U.s. Treasury Secretly Weighs Options To Avert Default

[scott666]

My moeny would be on the debt ceiling being raised,but it could be a close call.if it isn't then all hell could break loose.

Right, so they either raise the debt ceiling and we carry on as before or they don't and all hell breaks loose. I wonder which option they'll choose.

[Harry Sacks]

It's gonna be a resource based recovery.

[thod]

The government does not sell it's bond, the fed prints money and buys them. This is just a round about way of the government printing the cash itself. If they can no longer sell their bonds to the fed, the fed can always make gifts to the government.

[gf3]

In August, the Treasury will take in roughly $172 billion, but is obligated to make $306 billion in payments -- meaning it cannot pay about 45 percent of its bills without borrowing more money, according to the Bipartisan Policy Centre, a Washington think tank.

How long can they keep kicking the can down the road?

I must say I find it quite scary.

[Harry Sacks]

The government does not sell it's bond, the fed prints money and buys them. This is just a round about way of the government printing the cash itself. If they can no longer sell their bonds to the fed, the fed can always make gifts to the government.

What are the chances of the debt ceiling not being raised? Yep, a big ZERO!

[Harry Sacks]

the fed will then hold on it's balance sheet so that won't affect the debt ceiling issue.then if there's a run from UST's they gotta buy more,till when?

That's an interesting question, because of the symbiotic relationship between bond traders and the Fed.

[RufflesTheGuineaPig]

The government does not sell it's bond, the fed prints money and buys them. This is just a round about way of the government printing the cash itself. If they can no longer sell their bonds to the fed, the fed can always make gifts to the government.

If the fed wanted to, it could do a number of things, e.g.

1) Write off a portion of the debt (Unlikely)

2) Write down the value of the debt and allow the government to buy it back at a reduced rate.

Option 2 is quite liekly... banks and private companies have been doing it for a while. They could even go for option 3, something the banks were and are still doing:

3) With the risk of default, the value of the debt drops. The Gov *COULD* if it wanted to buy back the debt at the reduced rate. It doesn't have to though... the fact that it *COULD* buy it back at a reduced rate means they could *TECHNICALLY* write down the value of the debt themselves. If the Gov owes $10 trillion, and the market values the gov debt at 80c on the $, the gov effectively owes $8 trillion. The banks did this, then booked the difference between the debts face value and the debts market value as profit and paid bonuses. Each time the banks debt was downgraded, all the staff got a bonus.