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Fed Planning For Potential Default

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http://www.reuters.com/article/2011/07/20/us-usa-debt-fed-idUSTRE76J6IT20110720

The Federal Reserve is actively preparing for the possibility that the United States could default as a deadline for raising the government's $14.3 trillion borrowing limit looms, a top Fed policymaker said on Wednesday.

Charles Plosser, president of the Philadelphia Federal Reserve Bank, said the U.S. central bank has for the past few months been working closely with Treasury, ironing out what to do if the world's biggest economy runs out of cash on August 2.

"We are in contingency planning mode," Plosser told Reuters in an interview at the regional central bank's headquarters in Philadelphia. "We are all engaged. ... It's a very active process."

Plosser said his "gut feeling" was that President Barack Obama and Congress will come to an agreement to increase the Treasury's borrowing authority in time to avert a default on government obligations.

Obama was due to meet with top Republicans in Congress on Wednesday to discuss the latest attempts to end the dispute over raising the country's debt ceiling, a row which has raised the prospect of the Treasury Department running out of money to pay its bills next month.

The Treasury has repeatedly said default was unthinkable and that there was no alternative to raising the debt ceiling. Plosser's remarks marked the most extensive public comments yet on preparations for a default from a U.S. official.

A Treasury spokesperson could not be immediately reached for comment.

One aspect of the Fed's contingency planning is purely operational: the Fed is developing procedures about how the Treasury would notify it on which checks would get cleared and which wouldn't, Plosser said.

The Fed effectively acts as the Treasury's bank -- it clears the government's checks to everyone from social security recipients to government workers.

"We are developing processes and procedures by which the Treasury communicates to us what we are going to do," Plosser said, adding that the task was manageable. "How the Fed is going to go about clearing government checks. Which ones are going to be good? Which ones are not going to be good?"

"There are a lot of people working on what we would do and how we would do it," he said.

Plosser added that there are difficult questions that the Fed itself had to grapple with.

The Fed lends to banks at the discount window against good collateral. But what happens if U.S. Treasuries no longer fit that bill?

"Do we treat them as if they didn't default, in which case we would be saying we are pretending it never happened? Or do we treat them as if they defaulted and don't lend against them?" Plosser said. "Those are more policy questions."

So printy printy then.

Got to love how it's policy questions....

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It would be absoutely fascinating the politics involved if they actually went to a cash flow budget. They would have to cut either..

Medicare thought to be running around 800 billion

Defense and related around 700 billion

Social Security around 700 billion

Interest on debt around 500 billion.

An actual full on default would be spectacular. It would clear the 500 billion in interest but also untalked about is it would free them of the 14.3 trillion in debt outstanding. While the legal debt limit would remain at 14.3 trillion. So they could start the game again in short order. But not have to bother with all the principle repayments.

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An actual full on default would be spectacular. It would clear the 500 billion in interest but also untalked about is it would free them of the 14.3 trillion in debt outstanding. While the legal debt limit would remain at 14.3 trillion. So they could start the game again in short order. But not have to bother with all the principle repayments.

It'd wipe out A LOT of people, China, Russia, Japan, Korea and probably a few more. While at the same time annihilating their military power. Which means potentially with the US military machine gone for a bit it could easily be grabby grabby.

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So there is a chance, albeit a very small one that the US will default on August 2nd. If this is the case, why is the the US still AAA rated?

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So there is a chance, albeit a very small one that the US will default on August 2nd. If this is the case, why is the the US still AAA rated?

Defaulting can ironically improve your credit rating. If the US was free and clear of debt on August 3rd.. creditors would be lining up to lend them money.

Basically you are a banker and yes down the road like 30 years from now the US might default again. But your bonus is for this quarter and the US is now paying one percent more than Germany.. which you can lever up at least 20 times.

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Case in point, Iceland just successfully issued new bonds. Even though the bankers told them they'd be locked out of the credit markets forever if they defaulted.

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Defaulting can ironically improve your credit rating. If the US was free and clear of debt on August 3rd.. creditors would be lining up to lend them money.

Basically you are a banker and yes down the road like 30 years from now the US might default again. But your bonus is for this quarter and the US is now paying one percent more than Germany.. which you can lever up at least 20 times.

Thats all well and good foe those investing after a default but what about those considering buying US debt now? Surely it can not be rated AAA if there is a chance of default. It should have already been downgraded. Are the rating agencies too scared to downgrade the US?

