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Author Topic: American Foreign Dept ceiling  (Read 2233 times)
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July 21, 2011, 09:41:20 PM
 #1

Hi

I would like to know more about the American Foreign Dept and it consequences and time table

How much is the Dept?

Is there going to be more borrowing and when?

What is this Dept ceiling that they are trying to raise..?

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July 21, 2011, 11:24:52 PM
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Which department store? Walmart?



I didn't know Walmart's ceiling had a role in American foreign policy.
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July 21, 2011, 11:27:55 PM
 #3

Which department store? Walmart?



I didn't know Walmart's ceiling had a role in American foreign policy.

Way to be an ass Wink.  The debt is around 14 trillion dollars, we will be borrowing more, and the debt ceiling is a formality that appears to only exist in order for the majority party to hold the nation hostage (the democrats have done it too).

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July 21, 2011, 11:51:01 PM
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I would anticipate the debt ceiling being raised, but could think of two reasons why it may not be:

1) There is a fairly strong inclination on the part of a lot of policy makers to welsh on domestic liabilities (aka, 'entitlements') while keeping multinationals mainly whole.  The debt ceiling could prove a useful mechanism to accomplish this...though not necessarily through freezing it.

2) Most monetary systems seem to have an EOL enforced by the mathematics defining it (and the pressure that the participants are willing and able to put up with.)  I posit that a tempting exist strategy would be for 'important' people to get their ducks in a row then arrange a controlled demolition, and that seems to me the most likely outcome for our current system.  Now might be the time, and the debt ceiling might be the primer, though I kind of doubt it.  My gut sense is that we have some number of years left.

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July 22, 2011, 12:48:39 AM
 #5

OP,

Most of your questions have already been addressed so I'll just add that the deadline to raise the debt limit is August 2nd.

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July 22, 2011, 12:52:48 AM
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Well, not only foreigners own the debt.  About 47% of the debt is owned for foreign entities, the rest is owned by U.S. citizens and entities.

All it is is an arbitrary ceiling on total federal debt that congress sets and usually has no meaning.  I really don't know why it exists, because the budget that congress passes already determines how much federal debt the government will take on.

Wikipedia is always a good source of information.
Here's a link about U.S. public debt: http://en.wikipedia.org/wiki/United_States_public_debt
And here's a link about the current "crisis:" http://en.wikipedia.org/wiki/2011_US_debt_ceiling_crisis

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July 22, 2011, 12:57:21 AM
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Right... The government literally runs out of money unless they borrow more before August 2nd.  If they miss payments on any of their obligations, their credit rating will be downgraded, which will drive up interest rates.  At that point, our financial situation becomes much worse.  Hyperinflation may begin to look like the only way out.  I doubt they will let that happen.  The republicans are just using it as leverage to attempt to cut spending.  While I do feel our finances need serious discussion, holding a knife to our throats isn't the best way to get positive results.

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July 22, 2011, 02:03:09 AM
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The "debt ceiling" is raised every time the Federal Government gets close to running into it. It has been raised something like 95 times over the past 80 years or something. It has NEVER not been raised. Not once.

One might ask, "so, what's the point?"  And the answer is... to pretend the Government is responsible.
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July 23, 2011, 04:58:17 AM
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The "debt ceiling" is raised every time the Federal Government gets close to running into it. It has been raised something like 95 times over the past 80 years or something. It has NEVER not been raised. Not once.

One might ask, "so, what's the point?"  And the answer is... to pretend the Government is responsible.

This is how I visualize the Fed dealing with America re. the economy, the dollar, and the debt ceiling:

"If you don't let me stop you from driving your car into that wall, I will shoot you in the head. Let's take a right turn. Also remember you must drive faster and faster; keep accelerating or else the engine will die."
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July 24, 2011, 03:21:00 PM
 #10

Even if congress doesn't increase the limit, Obama could argue that the 14th amendment gives his office the authority to ignore the imposed borrowing limit.  Comments he has made imply he is reluctant to take that course of action though, preferring for Congress to pass an increase.

