Why Feb. 15 Could Be the Most Important Day in Market History

America hit its self-imposed debt ceiling two weeks ago, and the Treasury will run out of cash by about Feb. 15 unless the limit is raised.

What do we do about it? There seem to be two camps.

One says: "My gosh, of course it should be raised -- why are we even talking about this? The thought of voluntarily defaulting on the national debt is unfathomable!"

The other group says, "Whoa, whoa, whoa! No one is talking about defaulting on the debt. Not raising the debt ceiling would just force the government to spend within its means. Payments could be prioritized so that vital spending commitments -- notably, interest on the national debt -- are paid first and default is avoided."

Congresswoman Michele Bachmann noted during the debt ceiling debate in 2011:

This is a misnomer that I believe that the president and the Treasury Secretary have been trying to pass off on the American people, and it is this -- that if Congress fails to raise the debt ceiling, that somehow the United States will go into default and we will lose the full faith and credit of the United States. That is simply not true. ... It is important to recognize that revenues continue to come in to the United States Treasury. It is merely the president's obligation, and the Congress', to make sure that the interest is paid on the debt. We are grateful that revenues are sufficient to be able to pay the interest on the debt.

This seems logical, and it's mostly right. But it's just flawed enough to be utterly, disastrously, wrong.

The government does indeed take in enough in tax revenue to cover interest payments on the national debt -- by a factor of 11. Interest payments as a percentage of GDP are actually near the lowest level in 40 years.

But the government is not like a household that receives a fixed paycheck every other Friday and pays a set mortgage payment on the first of the month. Tax revenue and expenses are lumpy, coming and going in sporadic amounts.

That's an incredibly important distinction to make. Because while it's true that on an annual basis the government takes in enough to cover interest payments, it's decidedly not true on a month-by-month, week-by-week, day-by-day basis.

Using daily and monthly cash-flow statements, the Bipartisan Policy Center put together a projection of the Treasury's income and expenses on Feb. 15:

So, on its first day with no excess cash on hand, the Treasury is projected to receive $9 billion in tax receipts and owe a $30 billion interest payment.

Let that sink in for a moment.

Even if we shut down the FBI, close all Federal courts, lay off all Federal workers, suspend all Social Security payments, and stop paying soldiers, the Treasury still wouldn't have enough money to make its Feb. 15 interest payment.

It is a debt default.

The Treasury is expected to bring in $40 billion of tax revenue from Feb. 19 to Feb. 21, and it could make its interest payment then -- but not after being in default for four business days. What would happen to financial markets during those four days as the full faith and credit of the United States goes up in smoke? I don't want to find out, and you shouldn't, either. It's absolutely mad that we're considering it.

The risk of defaulting by not raising the debt ceiling is so real that it actually makes me optimistic. According to Politico, Congressman Jason Chaffetz warns that "lawmakers are prepared to shut things down or even default if Obama doesn't bend on spending." But we've seen this before, in both last summer's debt ceiling debate and the more recent fiscal-cliff negotiations. Both parties threaten each other and draw lines in the sand, the Dow falls 800 points as investors get nervous, legislators suddenly realize they need to get serious, and a deal comes at the last moment. The consequences of default are so serious and would clobber so many that I can't believe Congress would allow it. With stocks at five-year highs and interest rates still near historic lows, markets aren't too concerned, either.

As Warren Buffett put it, "The rest of the world may think we're idiotic at times, but they don't think we're going to commit suicide."

For now, at least.

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  • Report this Comment On January 15, 2013, at 11:04 AM, jasenj1 wrote:

    Or we could follow Krugman's advice and print $40 billion dollars on Feb. 14th and declare the interest paid.

  • Report this Comment On January 15, 2013, at 11:16 AM, HighVoltage627 wrote:

    I would guess that people on suicide watch rarely successfully commit suicide.

    Its always the person you never thought would do such a thing that is sucessful.

  • Report this Comment On January 15, 2013, at 12:46 PM, mdk0611 wrote:

    The choice doesn't have to be between quick suicide via default vs. slow suicide by failing to come to grips with out of control spending. Yet that's the choice Obama seems to be setting out and that the media laps up. The debt ceiling is just one more opportunity to face up to our long term problems. It doesn't even have to be 1:1 spending cut vs. ceiling increase but it SHOULD be something.