The Chinese agency did a few months ago IIRC. And they were right to do so it turns out.

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Obama must’ve watched Broon the Movie and thought he’d like to be the saviour of the world too.

It’s so heroic clicking print.

Public servants become celebs shocker.

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Default will start WW3.

Either China would launch militarily to reclaim it's "debts" (Taiwan be afraid), or the power vacuum would create war.

The problem is, there is no way out apart from default or hyperinflation.

How do we as a people cope with this?

Meditation, prayer, and become self sufficient within our communities.

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1. This may go to the wire but the US is not going to default - just lots of political posturing.

2. There would be no military vacuum - the US military machine will not disappear overnight.

Too many tin foil hats on here.

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why do people think that default means...TOTAL non payment.

it doesnt.

It means they wont pay any interest or rollover new debt.

tax revenues will stretch as far as they can.

bankers will bust...not all though.

Painful but short sharp, shock.

Shock and Awe.

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or they could just cut all the tax rebates and handouts to corporate America and emergency tax all those lovely reserves sat around doing not very much.

bout time!

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or they could just cut all the tax rebates and handouts to corporate America and emergency tax all those lovely reserves sat around doing not very much.

bout time!

What lovely reserves are you referring to? Be careful what you say, it might make the conspiracy theorists say "I told you so!"

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Apparently Germany and France have saved the World.... Oh hang on, the phrase "selective default" is causing some concern.

:rolleyes:

Expect the markets to rally at this news, FTSE +50 by the close of play :D

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Default will start WW3.

Either China would launch militarily to reclaim it's "debts" (Taiwan be afraid), or the power vacuum would create war.

The problem is, there is no way out apart from default or hyperinflation.

How do we as a people cope with this?

Meditation, prayer, and become self sufficient within our communities

yeah because that will save you from a thousand nuclear war heads hitting every town and city.

Edited by Pent Up

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Oops, France and Germany have not saved the World... they have just agreed a common stance for the meeting later today.... Crisis still on....

And now, a word from our correspondent at the summit.

jones_dontpanic_11.jpg?w=225&h=240

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or they could just cut all the tax rebates and handouts to corporate America and emergency tax all those lovely reserves sat around doing not very much.

bout time!

cept all those reserves are in the banks....and THEY need them for keeping the stock market up and financing all there delinquent customers.

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Crack bond addicts always need their fix. ;)

Yep.. banks are in the business of lending money. Its an idiotic threat to say they won't lend money unless such and such happens. Its like a car manufacturer saying they won't make anymore cars unless they get their way.

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It'd wipe out A LOT of people, China, Russia, Japan, Korea and probably a few more. While at the same time annihilating their military power. Which means potentially with the US military machine gone for a bit it could easily be grabby grabby.

Who also happen to be the most powerful countries on the planet. I have been thinking this for a fair time now. I think there will be some sort of reciprocal agreement worked out. Lots of debt willl be cancelled. Lots of other countries will not like it but will not want to see the consequences if countries like the US or China started to get desparate and twitchy.

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Ah, the cunning solution appears to be... to kick the can a bit further down the road... well, it worked before...

When does the can become so big and heavy that you kick it, instead of it going down the road, you stub your toe and fall flat on your face?

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I probably shouldn't admit to even having this thought, but the idea just sort of popped into my head so here goes- it's radical and maybe really hard at first to get your head around...

Maybe the bankers and bondholders could lose some money?

Ok, I know, it's unthinkable right?- I need help don't I?- some kind of mental illness has struck me down and put these really weird sick ideas in my mind.

Maybe some kindly banker will pay for my treatments. God knows they can afford it. :ph34r:

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I probably shouldn't admit to even having this thought, but the idea just sort of popped into my head so here goes- it's radical and maybe really hard at first to get your head around...

Maybe the bankers and bondholders could lose some money?

Ok, I know, it's unthinkable right?- I need help don't I?- some kind of mental illness has struck me down and put these really weird sick ideas in my mind.

Maybe some kindly banker will pay for my treatments. God knows they can afford it. :ph34r:

after regulating everyone must use the bankers tokens and by association the promises that they create as equally valid tokens, by pain of imprisonment, when the market handed them their P45s for being naturally self serving when offered a position of such artificial power that is inherrent in regulation the regulators unfortunately pulled another regulation out of the asses and regulated otherwise

Edited by Mary Cassatt

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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      • Even
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      • up 5%



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