'save' money, but default will cost billions, for everyone.

What scares me is maybe they do understand the consequences of such an action and that is their motivation, or the motivation of some of them.

King of the Americas · 29th July 2011, 06:45 AM

Originally Posted by mhaze

I think it's perfectly fine if interest rates rise. People with savings would make more money, which they should have been doing for some time now. It'd be bad for the US Government yes, but that's them paying for the errors of their ways.

...

... Keep interest rates ridiculously low, inflation higher, that's just a form of stealing from the people.

I find it funny that you think of the federal government as a "them"...

Where do you think 'they' get their money to operate?

That said, I think you make an interesting point about those with savings finally getting paid, as their interest rates have been kept artificially low. However, maybe you could do a little math and tell us all whether the U.S. would see a net gain or loss, from an interest rate increase? Do all of the private holdings exceed the national debt of 14.5 trillion?

MG1962 · 29th July 2011, 06:45 AM

And the Dow heads south

King of the Americas · 29th July 2011, 06:51 AM

Originally Posted by eeyore1954

How was it determined that the clerical error caused treasury interest rates to rise .6%. This was in the spring of 1979. from 1978 to 1980 interest rates were raising at a fast rate without any clerical errors. The prime rate rose from around 8% to 16% between the beginning of 1978 and 1980.

Maybe they were 'going up', on the heels of the debt ceiling debate occurring at the time?

What 'exactly' caused the default on the $120 million isn't 'known'.

Here's one of my sources for my blog: http://www.npr.org/2011/07/11/137773...treasury-bonds

Bri · 29th July 2011, 06:53 AM

Originally Posted by King of the Americas

My point was that the previous default to bondholders was 'an accident', and not intentional at all...

That Tea Partiers are hellbent on stopping ANY debt level increase is a real sign that they just don't get the consequences of such an action. They want to 'save' money, but default will cost billions, for everyone.

Sure, but their argument is that as long as we pay bondholders it's not really default and won't have the negative consequences associated with default to bondholders. So the fact that we've defaulted by failing to pay bondholders before wouldn't really be evidence against the argument the Tea Party is making.

There is plenty of other evidence that the Tea Party is wrong, but I'm not sure the event you're referring to applies.

-Bri

King of the Americas · 29th July 2011, 06:58 AM

Originally Posted by Nosi

What scares me is maybe they do understand the consequences of such an action and that is their motivation, or the motivation of some of them.

It is difficult for me to believe that there ISN'T a concerted effort to damage the economy in a devastating manner, so that it can be laid at President Obama's feet- "This happened under YOUR watch!"

If I were the President, I'd invoke the 14th amendment, and then force the courts to stop me. All of the legal experts I've asked about it, say that only "law makers"/Congress could do it, but in order to save the country, I'd do it anyway...

King of the Americas · 29th July 2011, 07:02 AM

Originally Posted by Bri

Sure, but their argument is that as long as we pay bondholders it's not really default and won't have the negative consequences associated with default to bondholders. So the fact that we've defaulted by failing to pay bondholders before wouldn't really be evidence against the argument the Tea Party is making.

There is plenty of other evidence that the Tea Party is wrong, but I'm not sure the event you're referring to applies.

-Bri

We HAD money on hand to pay the previous default...the payments didn't get made 'by accident'.

There's a bill being considered right now, that would instruct which bills get paid, and which ones won't. Do you think the creditors we DON'T pay will have 'zero' effect on our credit rating?

Bri · 29th July 2011, 07:05 AM

Originally Posted by King of the Americas

If I were the President, I'd invoke the 14th amendment, and then force the courts to stop me. All of the legal experts I've asked about it, say that only "law makers"/Congress could do it, but in order to save the country, I'd do it anyway...

Although he can't say it, I'm fairly certain that if the debt ceiling isn't raise, the president would have to attempt this rather than default.

-Bri

Bri · 29th July 2011, 07:08 AM

Originally Posted by King of the Americas

We HAD money on hand to pay the previous default...the payments didn't get made 'by accident'.

There's a bill being considered right now, that would instruct which bills get paid, and which ones won't. Do you think the creditors we DON'T pay will have 'zero' effect on our credit rating?

No, I definitely agree that defaulting on any obligation (including obligations to non-bondholders) would have a negative effect on our credit rating.

But your example doesn't provide any evidence of this one way or the other, given that in that instance bondholders weren't paid.

-Bri

Unabogie · 29th July 2011, 07:09 AM

Talk to me like I'm stupid, but if interest rates go up because the US is downgraded, then wouldn't this absolutely slow the economy? Isn't raising interest rates exactly what the fed does when it wants to "cool down" a heated economy that they think is causing inflation? Ok, so my savings account will have a higher interest rate. But it'll be harder to buy a car. Or sell my house. Or borrow money for my business. We have a recovery that's heading back towards recession after a slow, but steady improvement (now that the stimulus money has dried up, funny how it "failed" but now you see the results without it). It seems to me that hiking interest rates right now would be disastrous. Just devastating. I don't think Teabaggers have thought this through at all, and since they seem to be driving the show right now, that should scare the crap out of everyone.

King of the Americas · 29th July 2011, 07:16 AM

Originally Posted by Bri

Although he can't say it, I'm fairly certain that if the debt ceiling isn't raise, the president would have to attempt this rather than default.

-Bri

Agreed.