    Take 2 items that Obama has indicated he would accept in the past; chain index for the Social Security COLA increases and medical malpractice reform. Attach them to a debt ceiling increase. At least it would BEGIN to address the debt issue.

  • Report this Comment On January 15, 2013, at 1:18 PM, Darwood11 wrote:

    "The rest of the world may think we're idiotic at times, but they don't think we're going to commit suicide."

    True, but for the politicians, it isn't their money that we are talking about. It is our money. After decades of malfeasance, I can't say that I'm convinced the people in Washington will ever get it right. In fact, the overwhelming evidence, vis a vis the ongoing budget deficits, is that they will continue to get it wrong.

    If the U.S. were my personal financial plan, I'd be broke at 66, accused of perpetrating fraud, ponzi schemes and so on, and by now I'd probably be in jail.

  • Report this Comment On January 15, 2013, at 1:21 PM, HighVoltage627 wrote:

    Another thought, but it seems to me that congress has less time than Feb. 15th.

    If Feb 15th is the drop dead day that we will go into default, treasury will probably need a day or two to conduct the bond auction to get the money.

    If congress tries to push it to the very end, we may still run out of time, even if they do pass it by the 15th.

  • Report this Comment On January 15, 2013, at 1:49 PM, yofreetime wrote:

    Morgan, you only looked at how much money the fed brings in for 4 days AFTER the due date. How much money will the fed receive for 4 days BEFORE the due date? or even 1 week or 1 month before? It seems like we are always trying to put out fires instead of being proactive. It's like waiting for the credit card company to call you to work out a payment plan when instead you should be figuring out how to pay them before the payment date arrives.

  • Report this Comment On January 15, 2013, at 1:55 PM, TMFMorgan wrote:

    <<How much money will the fed receive for 4 days BEFORE the due date?>>

    Feb. 15th is the first day the Treasury has a zero cash balance, so how much it brings in the previous four days is irrelevant because it will be spent during those four days.

    One could say, "well, the Treasury needs to save that money instead." But that's what it's already doing. Remember, the debt ceiling was hit two week ago. The reason the Treasury is still paying bills is because it is delaying payments and juggling around bills, but it can only do that until Feb. 15 when it runs out of cash entirely.

  • Report this Comment On January 15, 2013, at 3:34 PM, DJDynamicNC wrote:

    Saying they won't raise the debt ceiling without concessions is like a family saying they won't pay their credit card bill for things they've already purchased unless the credit card company meets their demands first.

    Congress appropriated the money and Congress is responsible for ensuring that the money it has ALREADY agreed to spend is there.

    This is the equivalent of a hostage situation that Congress created for itself and is using for political gain.

    It's out and out insanity or political cynicism of the worst order, or both.

    If Congress wants to cut spending - and the American people certainly do not want to do this so I don't see why Congress should (see Election, 2012) - then Congress can stop appropriating money. Yet they just spent a bunch of time scrambling to spend MORE money on the military in order to avoid the "fiscal cliff" - which was another arbitrary disaster that Congress created for itself and then tried to blame the President for not solving.

    I can't make the comment I want to about childish behaviour without impugning the honour of children everywhere.

  • Report this Comment On January 15, 2013, at 3:42 PM, mdk0611 wrote:

    The American people don't want to cut spending, but they also don't want to raise taxes, particularly on themselves. So there is no reason why Congress should adhere to totally inconsistant preferences.

    Tying malpractice reform and chain index COLA adjustments to increasing the debt ceiling is like a family saying they will pay their credit card bill but commit to cut the number of times they go to a restaurant each month,

  • Report this Comment On January 15, 2013, at 3:53 PM, AvianFlu wrote:

    3 words.

    Cloward Piven strategy

  • Report this Comment On January 15, 2013, at 5:35 PM, Dennis129 wrote:

    Don't you think youu are getting caught up in the media over hype? Washington has demonstrated a knack for bringing us to the "edge" and then kicking the can.

