Countdown to ragnarock??

[Bneterasedmynam]

It would seem that here in the U.S. Our politicians seem bent on crashing our economy all together. With that whole debt default thing only a weekend away they are still playing party games and have no intention of fixing the fucking problem. So what is everyones opinion on this are we headed toward Armageddon?? I would also like to hear from those across the pond since I'm sure this would effect the world market as well.

[CoffeeFan]

I predict the two bills presented will not pass the senate and President Obama will pass an executive order raising the debt limit at the last minute

[judoka_uk]

Yeh would you guys kindly stop fucking about with the world's economy. Otherwise we're going to have to get your bank manager to give you a stern talking to, to try and get you acting like a grown up country.

And believe me, this guy doesn't dick about.

[Odacon]

If china is america's banker, and america defaults, wont that kick china's legs from out underneath it?

[Bneterasedmynam]

If china is america's banker, and america defaults, wont that kick china's legs from out underneath it?

No they will just reposess our country, so how hard is it to learn Chinese?? On the bright side all our kids will lose weight.

[The_Beak]

The best part of all this is that they can argue about what cuts to make, who to tax etc. WITHOUT holding the economy hostage.

[judoka_uk]

If china is america's banker, and america defaults, wont that kick china's legs from out underneath it?

As I understand it the issue is this:

If they don't get an increase in the debt ceiling by 2nd August the US will not have enough money to service its debts and spending commitments.

To service debts and meet spending commitments it will need to borrow money.

It is illegal to borrow money without congressional approval because of the 1917 Second Liberty Bond Act.

However, at the same time it is also bound by laws that say it has to makre certain payments and the 14th amendment of the constitution seems to imply that there is a constitutional obligation for the US to meet its debts.

If the US doesn't pass a rise in the debt ceiling and thus is forced into some form of default position then they may lose their AAA credit rating, thus increasing their cost of borrowing and necesitating an even greater increase in the budget ceiling that would have to be passed.

What they would mean is a big hit to the 'repo' market. Repos are a short-term loan often used in money markets, where the seller of a security agrees to buy it back at a specified price and time. The seller pays an interest rate, the repo rate, when buying back the securities.

After that it all gets complicated so I'm just going to copy pasta from the FT.

Why are repurchase agreements important for the functioning of the financial system?

Repos are typically the simplest and cheapest way for large financial institutions to finance their enormous holdings of fixed-income securities. Every day, repos are used to finance several trillion dollars worth of assets.



What role do US government securities play in the operation of the repo market?
Historically, US government securities, or “Treasuries”, are the most preferred collateral in the world because of their high liquidity and low credit risk. Haircuts on Treasury repos are extremely low, recently around 2 per cent. This means that a firm can purchase $102m in Treasuries by investing only $2m in new cash and offering the same Treasuries as collateral against a $100m loan in the repo market. Treasuries make up a large fraction of the collateral backing repos.


What will happen to the repo market if the US defaults on its debts, or if US government securities are downgraded?
In either case, the desire for Treasuries as collateral would weaken. The prices of Treasuries would also be likely to decline. On top of the direct losses to Treasuries investors, haircuts would rise, forcing these investors to put up more cash to maintain repo financing for their positions. This could cause some forced sales of Treasuries, further reducing Treasury prices. In any case, higher haircuts would damp the demand for Treasuries.



How would disruptions in the repo market affect the average person?
Reduced demand for government securities as repo collateral would force the US government to offer higher interest rates on Treasuries in order to sell them. This is on top of any increase in interest rates that investors would demand in compensation for higher default risk. The average US taxpayer would need to pay more taxes to cover the US government’s higher interest costs. In addition, corporate and consumer interest rates are traditionally marked up over the government’s cost of borrowing. Assuming that practice continues, interest rates on credit cards, mortgages and business loans would rise, on average.


What is the worst case scenario?
If confidence in the value of Treasuries is badly shaken, haircuts could rise sharply and Treasury prices could drop noticeably. The ripple effects from the reduction in demand and forced selling could lead to a further drop in prices, leading to higher haircuts and more price declines.

[doofaloofa]

We're all doomed I tell ya, DOOMED!

[TaeBo_Master]

The problem is, even if we raise the debt ceiling and make our payments, or find a way to make the payments without raising the ceiling, we may still lose our AAA rating. The problem is less about making this particular payment than it is the trending growth of our debt, combined with an ever-increasing deficit. So, debt ceiling or no debt ceiling, if we don't implement some kind of long term solution soon, then we could be having this conversation every month.

[alex]

whats worrying to me is that the debt ceiling has been raised over 100 times. has it ever been lowered? doesnt this seem like that idiot we all know who has an ever growing credit card bill and cant even make enough to pay off the interest cos they keep getting more money to buy the latest shiny thing they see in a window?

[TaeBo_Master]

In a perfect world, we'd find a way to pay our debts without needing to raise the debt ceiling. Borrowing money to make good on previously borrowed money isn't a strategy for long term success. But given the trend... I'd say this is unlikely.

[doofaloofa]

If we found a cheaper way of blowing shit up, that would be a start

[Bneterasedmynam]

If we found a cheaper way of blowing shit up, that would be a start

They already have a giant surplus to blow shit up which is why their using 500 lb bombs to blow up single targets. Its the wastefull spending that has to stop, plus the fact that taxes havnt gone up in like 50 years. I get so sick of everyone saying oh you cant raise taxes cause the rich basterds wont make jobs, well tell me what fucking jobs are they making exactly?? And how many of them are in this country?? What they need to do is only give tax breaks to companies that hire here, and tax the fuck out of the rest of them. 10% unemployment is not going to fix the economy trickle down economics have never worked, people have to buy shit to make shit its a circle not a one way funnel to the ceos and corporate coffers.

[Snake Plissken]

No they will just reposess our country, so how hard is it to learn Chinese?? On the bright side all our kids will lose weight.

Looks like kung fu will win, again.

[doofaloofa]

Ten years ago ther was not a single Chinese takeaway in the whole of wesht cark
Now there is at least one in every village and town

Coincidence?