King of the Americas · 29th July 2011, 07:24 AM

Originally Posted by Bri

No, I definitely agree that defaulting on any obligation (including obligations to non-bondholders) would have a negative effect on our credit rating.

But your example doesn't provide any evidence of this one way or the other, given that in that instance bondholders weren't paid.

-Bri

My example is evidence of defaulting on bondholders = increased interest rates, that cost billions, even though the amount defaulted upon was very small.

The point being, that even a small payment missed will mean a MUCH larger debt to be paid.

Moreover, that the previous default wasn't purposeful... We COULD have paid those bills, but the checks just didn't get signed & mailed. The creditors simply don't care why they didn't get paid. It is a pay us or you are screwed, deal.

If we don't pay ALL of our bondholders, the rates will go up. This is historical fact, not speculation.

Bri · 29th July 2011, 07:26 AM

Originally Posted by Unabogie

Talk to me like I'm stupid, but if interest rates go up because the US is downgraded, then wouldn't this absolutely slow the economy?

Yes, it would be a bad thing. Yes, people who have significant money in savings accounts and the like might benefit somewhat from higher overall interest rates, but yes it would be bad for the economy overall.

The Tea Partiers deny that our credit rating would be downgraded as long as we pay bondholders first. They ignore very strong evidence that we would be downgraded if we default on any obligation. Some of them deny that we would default on any obligation.

-Bri

King of the Americas · 29th July 2011, 07:28 AM

Originally Posted by Unabogie

Talk to me like I'm stupid, but if interest rates go up because the US is downgraded, then wouldn't this absolutely slow the economy? Isn't raising interest rates exactly what the fed does when it wants to "cool down" a heated economy that they think is causing inflation? Ok, so my savings account will have a higher interest rate. But it'll be harder to buy a car. Or sell my house. Or borrow money for my business. We have a recovery that's heading back towards recession after a slow, but steady improvement (now that the stimulus money has dried up, funny how it "failed" but now you see the results without it). It seems to me that hiking interest rates right now would be disastrous. Just devastating. I don't think Teabaggers have thought this through at all, and since they seem to be driving the show right now, that should scare the crap out of everyone.

I don't think anyone needs to speak to you like you are stupid... Clearly you understand how interest rates affect the economy.

Sadly, I think the teabaggers do as well, which is their goal- to wreck the economy.

Bri · 29th July 2011, 07:29 AM

Originally Posted by King of the Americas

My example is evidence of defaulting on bondholders = increased interest rates, that cost billions, even though the amount defaulted upon was very small.

As far as I know, no Tea Partiers have disagreed with this. They argue that we won't default on bondholders.

Quote:

If we don't pay ALL of our bondholders, the rates will go up. This is historical fact, not speculation.

Sure, but there's no question about paying bondholders. If we prioritize payments (as the Tea Partiers suggest) we won't default on a single bondholder. We'll default on other obligations (which, they argue, won't have the same negative consequences).

-Bri

Unabogie · 29th July 2011, 07:40 AM

Regarding the idea that we won't default on bondholders, but will by necessity cut domestic spending instead, does it occur to them how this will play to the average American?

"Sure, we've stopped paying your SS check, or your Medicare bill, and the TSA shut down so you can't fly, and your mail takes six times as long to deliver, but you see we had to pay the rich bondholders and the Chinese government first."

I question whether many people who voted for Teabaggers really understood what were in for.

King of the Americas · 29th July 2011, 07:51 AM

Originally Posted by Bri

...

Sure, but there's no question about paying bondholders. If we prioritize payments (as the Tea Partiers suggest) we won't default on a single bondholder. We'll default on other obligations (which, they argue, won't have the same negative consequences).

-Bri

I understand that, but my point and example is that merely debating & questioning whether or not to raise the debt ceiling- holding up legislation, and NOT properly prioritizing, 'accidently' led to a few bondholders not getting paid. There's a real threat of this happening now.

I don't think there's any evidence for defaults NOT causing negative consequences, regardless of the creditor.

Bri · 29th July 2011, 08:01 AM

Originally Posted by Unabogie

Regarding the idea that we won't default on bondholders, but will by necessity cut domestic spending instead, does it occur to them how this will play to the average American?

From their point of view, this is what the "average American" voted them into office to do.

No, they don't understand that sinking the whole ship isn't really what people had in mind when they were voted in. On the other hand, anyone voting for them should have seen this coming (the adage "be careful what you wish for" comes to mind).

-Bri

Bri · 29th July 2011, 08:06 AM

Originally Posted by King of the Americas

I understand that, but my point and example is that merely debating & questioning whether or not to raise the debt ceiling- holding up legislation, and NOT properly prioritizing, 'accidently' led to a few bondholders not getting paid. There's a real threat of this happening now.

I guess I can see the argument you're trying to make, but if that did happen it would probably be perceived as the fault of the Obama administration for not planning properly for the possibility of the debt ceiling not being raised.

Certainly, the Tea Partiers would say that they didn't hide the fact that they weren't voting to raise the debt ceiling, so if the administration failed to properly plan for that possibility in order to pay bondholders first, it would be the administration's fault.

-Bri

Kestrel · 29th July 2011, 08:26 AM

Originally Posted by Unabogie

Talk to me like I'm stupid, but if interest rates go up because the US is downgraded, then wouldn't this absolutely slow the economy? Isn't raising interest rates exactly what the fed does when it wants to "cool down" a heated economy that they think is causing inflation? Ok, so my savings account will have a higher interest rate. But it'll be harder to buy a car. Or sell my house. Or borrow money for my business. We have a recovery that's heading back towards recession after a slow, but steady improvement (now that the stimulus money has dried up, funny how it "failed" but now you see the results without it). It seems to me that hiking interest rates right now would be disastrous. Just devastating. I don't think Teabaggers have thought this through at all, and since they seem to be driving the show right now, that should scare the crap out of everyone.