    Peanuts had a joke that ran for years, in which Lucy conned Charlie into attempting a place kick. When Charlie made the try,Lucy piulled the ball away and Charlie came crashing down.

    The market now seems to discount these self inflicted threats, and continues to climb its wall of worry. I expect a much better job of situational analysis from the TMF team. That is what I am paying you for.

  • Report this Comment On January 15, 2013, at 5:39 PM, TMFMorgan wrote:

    ^ From the article:

    "We've seen this before, in both last summer's debt ceiling debate and the more recent fiscal-cliff negotiations. Both parties threaten each other and draw lines in the sand, the Dow falls 800 points as investors get nervous, legislators suddenly realize they need to get serious, and a deal comes at the last moment. The consequences of default are so serious and would clobber so many that I can't believe Congress would allow it. With stocks at five-year highs and interest rates still near historic lows, markets aren't too concerned, either."

  • Report this Comment On January 15, 2013, at 5:44 PM, toastedseeds wrote:

    Obama is not saying that he will not cut spending. He is saying he won't negotiate those spending cuts in exchange for raising the debt ceiling. He is correct that congress authorized the spending and we're only quibbling over how to meet our obligations. We should increase the limit and then negotiate spending cuts. The sequestration is still out there. The debt ceiling is not the last nor the best opportunity we have for fiscal sanity.

    ts

  • Report this Comment On January 15, 2013, at 5:51 PM, xetn wrote:

    I would prefer a default. I would accomplish at least two things: Nobody would be stupid enough to lend to the government and the government would be forced to scale back spending to the proximate level of income. That would force a stop to all of the entirely stupid programs that never end and should never see the light of day. (End of pork as we know it).

    A side thought: elected officials would no longer be able to make elections promises that they know they cannot keep. The public for some reason seems to believe these lies every election cycle.

  • Report this Comment On January 15, 2013, at 6:24 PM, Dyengii wrote:

    @xetn wrote: 'I would prefer a default. I would accomplish at least two things: Nobody would be stupid enough to lend to the government and the government would be forced to scale back spending to the proximate level of income.'

    perfect. you did not read the article at all. level of income varies by day, we are coming up on crucial days.

    you refuse to acknowledge the central point. if we wish to continue to operate the country, whether we all come to agreement on how to 'balance the budget' or not, we have to raise the debt ceiling.

    note please: no other country operates with the same debt ceiling constraints as ours.

  • Report this Comment On January 15, 2013, at 7:05 PM, xetn wrote:

    Dyengii:

    I did read the article and I don't wish the government to continue at its current level of mismanagement.

    Does anybody stop to consider that since around the end of 2008, (thanks to the efforts of the Fed) the interest on the government's debt has averaged under 6% and the interest payment cannot be made with yet another debt ceiling increase?

    The interest the US pays to China each year almost completely pays for China's military!

    That is absolutely insane!

  • Report this Comment On January 15, 2013, at 7:10 PM, SMFT wrote:

    Most important point of all - who on Earth voted for Michelle Bachmann?

    "just flawed enough to be utterly, disastrously, wrong"

    Categorizes her career as a congresswoman in one, succinct sentence.

  • Report this Comment On January 15, 2013, at 8:28 PM, hbofbyu wrote:

    ”A government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the one we have today, can produce such claims without limit.” - Alan Greenspan

    Kick the can down the road forever. In good times nobody notices 10% inflation. That's how they plan to pay for it. The problem is maybe there won't be any more good times?

  • Report this Comment On January 15, 2013, at 8:42 PM, Dyengii wrote:

    Xetn:

    What is ridiculous is the US military budget, greater than 6 times that of China. It is our spending which is the problem, not China's.

    Are you suggesting that the military expenditure of the US is one of the greatest problems in the US budget? If so, applause. That is, indeed, discretionary and we have been anything but.

    If you are suggesting that all the 'wasteful spending' be cut, take out your scissors and whale away. It won't help. Until we raise taxes to meet our commitments, we are sunk.

