# US debt ceiling



## sags (May 15, 2010)

Looks like the Republicans are starting to blink........


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## Argentein (Jul 7, 2011)

They better be as water is flowing above head now. But I don't think the struggle would be short instead this will be long hard struggle to revive the economy.


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## dogcom (May 23, 2009)

I think we also need the American people to blink a little as well.

I mean they don't want taxes raised at all, but somehow the government should do the right thing. I am not saying raising taxes is the answer to anything except for it being part of the solution with spending reductions and pain being felt by everyone.

The people of Canada blinked in the early 90's and now the same is required south of the border.


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## jwsmith519 (Dec 13, 2009)

The debt ceiling was raised 7 times under Bush. It is always being raised. I don't know why this is news. Probably because certain politicians are using it as leverage. 

The only issue with debt is a countrys ability to pay. The difference between Greece and the US is that Americans want to work. Their ability to pay is significantly better than the Greeks.

Also, we have to note that the US isn't even one of the highest debtor countries in terms of GDP. By Eurostat, they are ranked at #36 (Canada is #85). The US is #10 by IMF rankings (the same ranking that puts Canada at #16, so take it with a grain of salt)

Unfortunately the public is convinced the US is going down the tubes, and this hole story is putting fuel on the fire. But we forget how often they raise the debt ceiling.


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## Toronto.gal (Jan 8, 2010)

As someone said in the Lang/O'Leary show last night, why not eliminate the limit altogether when it is always raised anyway.


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## the-royal-mail (Dec 11, 2009)

This should really be in the off-topic section considering it's not a Canadian topic.

That said, this whole US issue seems nothing more than political posturing?


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## Karen (Jul 24, 2010)

Any kind of major financial disaster in the US would affect Canada very significantly,TRM, so doesn't that make it an appropriate topic for a Canadian money forum? Besides the effect it would have on many aspects of the Canadian economy, it will also affect many of us directly, in some cases quite drastically. I receive a not insignificant portion of my income from my late husband's US Social Security benefits, and I have other inherited financial assets in the US as well. I have no idea whether what's going on there now is mainly politics or whether there is reason for genuine concern, but I certainly want to stay informed about the situation.


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## the-royal-mail (Dec 11, 2009)

I understand Karen but the *Canadian* money forum isn't really the best place to stay informed about situations in other countries. One could argue there are effects on us with a lot of things that happen outside our borders, but we need to draw the line somewhere. That was one of the things about I'm Howard also, so many of his posts had to do with the greatness of the US, I always wondered why he simply didn't seek out a US forum to discuss issues related to that country.


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## Toronto.gal (Jan 8, 2010)

I agree with Karen! There is an inseparable connection when it comes to the economy and money matters & no longer only with the US.

@edit: I would add that we talk a lot about US investments/stocks on this forum as well, not only Canadian, so IMHO, no need to separate.


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## andrewf (Mar 1, 2010)

jwsmith519 said:


> T
> The only issue with debt is a countrys ability to pay. The difference between Greece and the US is that Americans want to work. Their ability to pay is significantly better than the Greeks.


Actually, the difference is that the US borrows in a currency it has an unlimited supply of (they own the printing press), whereas Greece borrows in a currency they have no control over. Greece is more comparable to California.


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## v_tofu (Apr 16, 2009)

the-royal-mail said:


> This should really be in the off-topic section considering it's not a Canadian topic.
> 
> That said, this whole US issue seems nothing more than political posturing?


Being our neighbors and one of the biggest trading partners, I would expect some sort of effect from the whole US default scenario

http://www.cbc.ca/news/business/story/2011/07/12/f-us-default-canadian-effects.html


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## Karen (Jul 24, 2010)

the-royal-mail said:


> I understand Karen but the *Canadian* money forum isn't really the best place to stay informed about situations in other countries...


I would agree with you, TRM, if this forum were the only source I use to try to stay informed about the US economy. But it isn't, and I think there are many people on this forum who know a lot more about economics than I do and whose views are of interest to me.


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## KaeJS (Sep 28, 2010)

The Republicans better start blinking.

Those guys are ridiculous.

You know, if you raise taxes, you don't have to raise them by 10%, you can do it by 1 or 2%. That won't kill anybody.