A hike in interest rates would cause a slowing of economic growth. Just as the cutbacks in stimulus funds and layoffs of public sector workers caused GDP growth to be about 1.5% lower in the first quarter of this year.

The problem is that few in the right wing understand how a national economy works.

The Central Scrutinizer · 29th July 2011, 08:38 AM

Originally Posted by MG1962

And the Dow heads south

Hooray!!!

That means stocks are on sale.

Unabogie · 29th July 2011, 09:00 AM

Originally Posted by The Central Scrutinizer

Hooray!!!

That means stocks are on sale.

You speak truth. For people like me still in the accumulation phase, this is good news. But for all the elderly Teabaggers who voted for this, they are in for some bad news when they watch their savings chopped in half (again).

And just as the market was recovering...

Toontown · 29th July 2011, 09:08 AM

Originally Posted by Unabogie

I don't think Teabaggers have thought this through at all, and since they seem to be driving the show right now, that should scare the crap out of everyone.

What about the possibility that the baggers actually have thought this through, and all they could think to do was screw the pooch? Maybe the baggers only regret that they have but one life to give for their country...er, I mean their beloved Michelle, the Antichristess - or whatever you'd call a silly bitch who aspires to be in the White House with PMS and a migraine when The End comes.

mhaze · 29th July 2011, 09:55 AM

Originally Posted by Bri

The government has to borrow money for some time even under the Ryan plan (which doesn't balance the budget until some 30 years from now). So higher interest rates would increase the debt and the time it will take to balance the budget (assuming we don't raise more revenue to offset the difference, which I think we can safely assume you're against). So your argument is that we have to balance the budget, but you want to do so by taking more money away from the government in the form of higher interest rates. Have you really thought this through?

Or maybe you have. According to your theory, allowing the government to default on its obligations might be a great way for the rich to get even richer at the expense of everyone else. I tend to disagree. I don't think anyone -- including the rich -- will benefit from government default.

-Bri

Oh, I've certainly thought it through. I am saying, do not take a myopic view, the US Government is only one part of the US economy, and is not by any means in control of it. Then there is the world economy with which we interrelate.

Higher interest rates are definitely good for some people, bad for others. Artificially forcing rates low causes capital flight, mal investment, and stagflation. That's where we are at right now.

Correcting those issues would be nice for us, bad for the US government.

Unabogie · 29th July 2011, 10:11 AM

Originally Posted by mhaze

Oh, I've certainly thought it through. I am saying, do not take a myopic view, the US Government is only one part of the US economy, and is not by any means in control of it. Then there is the world economy with which we interrelate.

Higher interest rates are definitely good for some people, bad for others. Artificially forcing rates low causes capital flight, mal investment, and stagflation. That's where we are at right now.

Correcting those issues would be nice for us, bad for the US government.

Again, higher interest rates will hurt the housing market, since fewer people will be able to afford loans. It'll hurt the auto industry, since fewer people will be able to afford loans. It'll hurt the small businesses, since fewer businesses will get loans. But you'll get a few extra points on your CDs?

So what, if your stocks are going down? Can you point to a single reputable economist who agrees with you that higher interest rates, right now, would help the average person in any way, shape or form?

Bri · 29th July 2011, 10:33 AM

Originally Posted by mhaze

Correcting those issues would be nice for us, bad for the US government.

mhaze, you seem to be arguing with yourself. You complain bitterly about the size of the deficit and the debt and the state of the economy, then in the next breath you claim that somehow increasing the deficit and the debt and impeding the recovery would be "nice for us, bad for the US government."

Increasing the deficit and debt even further and impeding the economic recovery which would almost certainly follow a lowering of our credit rating would be bad for everyone, including those who might benefit in the short term from the increased interest rates.

-Bri

eeyore1954 · 29th July 2011, 10:34 AM

Originally Posted by The Central Scrutinizer

Hooray!!!

That means stocks are on sale.

That was certainly true after 9/11 and after President Bush's statement. There was a lot of money to be made. But for long term investors and 401k holders it has been a slow climb back.

eeyore1954 · 29th July 2011, 10:39 AM

Originally Posted by King of the Americas

Maybe they were 'going up', on the heels of the debt ceiling debate occurring at the time?

What 'exactly' caused the default on the $120 million isn't 'known'.

Here's one of my sources for my blog: http://www.npr.org/2011/07/11/137773...treasury-bonds

I don't believe that source is correct that an accidental default on $120,000,000 of bonds cost the US government .6% on all bonds.

BenBurch · 29th July 2011, 10:41 AM

Yes, it does appear that some Teabaggers will dig in their heels and not vote with Boner (sic), and that they intend to bring down the system. The people elected disestablishmentarians, and they got it.

The Mutha · 29th July 2011, 10:56 AM

In order to curtail my spending and fix my budget, I'm going to decide not to pay on my credit cards so that I have more money to buy new stuff. I don't see that happening without it killing my credit score...

Correct me if I'm wrong, but Congress can just pass a bill raising the debt limit without any other spending cuts, revenue inhancements or anything else, right? Why the hell don't they just do that and then spend the time necessary to really tackle the budgetary issues?