  • Report this Comment On January 15, 2013, at 8:51 PM, yofreetime wrote:

    OK. So here is the compromise. If we are 43 billion short on Feb 15, then let Congress authorize 43 billion of spending to cover the payments until the revenue catches up with the expenses and then pay it back. And not a penny more of pork. At the same time, Congress should reduce spending now.

  • Report this Comment On January 15, 2013, at 9:34 PM, ynotc wrote:

    Everything returns to the mean. this means that interest rates are due to rise.

    What happens then? default or belt tightening. Unfortunately if we are forced to tighten the belt after interest rates rise none of the excess money will go to pay down debt but will only pay increased interest payments.

    Once again the bankers win.

  • Report this Comment On January 15, 2013, at 9:54 PM, DJDynamicNC wrote:

    @xetn: "Nobody would be stupid enough to lend to the government and the government would be forced to scale back spending to the proximate level of income. That would force a stop to all of the entirely stupid programs that never end and should never see the light of day. (End of pork as we know it)."

    Why not just scale up the proximate level of income to match the amount we want to spend? Tax rates have been much higher in the past and look at that, capitalism survived and thrived.

    The issue is priorities. You do not wish to have a big government so you propose only spending cuts. You only see a very limited role for government. Fair enough.

    The majority of Americans, on the other hand, unequivocally elected a leader who specifically said he wanted to raise taxes and pay for services. We want our government to provide services for us.

    I've recently moved to Canada (which is why I don't post here much anymore) and let me tell you, you'd hate it here. The government sponsors art, music, festivals, and more almost weekly. Our healthcare is socialized entirely. I am sure you would consider that wasteful, although I can think of few better investments than human health and joy and culture.

    For some reason some people seem to think "the economy" is more important than "human beings," but I am pleased to see that there are not many of those people here and, it turns out, they are also in the minority in America these days. Hence the election results.

  • Report this Comment On January 15, 2013, at 10:12 PM, TMFBlacknGold wrote:

    Great article! Very insightful!

  • Report this Comment On January 15, 2013, at 10:13 PM, Deafinvestor wrote:

    It seems to me that we have to reform our tax code where the half now that does not pay any federal income taxes will have to pay a lot more and those corporations that do not pay any taxes will have to pay and we will have to reduce our essential spending or eliminate a great deal of unessential services/spending. It's just that simple! If we do not get a grip on this issue we are destined to suffer a massive currency crisis and the debt bubble will burst.

  • Report this Comment On January 15, 2013, at 10:23 PM, Deafinvestor wrote:

    It's kind of funny to hear the President say that the debt ceiling has nothing to do with spending. It's like saying being an alcoholic has nothing to do with drinking more. No republican or libertarian is for running out of money or defaulting on our debt service, they are just saying it's time to address spending before you raise your credit card limit. Call me crazy, but It just makes sense to get an agreement about tax reform and spending cuts before they raise the debt limit. The problem is they should have been negotiating this a few months ago. Either this admin or the GOP house has not done their job in getting this done.

  • Report this Comment On January 15, 2013, at 11:20 PM, DJDynamicNC wrote:

    Once again - the debt ceiling has nothing to do with any additional spending. The money has already been appropriated - by Congress, not the President - and allocated and effectively spent.

    Congress has spent the money.

    Congress is explicitly and Constitutionally on the hook for deciding what gets spent.

    Congress has made that decision and now the time has come to actually pay for the work that has been done, and an arbitrary limit set - by Congress, not the President - is preventing that from happening.

    The debt ceiling is a political construct, nothing more. If you want to argue for lower spending, you are free to do so and more power to you. There will also be people like myself (and, it appears, the majority of Americans) who argue for increased taxation and cutting oil subsidies and defense spending rather than cutting Medicaid or social security, but that's an entirely unrelated debate that we can have after Congress fixes the mess that Congress made and pays for the things that Congress already ordered.

    Threatening to default on our debt in order to get your way is not negotiating. It is holding our economy hostage mere months after being wantonly beaten in the election (Democrats outperformed all expectations and Obama became the first President to win a majority of the vote in both elections since Eisenhower, a resounding victory and clear mandate). It is legislative terrorism.