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July 24, 2011, 07:15:50 PM
 #11

If you look at the bond market, which filters out all the noise, you can basically see there is no panic.  These guys know a lot more than the average American and they're reaction so far to this looming deficit is, "meh." 

Granted Congress can surprise the market, such as when TARP was not originally passed and we saw a 900-point intra-day plunge.  However, the current sentiment seems to be overwhelmingly that something will get done.

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July 25, 2011, 02:54:38 AM
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If you look at the bond market, which filters out all the noise, you can basically see there is no panic.  These guys know a lot more than the average American and they're reaction so far to this looming deficit is, "meh." 

Granted Congress can surprise the market, such as when TARP was not originally passed and we saw a 900-point intra-day plunge.  However, the current sentiment seems to be overwhelmingly that something will get done.

Perhaps you are forgetting that a bulk of the US bond market is funds that mandate investment in only AAA-rated securities. There are only a handful of nations that have AAA ratings, and the US is by far the biggest and most liquid. So it is fair to say that bondholders have gotten themselves trapped. Many funds simply can't move out of the US bond market, and they'll go down with the ship - or they're bail the moment the US loses the AAA rating.

Bill Gross and the rest of PIMCO, the largest bond fund in the world, have had a somewhat different reaction to the US debt situation than just "meh." It is not a "meh" situation.
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July 25, 2011, 05:16:16 AM
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If you look at the bond market, which filters out all the noise, you can basically see there is no panic.  These guys know a lot more than the average American and they're reaction so far to this looming deficit is, "meh." 

Granted Congress can surprise the market, such as when TARP was not originally passed and we saw a 900-point intra-day plunge.  However, the current sentiment seems to be overwhelmingly that something will get done.

Perhaps you are forgetting that a bulk of the US bond market is funds that mandate investment in only AAA-rated securities. There are only a handful of nations that have AAA ratings, and the US is by far the biggest and most liquid. So it is fair to say that bondholders have gotten themselves trapped. Many funds simply can't move out of the US bond market, and they'll go down with the ship - or they're bail the moment the US loses the AAA rating.

Bill Gross and the rest of PIMCO, the largest bond fund in the world, have had a somewhat different reaction to the US debt situation than just "meh." It is not a "meh" situation.

Your first two sentences make the argument that bondholders are trapped.  Your third sentence then says they may bail if the US loses its AAA rating.  How can you "bail" if you're trapped?  That's rather contradictory.

Gross has made it very well known that he's short Treasuries.  So?  If the bond market is expecting a default, technical or otherwise, it would be priced in the yield.  The yield in the market at the moment is giving a "meh" sentiment.  You want to see a bond market that looks concerned, look at Greece or Italy. 

Edit:  Let me qualify this post by saying that by no means do I think the US's indebtedness is not a problem.  It is a rather severe and potentially catastrophic problem.  When I say "meh" I mean that specifically towards this August 2nd deadline in which we are heading.  Short-term the bond market is shrugging its shoulders.  Long-term, we do have a very real problem on our hands.  Just to be clear.

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July 25, 2011, 06:31:03 AM
 #14

If you look at the bond market, which filters out all the noise, you can basically see there is no panic.  These guys know a lot more than the average American and they're reaction so far to this looming deficit is, "meh." 

Granted Congress can surprise the market, such as when TARP was not originally passed and we saw a 900-point intra-day plunge.  However, the current sentiment seems to be overwhelmingly that something will get done.

Perhaps you are forgetting that a bulk of the US bond market is funds that mandate investment in only AAA-rated securities. There are only a handful of nations that have AAA ratings, and the US is by far the biggest and most liquid. So it is fair to say that bondholders have gotten themselves trapped. Many funds simply can't move out of the US bond market, and they'll go down with the ship - or they're bail the moment the US loses the AAA rating.

Bill Gross and the rest of PIMCO, the largest bond fund in the world, have had a somewhat different reaction to the US debt situation than just "meh." It is not a "meh" situation.

Your first two sentences make the argument that bondholders are trapped.  Your third sentence then says they may bail if the US loses its AAA rating.  How can you "bail" if you're trapped?  That's rather contradictory.