The Central Scrutinizer · 29th July 2011, 11:05 AM

Originally Posted by eeyore1954

That was certainly true after 9/11 and after President Bush's statement. There was a lot of money to be made. But for long term investors and 401k holders it has been a slow climb back.

Depends on which shares you own.

ZouPrime · 29th July 2011, 11:24 AM

Originally Posted by The Mutha

In order to curtail my spending and fix my budget, I'm going to decide not to pay on my credit cards so that I have more money to buy new stuff. I don't see that happening without it killing my credit score...

Correct me if I'm wrong, but Congress can just pass a bill raising the debt limit without any other spending cuts, revenue inhancements or anything else, right? Why the hell don't they just do that and then spend the time necessary to really tackle the budgetary issues?

'Cause the Tea Party doesn't want to. They decided to link the budget and the credit under a single fight, and now you guys are stuck with this made-up rule.

johnny karate · 29th July 2011, 11:36 AM

Originally Posted by The Mutha

Correct me if I'm wrong, but Congress can just pass a bill raising the debt limit without any other spending cuts, revenue inhancements or anything else, right? Why the hell don't they just do that and then spend the time necessary to really tackle the budgetary issues?

Originally Posted by ZouPrime

'Cause the Tea Party doesn't want to. They decided to link the budget and the credit under a single fight, and now you guys are stuck with this made-up rule.

Yeah, the Republicans decided upon the political strategy of taking what has always been a formality and turning it into a bargaining chip in order to force their agenda.

28th July 2011, 07:30 PM	#1
King of the Americas Philosopher Join Date: Nov 2001 Location: North Central Texas Posts: 5,071	Previous U.S. Treasury Default Yep, that's right, the U.S. Treasury defaulting on payments to its bondholders is NOT a new or unheard of thing. This was the subject of my blog this week: http://betterliberalarguments.blogsp...sequences.html Here's a snip-it: "...The previous U.S. Treasury default was over a mere $120 million dollars, and occurred in the middle of a debt ceiling debate, similar to the one occurring now. Even though the Treasury had some $800 billion outstanding at the time, the amount actually defaulted on was a very small proportion of the debt. At issue was the fact, that a few checks just didn't get written and sent out, due to bookkeeping and or computer problems, and this caused the federal interest rate to rise by .6%. This raised interest rate was not applied only to the $120 million that was defaulted on, but rather to the entire debt at the time, which was close to a trillion dollars. So, missing the $120 million in payments to bond holders cost the Treasury alone about $6 billion in increased interest...." --- I just found the whole "no one knows what will happen if we default" argument, wholly WRONG. It is KNOWN as to what will happen if we default to bondholders... It is just that Tea Party folk don't read modern history.

28th July 2011, 08:16 PM	#2
Bri Philosopher Join Date: Feb 2005 Posts: 5,310	I think the Tea Party argument is that we have enough money to pay bondholders. The question is what happens if we default on other obligations which, to my knowledge, has never been tested. -Bri
Bri Philosopher Join Date: Feb 2005 Posts: 5,310

28th July 2011, 09:51 PM	#3
Emperor_Gestahl Muse Join Date: Jun 2009 Posts: 779	Well we defaulted on precious metal obligations several times.
Emperor_Gestahl Muse Join Date: Jun 2009 Posts: 779

28th July 2011, 10:32 PM	#4
mhaze Penultimate Amazing Join Date: Jan 2007 Location: Woo*(+-1.10)^20=AGWwoo Posts: 15,392	I think it's perfectly fine if interest rates rise. People with savings would make more money, which they should have been doing for some time now. It'd be bad for the US Government yes, but that's them paying for the errors of their ways. Ideally, interest should pace inflation by a percent or two. Since the lowest paid rate has been T bills, we'll likely see something else be the "good bonds". T bill rates could be higher than those. Big deal, so what. Look at the problem pension funds are having right now. They are insolvent, because the continued forced low interest by the FED has caused them to be unable to earn the return on their portfolios to be liquid....on the average, they need to earn 8%. So moving back to higher interest rates would fix some of the definite imbalances in the economy. The US Gov. certainly doesn't want the rates to rise, but they never really controlled the economy anyway. Probably just made it worse. If you can consider the Government to have a "selfish motive", a motive for it's own good, and not that of the citizens of the country, then this is a good example of that. Keep interest rates ridiculously low, inflation higher, that's just a form of stealing from the people.
	__________________ Get your climate widget Climategate - History's Biggest Scam Poptech's List Climate Acronyms Last edited by mhaze; 28th July 2011 at 10:36 PM.