You need to reduce spending AND increase the taxes.

Obama all the way. I'm in for the $4T/10yr reduction package. Republicans can go to Mexico if they don't like it!


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## sensfan15 (Jul 13, 2011)

I agree..
The Republicans are being completely unreasonable. Obama wants to get it done. The Republicans are sabotaging their own country. A tax increase (along with reduced spending) is not the end of the world.


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## ddkay (Nov 20, 2010)

> WASHINGTON | Wed Jul 13, 2011 7:12pm EDT
> (Reuters) - President Barack Obama abruptly ended a tense budget meeting on Wednesday with Republican leaders by walking out of the room, a Republican aide familiar with the talks said.
> 
> The aide said the session, the fourth in a row, was the most tense of the week as House of Representatives Speaker John Boehner, the top Republican in Congress, dismissed spending cuts offered by the White House as "gimmicks and accounting tricks."


Is it theatre or is it real?


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## NorthernRaven (Aug 4, 2010)

Just to note, my understanding is that it is highly unlikely that the US would default on its debt obligations (Treasury bonds and so on) even if the debt ceiling isn't raised by August 2. There is still revenue coming in, sufficient to pay the interest and avoid an official default. The problem is that this would not be enough to cover all the other expenses (Social security, Medicare, defense, federal paychecks, everything else), so the government would have to stiff people it would otherwise be paying. It would create still create havoc and be really stupid, but not quite of the magnitude that actually missing bond payments would.

It would be more like the California situation, where they issued IOUs instead of cheques, but still made all bond payments.


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## ddkay (Nov 20, 2010)

If there's adequate cash coming in every month why have they been raiding the cash, securities and borrowing capacity of government employee retirement and other funds?










From what I understand their cash flow is only adequate to pay interest on non-maturing debt. In August over 500B of debt comes due, and the only way to pay that on time for the U.S. Treasury to auction new debt for each tranche throughout the month.


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## Rysto (Nov 22, 2010)

Yeah, but the debt coming due reduces the amount of outstanding debt, giving the US some room under the limit with which they could issue new debt. They would probably have to come up with the cash to pay off the maturing debt before they could issue the new debt, though, so it would be a delicate operation.

In all honesty, I think that it's just hair-splitting. If a corporation wasn't able to pay its employees or its bills I have to imagine that its bonds would be rated well into junk territory even if they hadn't actually defaulted on any bonds yet.


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## NorthernRaven (Aug 4, 2010)

Rysto said:


> Yeah, but the debt coming due reduces the amount of outstanding debt, giving the US some room under the limit with which they could issue new debt. They would probably have to come up with the cash to pay off the maturing debt before they could issue the new debt, though, so it would be a delicate operation.
> 
> In all honesty, I think that it's just hair-splitting. If a corporation wasn't able to pay its employees or its bills I have to imagine that its bonds would be rated well into junk territory even if they hadn't actually defaulted on any bonds yet.


I would imagine bonds mature in tranches throughout the month, so they could probably redeem and reissue new debt with much less than $500 billion in available cash. 

I don't know if the rating agencies would actually downgrade without an actual default or not, since nothing has changed in the actual fundamentals. In your example, it would be more like the company has easy access to low cost financing, but the treasurer is holding up signing off on the loan to try and force the rest of management to alter its policies.


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## ddkay (Nov 20, 2010)

$452 billion maturing in August for 2011:


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## NorthernRaven (Aug 4, 2010)

Yes, but Rysto's point is that they don't all mature at one time. Say they have $150 billion available on, say, August 5th, when $100 billion matures. They pay those off. But now they are $100 billion below the debt ceiling, and can issue that much in new bonds, so they still have $150 billion available. They do the same thing for the next batch later in the month, and so on. The maturing bonds are a net wash, as long as they have enough free cash to cover them. At least that's how it appears to me, but my name isn't Geithner... 

They'd still be stiffing other non-bond payments, and its no way to run a railroad, but if it comes to it, you'd rather they do this than actually default on principal or interest. And there may be some other book-keeping tricks they are keeping in the back pocket to stave things off a little longer.

I suspect if it actually comes down to large chunks of the federal outlay not being paid (i.e. actual pain to constituents), Congress will enact at least a temporary fix pretty quick.


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