  • Report this Comment On January 16, 2013, at 7:37 AM, TMFMorgan wrote:

    <<It's kind of funny to hear the President say that the debt ceiling has nothing to do with spending.>>

    Funny, and also true.

  • Report this Comment On January 16, 2013, at 8:01 AM, maiday2000 wrote:

    The majority of Americans do not want more spending...in fact, the majority actually wants us to cut spending. Then again, the majority also doesn't want to cut SS and Medicare. The fact is, you can tax the rich and those evil oil companies all you want, there isn't enough money to pay for all of the freebies our government provides.

    The debt ceiling has everything to do with spending, just spending that has already been appropriated. It is comical for anyone on here to act like Congress to using the debt ceiling as a negotiating tool is heresy. The CBO and Dept of Treasury can't forecast to save their life and pretty much every big program from the past four years is coming in over budget. Individuals, families, companies, pretty much everyone other than the feds, realize that when you overspend you have to cut somewhere else. It's time we give government the message.

  • Report this Comment On January 16, 2013, at 8:09 AM, TMFMorgan wrote:

    <<The majority of Americans do not want more spending...in fact, the majority actually wants us to cut spending. Then again, the majority also doesn't want to cut SS and Medicare>>

    That's really the key. Many Americans want lower spending until they realize that the vast majority of federal spending is on programs they enjoy and don't want cut. In other words, they don't want to cut spending once they're more informed.

  • Report this Comment On January 16, 2013, at 8:26 AM, TMFMorgan wrote:

    ^ To elaborate, I think Rand Paul nailed it here:

    "Everybody is for spending cuts in the abstract, but then when you start naming specifics, and people are like, 'No I won't vote for that because it's in my district or my state."

  • Report this Comment On January 16, 2013, at 8:35 AM, maiday2000 wrote:

    DJ Dynamic,

    Your arguments have more holes than a fishing net.

    One Congress cannot bind another Congress...its law, therefore, if one Congress wants to slash what another Congress passed, they're perfectly able to do so. Congress (HoR and Senate) can't just willy nilly appropriate money, it still has to be signed the President, or didn't you take civics in high school?

    There is not legislative mandate for the President, if there was, then the people would have voted in a majority Democratic Congress as well.

    As I mentioned, the majority of Americans do want to cut spending, poll after poll has borne this out, and we already raised taxes on the rich. Sure, tax rates have been higher in the past, but no matter how much you raise taxes, revenue to the government has never been able to exceed 22% of GDP. This isn't nearly enough money to pay for all of the spending. We can spend all we want to today, but eventually there just isn't going to be enough money.

    I hope you are happy in Canada. You can thank the abundance of natural resources per capita, the homogenous culture, and the relatively low levels of welfare per capita that sustains their welfare state. How do you live with yourself knowing that your freebies are paid for (well over 10% of government revenues) by evil, global warming-causing fossil fuels?

    Please don't even try to extrapolate Canada to the United States, it doesn't pass the smell test.

  • Report this Comment On January 16, 2013, at 8:36 AM, TMFMorgan wrote:

    ^ (Last comment on this). Which is why I firmly believe that there will never be legitimate budget reform until there are actual, visible consequences to running high deficits, namely spiking interest rates.

  • Report this Comment On January 16, 2013, at 8:39 AM, maiday2000 wrote:

    Morgan,

    You have admitted that the majority doesn't have a clue, and yet this same majority is who gave the President his "mandate." We can all see that this mandate will lead us to fiscal ruin. It's not a question of if, but when. Better some pain today than much bigger pain tomorrow (unless you like Greek-style civil unrest in a country with 1000 times as many weapons?)

    But hey, as long as "I get mine" today. Welcome to the new normal, where government subsidies and spending are more important that private investment, innovation, and effort.

  • Report this Comment On January 16, 2013, at 8:42 AM, TMFMorgan wrote:

    <<if there was, then the people would have voted in a majority Democratic Congress as well.>>

    They kind of did, actually:

    "53,952,240 votes were cast for Democratic [House] candidates, while Republican [House] candidates received 53,402,643. However, thanks in part to redistricting, Republicans will hold more than half the seats in the House while receiving less than half of overall votes."