29th July 2011, 05:10 AM	#5
eeyore1954 Illuminator Join Date: Jun 2006 Posts: 4,121	Originally Posted by King of the Americas Yep, that's right, the U.S. Treasury defaulting on payments to its bondholders is NOT a new or unheard of thing. This was the subject of my blog this week: http://betterliberalarguments.blogsp...sequences.html Here's a snip-it: "...The previous U.S. Treasury default was over a mere $120 million dollars, and occurred in the middle of a debt ceiling debate, similar to the one occurring now. Even though the Treasury had some $800 billion outstanding at the time, the amount actually defaulted on was a very small proportion of the debt. At issue was the fact, that a few checks just didn't get written and sent out, due to bookkeeping and or computer problems, and this caused the federal interest rate to rise by .6%. This raised interest rate was not applied only to the $120 million that was defaulted on, but rather to the entire debt at the time, which was close to a trillion dollars. So, missing the $120 million in payments to bond holders cost the Treasury alone about $6 billion in increased interest...." --- I just found the whole "no one knows what will happen if we default" argument, wholly WRONG. It is KNOWN as to what will happen if we default to bondholders... It is just that Tea Party folk don't read modern history. How was it determined that the clerical error caused treasury interest rates to rise .6%. This was in the spring of 1979. from 1978 to 1980 interest rates were raising at a fast rate without any clerical errors. The prime rate rose from around 8% to 16% between the beginning of 1978 and 1980.
eeyore1954 Illuminator Join Date: Jun 2006 Posts: 4,121

29th July 2011, 05:27 AM	#6
Bri Philosopher Join Date: Feb 2005 Posts: 5,310	Originally Posted by mhaze I think it's perfectly fine if interest rates rise. People with savings would make more money, which they should have been doing for some time now. It'd be bad for the US Government yes, but that's them paying for the errors of their ways. The government has to borrow money for some time even under the Ryan plan (which doesn't balance the budget until some 30 years from now). So higher interest rates would increase the debt and the time it will take to balance the budget (assuming we don't raise more revenue to offset the difference, which I think we can safely assume you're against). So your argument is that we have to balance the budget, but you want to do so by taking more money away from the government in the form of higher interest rates. Have you really thought this through? Or maybe you have. According to your theory, allowing the government to default on its obligations might be a great way for the rich to get even richer at the expense of everyone else. I tend to disagree. I don't think anyone -- including the rich -- will benefit from government default. -Bri
Bri Philosopher Join Date: Feb 2005 Posts: 5,310	Last edited by Bri; 29th July 2011 at 05:53 AM.

29th July 2011, 06:35 AM	#7
King of the Americas Philosopher Join Date: Nov 2001 Location: North Central Texas Posts: 5,071	Originally Posted by Bri I think the Tea Party argument is that we have enough money to pay bondholders. The question is what happens if we default on other obligations which, to my knowledge, has never been tested. -Bri My point was that the previous default to bondholders was 'an accident', and not intentional at all... That Tea Partiers are hellbent on stopping ANY debt level increase is a real sign that they just don't get the consequences of such an action. They want to 'save' money, but default will cost billions, for everyone.

29th July 2011, 06:44 AM	#8
Nosi Master Poster Join Date: Jun 2009 Posts: 2,731	Originally Posted by King of the Americas My point was that the previous default to bondholders was 'an accident', and not intentional at all... That Tea Partiers are hellbent on stopping ANY debt level increase is a real sign that they just don't get the consequences of such an action. They want to 'save' money, but default will cost billions, for everyone. What scares me is maybe they do understand the consequences of such an action and that is their motivation, or the motivation of some of them.
Nosi Master Poster Join Date: Jun 2009 Posts: 2,731	__________________ __________ Hiding from the

29th July 2011, 06:45 AM	#9
King of the Americas Philosopher Join Date: Nov 2001 Location: North Central Texas Posts: 5,071	Originally Posted by mhaze I think it's perfectly fine if interest rates rise. People with savings would make more money, which they should have been doing for some time now. It'd be bad for the US Government yes, but that's them paying for the errors of their ways. ... ... Keep interest rates ridiculously low, inflation higher, that's just a form of stealing from the people. I find it funny that you think of the federal government as a "them"... Where do you think 'they' get their money to operate? That said, I think you make an interesting point about those with savings finally getting paid, as their interest rates have been kept artificially low. However, maybe you could do a little math and tell us all whether the U.S. would see a net gain or loss, from an interest rate increase? Do all of the private holdings exceed the national debt of 14.5 trillion?

29th July 2011, 06:45 AM	#10
MG1962 Guest Join Date: Sep 2006 Location: Kansas (Australia) Posts: 14,750	And the Dow heads south

29th July 2011, 06:51 AM	#11
King of the Americas Philosopher Join Date: Nov 2001 Location: North Central Texas Posts: 5,071	Originally Posted by eeyore1954 How was it determined that the clerical error caused treasury interest rates to rise .6%. This was in the spring of 1979. from 1978 to 1980 interest rates were raising at a fast rate without any clerical errors. The prime rate rose from around 8% to 16% between the beginning of 1978 and 1980. Maybe they were 'going up', on the heels of the debt ceiling debate occurring at the time? What 'exactly' caused the default on the $120 million isn't 'known'. Here's one of my sources for my blog: http://www.npr.org/2011/07/11/137773...treasury-bonds

29th July 2011, 06:53 AM	#12
Bri Philosopher Join Date: Feb 2005 Posts: 5,310	Originally Posted by King of the Americas My point was that the previous default to bondholders was 'an accident', and not intentional at all... That Tea Partiers are hellbent on stopping ANY debt level increase is a real sign that they just don't get the consequences of such an action. They want to 'save' money, but default will cost billions, for everyone. Sure, but their argument is that as long as we pay bondholders it's not really default and won't have the negative consequences associated with default to bondholders. So the fact that we've defaulted by failing to pay bondholders before wouldn't really be evidence against the argument the Tea Party is making. There is plenty of other evidence that the Tea Party is wrong, but I'm not sure the event you're referring to applies. -Bri
Bri Philosopher Join Date: Feb 2005 Posts: 5,310

29th July 2011, 06:58 AM	#13
King of the Americas Philosopher Join Date: Nov 2001 Location: North Central Texas Posts: 5,071	Originally Posted by Nosi What scares me is maybe they do understand the consequences of such an action and that is their motivation, or the motivation of some of them. It is difficult for me to believe that there ISN'T a concerted effort to damage the economy in a devastating manner, so that it can be laid at President Obama's feet- "This happened under YOUR watch!" If I were the President, I'd invoke the 14th amendment, and then force the courts to stop me. All of the legal experts I've asked about it, say that only "law makers"/Congress could do it, but in order to save the country, I'd do it anyway...