Gross has made it very well known that he's short Treasuries.  So?  If the bond market is expecting a default, technical or otherwise, it would be priced in the yield.  The yield in the market at the moment is giving a "meh" sentiment.  You want to see a bond market that looks concerned, look at Greece or Italy. 

Edit:  Let me qualify this post by saying that by no means do I think the US's indebtedness is not a problem.  It is a rather severe and potentially catastrophic problem.  When I say "meh" I mean that specifically towards this August 2nd deadline in which we are heading.  Short-term the bond market is shrugging its shoulders.  Long-term, we do have a very real problem on our hands.  Just to be clear.

Short-term shrug potentially for two reasons:
1) Overwhelming odds that debt-ceiling will be raised in time; no party wants any sort of blame for the situation that would ensue if the US defaults.
2) Backup plan is Bernake to the rescue?

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July 25, 2011, 09:25:08 AM
 #15

Hi

I would like to know more about the American Foreign Dept and it consequences and time table

How much is the Dept?

Is there going to be more borrowing and when?

What is this Dept ceiling that they are trying to raise..?

New Comer to Economics..

Best advice I can give you is IGNORE ALL THE CRAP THEY SAY ON TV! It's all political theater to fool the masses. You'd do well to follow the advice of economists who actually predicted this mess. People like Peter Schiff & Jim Rogers.

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July 25, 2011, 03:49:41 PM
 #16

What is this Dept ceiling that they are trying to raise..?

the debt ceiling is congress' authorization to the treasury department to issue bonds and other securities (t-bills, etc.) for as as much as they need to pay for authorized expenditures (i.e. everything congress passes a bill to authorize funding to) up to a certain limit (the ceiling).

if they hit the ceiling, they can't issue more securities to get money to pay for things, including repaying securities that are hitting maturity (which means they need to be paid back), which would result in them defaulting on those securities.

a default is highly unlikely and the current business is just political grandstanding.
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July 25, 2011, 04:40:23 PM
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Your first two sentences make the argument that bondholders are trapped.  Your third sentence then says they may bail if the US loses its AAA rating.  How can you "bail" if you're trapped?  That's rather contradictory.


Sorry if I was confusing. Bondholders are "trapped" in the sense that A) they are required by their own strict rules to only in vest in AAA securities and B) few if any alternatives exist with the market depth needed to absorb all the bondholders stuck in US securities.

Now, just because they're "stuck" in this way doesn't mean it is impossible for them to bail. It's just difficult. However, if (when) the AAA rating is lost by the US, all those funds will be forced to dump treasuries by their own rules.

Also, I really think many investors view the US as "exceptional"... they believe it is immune from true fiscal collapse because it is the hegemon. No matter how bad the US gets, investors still see it as the "least worst".

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July 25, 2011, 06:21:27 PM
 #18

Short-term shrug potentially for two reasons:
1) Overwhelming odds that debt-ceiling will be raised in time; no party wants any sort of blame for the situation that would ensue if the US defaults.
2) Backup plan is Bernake to the rescue?

Most likely #1.

Also remember that the US has an obligation to pay contractual liabilities.  Things such as principle and interest, defense contracts, etc.  The US has incoming funds, just not enough to cover all their obligations.  If an agreement is not made, they may still pay their bond holders and other contractual obligations, and delay payments on everything else such as social security, military salaries, etc.

Whether the bond rating agencies will find this sufficient enough to avoid a downgrade remains to be seen.

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July 25, 2011, 06:24:55 PM
 #19

Also, I really think many investors view the US as "exceptional"... they believe it is immune from true fiscal collapse because it is the hegemon. No matter how bad the US gets, investors still see it as the "least worst".

I agree.  If they pull out of Treasuries the money needs to go somewhere.  Also China is tethered to the US as they are dependent upon us to buy their exports.  A strong dollar is not in their best interest.

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July 26, 2011, 01:33:32 AM
 #20

Maybe we need to stop the trillion dollar war and then we have all the money in the world again?  Just my humble opinion.

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