  • Report this Comment On January 16, 2013, at 8:50 AM, TMFMorgan wrote:

    <<We can all see that this mandate will lead us to fiscal ruin. It's not a question of if, but when.>>

    I totally disagree with that. Take a look at the orange line on this chart:

    http://www.cbpp.org/images/cms/1-9-13bud2-f1.jpg

    That's where we are now.

    After last summer's budget deal and the recent fiscal cliff deal, the budget is now on a stable path (in terms of debt/GDP) until 2018, and would still be below 2014 levels a decade from now. I think we've made a lot more progress than people give credit to.

  • Report this Comment On January 16, 2013, at 8:56 AM, TMFMorgan wrote:

    To elaborate, Here's the OMB's projected deficit as a % of GDP from now until 2017:

    2013: -5.5

    2014: -3.9

    2015: -3.4

    2016: -3.4

    2017: -3.0

    As long as a deficit/GDP is lower than nominal GDP growth (which has averaged 4.5% since 2009), debt to GDP declines.

  • Report this Comment On January 16, 2013, at 9:17 AM, ClimbinFool wrote:

    Morgan,

    In that chart you linked, the Debt to GDP % for 2013 is around 78%. Isn't it currently above 100%? Or is that chart just debt held by the public?

  • Report this Comment On January 16, 2013, at 9:21 AM, TMFMorgan wrote:

    ^ Held by public. But total also declines as a share of GDP as securities held in govt trust funds are cashed in and retired.

  • Report this Comment On January 16, 2013, at 9:24 AM, TMFMorgan wrote:

    ^ And, importantly, the deficits that cause those securities to be cashed in are part of the annual deficits used in the calculation. That's why debt held by public is the relevant figure -- otherwise you double count.

  • Report this Comment On January 16, 2013, at 10:08 AM, vanslu wrote:

    Anytime someone quotes Michelle Bachman, I stop reading...

  • Report this Comment On January 16, 2013, at 10:57 AM, 67NEWT wrote:

    I read you article and I find the last two lines a bit confusing. You say "the consequences of default are so serious and would clobber so many" and in the last sentence you say "markets aren't too concerned, either."

    The two statements seem to contradict each other unless because stocks are high and interest rates are low that's way markets are not concerned and you "either". I think you could have expressed yourself more clearly.

    My personal view is that if an agreement is not reached it would be a disaster for investers and the markets should be concerned. And if spending is not brought under controlled and hopefully reduced it's going to a disaster for the country.

  • Report this Comment On January 16, 2013, at 10:58 AM, TMFMorgan wrote:

    <<You say "the consequences of default are so serious and would clobber so many" and in the last sentence you say "markets aren't too concerned, either.">>

    I think it's pretty clear. The consequences of default would be serious, but markets aren't concerned because they don't think it will actually happen.

  • Report this Comment On January 16, 2013, at 11:04 AM, Darwood11 wrote:

    "After last summer's budget deal and the recent fiscal cliff deal, the budget is now on a stable path (in terms of debt/GDP) until 2018, and would still be below 2014 levels a decade from now. I think we've made a lot more progress than people give credit to."

    Isn't the above opinion dependent upon continued low interest rates?

  • Report this Comment On January 16, 2013, at 11:13 AM, TMFMorgan wrote:

    <<Isn't the above opinion dependent upon continued low interest rates?>>

    All forecasts rely on assumptions, but the assumptions used here do allow for a rise in interest rates. Annual interest expense is forecast to rise from $224 billion this year to $565 billion in 2017. The CBO says the latter equates to a real short-term interest rate of 2.7%, so a nominal interest rates of around 5-5.5% (likely something close to 7% on the 10-year).

  • Report this Comment On January 16, 2013, at 11:45 AM, mdk0611 wrote:

    Morgan - How about someone who quotes David Walker, Alan Simpson and Erskine Bowles?