29th July 2011, 07:02 AM	#14
King of the Americas Philosopher Join Date: Nov 2001 Location: North Central Texas Posts: 5,071	Originally Posted by Bri Sure, but their argument is that as long as we pay bondholders it's not really default and won't have the negative consequences associated with default to bondholders. So the fact that we've defaulted by failing to pay bondholders before wouldn't really be evidence against the argument the Tea Party is making. There is plenty of other evidence that the Tea Party is wrong, but I'm not sure the event you're referring to applies. -Bri We HAD money on hand to pay the previous default...the payments didn't get made 'by accident'. There's a bill being considered right now, that would instruct which bills get paid, and which ones won't. Do you think the creditors we DON'T pay will have 'zero' effect on our credit rating?

29th July 2011, 07:05 AM	#15
Bri Philosopher Join Date: Feb 2005 Posts: 5,310	Originally Posted by King of the Americas If I were the President, I'd invoke the 14th amendment, and then force the courts to stop me. All of the legal experts I've asked about it, say that only "law makers"/Congress could do it, but in order to save the country, I'd do it anyway... Although he can't say it, I'm fairly certain that if the debt ceiling isn't raise, the president would have to attempt this rather than default. -Bri
Bri Philosopher Join Date: Feb 2005 Posts: 5,310

29th July 2011, 07:08 AM	#16
Bri Philosopher Join Date: Feb 2005 Posts: 5,310	Originally Posted by King of the Americas We HAD money on hand to pay the previous default...the payments didn't get made 'by accident'. There's a bill being considered right now, that would instruct which bills get paid, and which ones won't. Do you think the creditors we DON'T pay will have 'zero' effect on our credit rating? No, I definitely agree that defaulting on any obligation (including obligations to non-bondholders) would have a negative effect on our credit rating. But your example doesn't provide any evidence of this one way or the other, given that in that instance bondholders weren't paid. -Bri
Bri Philosopher Join Date: Feb 2005 Posts: 5,310

29th July 2011, 07:09 AM	#17
Unabogie Philosopher Join Date: Aug 2005 Location: Portland, OR Posts: 5,852	Talk to me like I'm stupid, but if interest rates go up because the US is downgraded, then wouldn't this absolutely slow the economy? Isn't raising interest rates exactly what the fed does when it wants to "cool down" a heated economy that they think is causing inflation? Ok, so my savings account will have a higher interest rate. But it'll be harder to buy a car. Or sell my house. Or borrow money for my business. We have a recovery that's heading back towards recession after a slow, but steady improvement (now that the stimulus money has dried up, funny how it "failed" but now you see the results without it). It seems to me that hiking interest rates right now would be disastrous. Just devastating. I don't think Teabaggers have thought this through at all, and since they seem to be driving the show right now, that should scare the crap out of everyone.
	Last edited by Unabogie; 29th July 2011 at 07:11 AM.

29th July 2011, 07:16 AM	#18
King of the Americas Philosopher Join Date: Nov 2001 Location: North Central Texas Posts: 5,071	Originally Posted by Bri Although he can't say it, I'm fairly certain that if the debt ceiling isn't raise, the president would have to attempt this rather than default. -Bri Agreed.

29th July 2011, 07:24 AM	#19
King of the Americas Philosopher Join Date: Nov 2001 Location: North Central Texas Posts: 5,071	Originally Posted by Bri No, I definitely agree that defaulting on any obligation (including obligations to non-bondholders) would have a negative effect on our credit rating. But your example doesn't provide any evidence of this one way or the other, given that in that instance bondholders weren't paid. -Bri My example is evidence of defaulting on bondholders = increased interest rates, that cost billions, even though the amount defaulted upon was very small. The point being, that even a small payment missed will mean a MUCH larger debt to be paid. Moreover, that the previous default wasn't purposeful... We COULD have paid those bills, but the checks just didn't get signed & mailed. The creditors simply don't care why they didn't get paid. It is a pay us or you are screwed, deal. If we don't pay ALL of our bondholders, the rates will go up. This is historical fact, not speculation.

29th July 2011, 07:26 AM	#20
Bri Philosopher Join Date: Feb 2005 Posts: 5,310	Originally Posted by Unabogie Talk to me like I'm stupid, but if interest rates go up because the US is downgraded, then wouldn't this absolutely slow the economy? Yes, it would be a bad thing. Yes, people who have significant money in savings accounts and the like might benefit somewhat from higher overall interest rates, but yes it would be bad for the economy overall. The Tea Partiers deny that our credit rating would be downgraded as long as we pay bondholders first. They ignore very strong evidence that we would be downgraded if we default on any obligation. Some of them deny that we would default on any obligation. -Bri
Bri Philosopher Join Date: Feb 2005 Posts: 5,310

29th July 2011, 07:28 AM	#21
King of the Americas Philosopher Join Date: Nov 2001 Location: North Central Texas Posts: 5,071	Originally Posted by Unabogie Talk to me like I'm stupid, but if interest rates go up because the US is downgraded, then wouldn't this absolutely slow the economy? Isn't raising interest rates exactly what the fed does when it wants to "cool down" a heated economy that they think is causing inflation? Ok, so my savings account will have a higher interest rate. But it'll be harder to buy a car. Or sell my house. Or borrow money for my business. We have a recovery that's heading back towards recession after a slow, but steady improvement (now that the stimulus money has dried up, funny how it "failed" but now you see the results without it). It seems to me that hiking interest rates right now would be disastrous. Just devastating. I don't think Teabaggers have thought this through at all, and since they seem to be driving the show right now, that should scare the crap out of everyone. I don't think anyone needs to speak to you like you are stupid... Clearly you understand how interest rates affect the economy. Sadly, I think the teabaggers do as well, which is their goal- to wreck the economy.

29th July 2011, 07:29 AM	#22
Bri Philosopher Join Date: Feb 2005 Posts: 5,310	Originally Posted by King of the Americas My example is evidence of defaulting on bondholders = increased interest rates, that cost billions, even though the amount defaulted upon was very small. As far as I know, no Tea Partiers have disagreed with this. They argue that we won't default on bondholders. Quote: If we don't pay ALL of our bondholders, the rates will go up. This is historical fact, not speculation. Sure, but there's no question about paying bondholders. If we prioritize payments (as the Tea Partiers suggest) we won't default on a single bondholder. We'll default on other obligations (which, they argue, won't have the same negative consequences). -Bri
Bri Philosopher Join Date: Feb 2005 Posts: 5,310

29th July 2011, 07:40 AM	#23
Unabogie Philosopher Join Date: Aug 2005 Location: Portland, OR Posts: 5,852	Regarding the idea that we won't default on bondholders, but will by necessity cut domestic spending instead, does it occur to them how this will play to the average American? "Sure, we've stopped paying your SS check, or your Medicare bill, and the TSA shut down so you can't fly, and your mail takes six times as long to deliver, but you see we had to pay the rich bondholders and the Chinese government first." I question whether many people who voted for Teabaggers really understood what were in for.

29th July 2011, 07:51 AM	#24
King of the Americas Philosopher Join Date: Nov 2001 Location: North Central Texas Posts: 5,071	Originally Posted by Bri ... Sure, but there's no question about paying bondholders. If we prioritize payments (as the Tea Partiers suggest) we won't default on a single bondholder. We'll default on other obligations (which, they argue, won't have the same negative consequences). -Bri I understand that, but my point and example is that merely debating & questioning whether or not to raise the debt ceiling- holding up legislation, and NOT properly prioritizing, 'accidently' led to a few bondholders not getting paid. There's a real threat of this happening now. I don't think there's any evidence for defaults NOT causing negative consequences, regardless of the creditor.

29th July 2011, 08:01 AM	#25
Bri Philosopher Join Date: Feb 2005 Posts: 5,310	Originally Posted by Unabogie Regarding the idea that we won't default on bondholders, but will by necessity cut domestic spending instead, does it occur to them how this will play to the average American? From their point of view, this is what the "average American" voted them into office to do. No, they don't understand that sinking the whole ship isn't really what people had in mind when they were voted in. On the other hand, anyone voting for them should have seen this coming (the adage "be careful what you wish for" comes to mind). -Bri
Bri Philosopher Join Date: Feb 2005 Posts: 5,310

29th July 2011, 08:06 AM	#26
Bri Philosopher Join Date: Feb 2005 Posts: 5,310	Originally Posted by King of the Americas I understand that, but my point and example is that merely debating & questioning whether or not to raise the debt ceiling- holding up legislation, and NOT properly prioritizing, 'accidently' led to a few bondholders not getting paid. There's a real threat of this happening now. I guess I can see the argument you're trying to make, but if that did happen it would probably be perceived as the fault of the Obama administration for not planning properly for the possibility of the debt ceiling not being raised. Certainly, the Tea Partiers would say that they didn't hide the fact that they weren't voting to raise the debt ceiling, so if the administration failed to properly plan for that possibility in order to pay bondholders first, it would be the administration's fault. -Bri
Bri Philosopher Join Date: Feb 2005 Posts: 5,310

29th July 2011, 08:26 AM	#27
Kestrel Illuminator Join Date: Dec 2007 Location: DM79 Posts: 4,203	Originally Posted by Unabogie Talk to me like I'm stupid, but if interest rates go up because the US is downgraded, then wouldn't this absolutely slow the economy? Isn't raising interest rates exactly what the fed does when it wants to "cool down" a heated economy that they think is causing inflation? Ok, so my savings account will have a higher interest rate. But it'll be harder to buy a car. Or sell my house. Or borrow money for my business. We have a recovery that's heading back towards recession after a slow, but steady improvement (now that the stimulus money has dried up, funny how it "failed" but now you see the results without it). It seems to me that hiking interest rates right now would be disastrous. Just devastating. I don't think Teabaggers have thought this through at all, and since they seem to be driving the show right now, that should scare the crap out of everyone. A hike in interest rates would cause a slowing of economic growth. Just as the cutbacks in stimulus funds and layoffs of public sector workers caused GDP growth to be about 1.5% lower in the first quarter of this year. The problem is that few in the right wing understand how a national economy works.