  • Report this Comment On January 17, 2013, at 7:42 PM, maiday2000 wrote:

    Morgan,

    It isn't on the chart, but I am pretty sure the forecasts also rely on a return to GDP growth of 3%. Good luck with that. The OMB and CBO are notoriously horrible at forecasting, and I can almost guarantee that their rosy forecasts will be proven wrong as they have time and time again. They also "forecasted" that Obamacare would reduce our annual deficit. Does anyone with any sense actually believe that? How about when we bailout the next bankrupt state? Or when a good portion of those trillion dollars in government backed student loans stop performing?

    I admire that you are a "glass half full" kind of guy, but there are so many long term fiscal problems that the OMB is not taking into account that their forecast is sure to be off, and by a large amount.

  • Report this Comment On January 17, 2013, at 9:42 PM, BlueJayGene wrote:

    I've read the article, plus all the comments - and I have not a clue what I was supposed to learn from all this. The political bull-crap on here is no different than what I witnessed durning the election.

    If all this is truly commentay, I need to not be a friend to Fool on facebook.

  • Report this Comment On January 18, 2013, at 11:55 AM, mikepriz wrote:

    What is wrong with this picture: Daily income = $9 B - Daily expenditure = $52 B. How long can this go on? What conservatives want is for the "tax and spend, spend, spend" Democrats to cut a little spending in exchange for raising the ceiling. Let me ask you this, if prime interest rates went to a modest 7 or 8%, how much will the interest be on the debt? We are sitting on a time bomb. We need to start defusing it NOW! - and raising taxes on the rich will not help. I don't even want to talk about what will happen when Obama care fully kicks in.

  • Report this Comment On January 18, 2013, at 12:04 PM, MrFinance223 wrote:

    If Congress does not raise the debt celiling, the Government will be in the same predicament that many individulas find themselves in when they max out their credit card, and the credit card company refuses to raise your credit limit. When this happens, you can count on two things:

    1) The Government must learn to manage their cash flow, and

    2) The Government cannot spend more than it takes in.

    You will end up with a balanced budget, but that is not the best way to get there!

  • Report this Comment On January 18, 2013, at 1:10 PM, TMFMorgan wrote:

    <<the Government will be in the same predicament that many individulas find themselves in when they max out their credit card, and the credit card company refuses to raise your credit limit.>>

    The thing is, it's not the credit card company refusing the raise the limit. It's the card holder.

    An equivalent analogy would be if you had a $50,000 credit card limit, but you decided that you were going to stop paying you bill once you hit $20,000 in debt.

  • Report this Comment On January 18, 2013, at 1:11 PM, TMFMorgan wrote:

    <<Daily income = $9 B - Daily expenditure = $52 B. How long can this go on?>>

    Keep in mind that's just one day -- it's not like that all 365 days a year. There are plenty of days when the government runs a surplus. I bet there are days when you daily expenses far exceed your income (say, the day you pay your mortgage) as well.

  • Report this Comment On January 18, 2013, at 1:13 PM, TMFMorgan wrote:

    You = your.

  • Report this Comment On January 18, 2013, at 1:38 PM, MrFinance223 wrote:

    Morgan,

    RE: My credit card analogy

    I like my analogy better. The Treasury dept collects taxes and disburses all government funds (i.e. pays the bills). Congress controls the debt limit, and puts the lid on how much the government can spend.

    Your analogy would be on point only if the Treasury also controlled the debt limit.

  • Report this Comment On January 18, 2013, at 1:44 PM, TMFMorgan wrote:

    <<Congress controls the debt limit, and puts the lid on how much the government can spend.>>

    But Congress *is* the government.

    Congress and the president decide on how much money to spend and instruct the Treasury to pay those bills. Not raising the debt ceiling prevents the Treasury from paying those bills.

    The Treasury has no say in how much money is spent -- it's not the one making the budget.

  • Report this Comment On January 18, 2013, at 1:45 PM, TMFMorgan wrote:

    And that's why, if the ceiling isn't raised, the Treasury will be forced to break a law. Either it won't pay for bills congress has demanded it pay, or it will borrow above the limit congress has allowed it to.

  • Report this Comment On January 18, 2013, at 2:37 PM, isleofanglesey wrote:

    At interest rates low as they are, debt is hardly a worry. Rather borrow more and keep recovery plans moving while gradually cutting spending by reducing staffing in government

  • Report this Comment On January 18, 2013, at 2:42 PM, turkeybird wrote:

    If congress was disciplined this would not be an issue! It is past time that the American people throw the bums out!

  • Report this Comment On January 18, 2013, at 2:45 PM, TMFMorgan wrote:

    <<Rather borrow more and keep recovery plans moving while gradually cutting spending by reducing staffing in government>>

    There are actually fewer federal employees today than there were in 1974, 1980, 1990, etc. The vast majority of federal spending in on entitlements and defense.

    http://research.stlouisfed.org/fred2/graph/?id=CES9091000001

  • Report this Comment On January 18, 2013, at 2:46 PM, turkeybird wrote:

    It is time to throw the kids out of the "Candy Store"!

  • Report this Comment On January 18, 2013, at 2:48 PM, turkeybird wrote:

    "Gradually cutting spending"??? Where is this taking place?

  • Report this Comment On January 18, 2013, at 3:21 PM, NickD wrote:

    Military pay is if your break it down about 2 dollars a hour

  • Report this Comment On January 18, 2013, at 11:35 PM, PaFrogboss wrote:

    I'm a little late to this party, but I want to add my two cents worth. Pardon me, if this has already been noted herein:

    As I understand it, the nation cannot afford to make the interest payments on the money already borrowed. So the answer is to RAISE the debt ceiling so we can borrow MORE money? I must be missing something!

  • Report this Comment On January 19, 2013, at 12:40 AM, whyaduck1128 wrote:

    The Iron Lady's comment would also seem to apply to the USA right now--

    "The problem with socialism is that sooner or later you run out of other people’s money."—Margaret Thatcher

  • Report this Comment On January 20, 2013, at 12:15 PM, alstevsonj wrote:

    All that chart does is prove we're spending too much money. The politicians just can't accept that idea. All the dancing around accomplishes nothing but insuring that our grandchildren will be in a mess, and will hate us. Just printing money will solve nothing, just devalues the dollar further. An example is the huge amount of treasury bills that Social Security holds. Some jokers would have us believe that they are valuable, but there is no money behind them. The gov't will have to raise taxes to pay them off too.

  • Report this Comment On January 21, 2013, at 2:45 PM, SkepikI wrote:

    Most of the commentary and all of your article Morgan ignores the fact that the US has assets it can sell...some quite quickly, instead of raising debt. It also ignores that without pain, people, and governments simply do not change. I'd recommend to you all that you re-read Michelle B's comment in that light. Even though I am not a fan, the basic idea is correct. It might be best for our future if some civil servants (I use the term loosely) and payments get laid off for a few weeks to bring frugality back in vogue. And yes, we could avoid default if some assets were sold instead of given away, like various land given to non tax paying public entities (Treasure Island in SF bay comes to mind)

  • Report this Comment On January 23, 2013, at 1:20 PM, maiday2000 wrote:

    Sorry to be late on this, but Mr. Housel's following statement is incorrect:

    <I> To elaborate, Here's the OMB's projected deficit as a % of GDP from now until 2017:

    2013: -5.5

    2014: -3.9

    2015: -3.4

    2016: -3.4

    2017: -3.0

    As long as a deficit/GDP is lower than nominal GDP growth (which has averaged 4.5% since 2009), debt to GDP declines. </I>

    Debt includes more than the deficit. The "deficit" is a phony number that doesn't include money that was borrowed from the SSTF, FERS, and MRF. This is why during the Clinton years, the total "deficits" when added up was $327 Billion but the total debt added during those years was actually $1.56 Trillion. SSTF, FERS, and MRF have run surpluses in past years that the government could "borrow" from and pay bills. They can't anymore. Our debt is going to explode. Feb 15th is an asterisk in the grand scheme.

  • Report this Comment On January 23, 2013, at 1:26 PM, TMFMorgan wrote:

    ^ Don't confuse your misunderstanding of accounting for me making an incorrect statement.

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