29th July 2011, 08:38 AM	#28
The Central Scrutinizer Penultimate Amazing Pither Join Date: Dec 2001 Location: The White Zone Posts: 42,277	Originally Posted by MG1962 And the Dow heads south Hooray!!! That means stocks are on sale.
	__________________ If I see somebody with a gun on a plane? I'll kill him.

29th July 2011, 09:00 AM	#29
Unabogie Philosopher Join Date: Aug 2005 Location: Portland, OR Posts: 5,852	Originally Posted by The Central Scrutinizer Hooray!!! That means stocks are on sale. You speak truth. For people like me still in the accumulation phase, this is good news. But for all the elderly Teabaggers who voted for this, they are in for some bad news when they watch their savings chopped in half (again). And just as the market was recovering...

29th July 2011, 09:08 AM	#30
Toontown Illuminator Join Date: Jun 2010 Posts: 3,555	Originally Posted by Unabogie I don't think Teabaggers have thought this through at all, and since they seem to be driving the show right now, that should scare the crap out of everyone. What about the possibility that the baggers actually have thought this through, and all they could think to do was screw the pooch? Maybe the baggers only regret that they have but one life to give for their country...er, I mean their beloved Michelle, the Antichristess - or whatever you'd call a silly bitch who aspires to be in the White House with PMS and a migraine when The End comes.
Toontown Illuminator Join Date: Jun 2010 Posts: 3,555	Last edited by kmortis; 29th July 2011 at 04:42 PM. Reason: fixed spelling error

29th July 2011, 09:55 AM	#31
mhaze Penultimate Amazing Join Date: Jan 2007 Location: Woo*(+-1.10)^20=AGWwoo Posts: 15,392	Originally Posted by Bri The government has to borrow money for some time even under the Ryan plan (which doesn't balance the budget until some 30 years from now). So higher interest rates would increase the debt and the time it will take to balance the budget (assuming we don't raise more revenue to offset the difference, which I think we can safely assume you're against). So your argument is that we have to balance the budget, but you want to do so by taking more money away from the government in the form of higher interest rates. Have you really thought this through? Or maybe you have. According to your theory, allowing the government to default on its obligations might be a great way for the rich to get even richer at the expense of everyone else. I tend to disagree. I don't think anyone -- including the rich -- will benefit from government default. -Bri Oh, I've certainly thought it through. I am saying, do not take a myopic view, the US Government is only one part of the US economy, and is not by any means in control of it. Then there is the world economy with which we interrelate. Higher interest rates are definitely good for some people, bad for others. Artificially forcing rates low causes capital flight, mal investment, and stagflation. That's where we are at right now. Correcting those issues would be nice for us, bad for the US government.
	__________________ Get your climate widget Climategate - History's Biggest Scam Poptech's List Climate Acronyms

29th July 2011, 10:11 AM	#32
Unabogie Philosopher Join Date: Aug 2005 Location: Portland, OR Posts: 5,852	Originally Posted by mhaze Oh, I've certainly thought it through. I am saying, do not take a myopic view, the US Government is only one part of the US economy, and is not by any means in control of it. Then there is the world economy with which we interrelate. Higher interest rates are definitely good for some people, bad for others. Artificially forcing rates low causes capital flight, mal investment, and stagflation. That's where we are at right now. Correcting those issues would be nice for us, bad for the US government. Again, higher interest rates will hurt the housing market, since fewer people will be able to afford loans. It'll hurt the auto industry, since fewer people will be able to afford loans. It'll hurt the small businesses, since fewer businesses will get loans. But you'll get a few extra points on your CDs? So what, if your stocks are going down? Can you point to a single reputable economist who agrees with you that higher interest rates, right now, would help the average person in any way, shape or form?

29th July 2011, 10:33 AM	#33
Bri Philosopher Join Date: Feb 2005 Posts: 5,310	Originally Posted by mhaze Correcting those issues would be nice for us, bad for the US government. mhaze, you seem to be arguing with yourself. You complain bitterly about the size of the deficit and the debt and the state of the economy, then in the next breath you claim that somehow increasing the deficit and the debt and impeding the recovery would be "nice for us, bad for the US government." Increasing the deficit and debt even further and impeding the economic recovery which would almost certainly follow a lowering of our credit rating would be bad for everyone, including those who might benefit in the short term from the increased interest rates. -Bri
Bri Philosopher Join Date: Feb 2005 Posts: 5,310	Last edited by Bri; 29th July 2011 at 10:35 AM.

29th July 2011, 10:34 AM	#34
eeyore1954 Illuminator Join Date: Jun 2006 Posts: 4,121	Originally Posted by The Central Scrutinizer Hooray!!! That means stocks are on sale. That was certainly true after 9/11 and after President Bush's statement. There was a lot of money to be made. But for long term investors and 401k holders it has been a slow climb back.
eeyore1954 Illuminator Join Date: Jun 2006 Posts: 4,121

29th July 2011, 10:39 AM	#35
eeyore1954 Illuminator Join Date: Jun 2006 Posts: 4,121	Originally Posted by King of the Americas Maybe they were 'going up', on the heels of the debt ceiling debate occurring at the time? What 'exactly' caused the default on the $120 million isn't 'known'. Here's one of my sources for my blog: http://www.npr.org/2011/07/11/137773...treasury-bonds I don't believe that source is correct that an accidental default on $120,000,000 of bonds cost the US government .6% on all bonds.
eeyore1954 Illuminator Join Date: Jun 2006 Posts: 4,121