The Four Debt Ceiling Possibilities For 2013

Tyler Durden's picture

An extended excerpt from Bill Buckler of The Privateer

The Four Major Possibilities For 2013

There are four likely “scenarios” for what will happen when the US Congress - and the president - come up against the limit to the Treasury’s credit card sometime in the first quarter of 2013. The first one is the most obvious. They could simply abolish or “repeal” or draw a line through the legislation which set up the debt limit in 1917. There is no shortage of eminent US historians, economists, captains of industry, politicians, legal scholars, bankers, investors and others from all walks of life advocating this procedure.

If the US Dollar was not the world’s reserve currency and US Treasury IOUs were not the world’s preferred holding of reserves behind their own currencies and financial systems, the Treasury’s debt limit would have been done away with a long time ago. But the US Dollar IS the world’s reserve currency so the debt of the US government IS the underpinnings of the global financial system. That being the case, the system stands or falls on the continuing perception that Treasury debt paper is a viable form of “reserve” and that the debt of the US government will NEVER become “unsustainable”. An announcement by the US government that it was getting rid of any “limits” to its debt-generating capacity would put that perception at risk - quite possibly at grave risk. That is the reason why the debt limit remains - even though it has not been an impediment to ever increasing Treasury indebtedness for well over half a century. It is easy to laugh at the seeming absurdity of a Treasury “debt limit” and many people do. Take it away, however, and the fiction that sovereign debt is “sustainable” - let alone any “confidence” in its eventual repayment - would be MUCH harder to maintain. Absurdities abound in history, and the more abject the absurdity, the more tenacious it tends to be. Today, a US Treasury debt “limit” is a very necessary absurdity.

This does not mean that the debt limit will NOT be abolished. But it does mean that the new Congress convening early next year will be very reluctant to take such a step.

The second possibility is that the US government will follow the lead of one of the few other major nations which maintains a “debt limit” on its Treasury. That nation is Denmark. Denmark last raised its debt limit in December 2010. The Danish government did not mess about - they more than DOUBLED the limit from 950 Billion to 2 TRILLION Kroner. The current debt limit of the Danish government is about three times as much as their official funded debt. If the US government was to increase the Treasury’s “limit” by as big a percentage as the Danish government did in 2010, they would raise the Treasury’s debt limit from its present $US 16.394 TRILLION to almost $US 34.5 TRILLION. If they wanted as big a “buffer” between their current debt and their debt limit, they would raise the Treasury’s limit to almost $US 49 TRILLION.

Like the US, Denmark has its own currency, the Kroner. The Danes did not choose to adopt the Euro in 1999. But unlike the US, the Danish Kroner is NOT the world’s reserve currency.

The third alternative is a very popular one - especially in Democrat political circles. It was suggested by many of them during the mid 2011 crisis and was being advocated right up to a few days before the deal was cut in early August. This “solution” would be for President Obama to do an end run around the whole sorry mess in the Congress and raise the Treasury’s debt limit by executive order. The rationale for the President’s power to do this is said to reside in the Fourteenth Amendment, which begins like this: “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.

Mr Geithner has advocated this method of getting around the Congress. So has Bill Clinton. So has the current majority leader in the Senate, Harry Reid. As these gentlemen see it, any reluctance to raise the Treasury’s debt limit or any “conditions” put on such an action is calling into question - “The validity of the public debt of the United States”. This is clearly UN-constitutional.

Mr Obama was urged to take this step in 2011 and refrained. He has now been elected for a second and last term. With no more elections to win or lose, he may not be nearly so reluctant this time.

This is the last of our four major possibilities. There are variations on all four of them, but these are the major alternatives. The US government could do what they have been doing for many decades now. They could just make another deal and go on pretending they have found a solution to an insoluble problem.

That alternative becomes fraught with danger when one considers the situation in which the Congress will be deliberating for the rest of this year and probably well into next year. The funded debt of the US Treasury has risen by more than $US 1 TRILLION in every fiscal year since 2008. Fiscal 2012 was the fifth year in a row and fiscal 2013 has begun with the debt increasing by $US 220 Billion over the first seven weeks of the year. The Fed has held its controlling rate at 0.00-0.25 percent for more than four years. They have promised to keep that rate until mid 2015. Barring a catastrophe and/or a market rebellion (which would amount to the same thing), 2013 will be the fifth straight year of the ZIRP. The Fed bought more than 60 percent of ALL the new Treasury debt sold in 2011. The final “score” for 2012 is not yet in but it is a safe bet that the total will be even higher. Recent mainstream reporting has put Fed monetisation at over 90 percent of the new longer-term Treasury debt being sold.

But there is one overriding fact which is NOT made it into the mainstream media but which has nonetheless been reported in many places and never denied by the US government or its Treasury. The budget of the US government is divided into “discretionary” and “mandatory” categories.

There is also a third category which is interest payments on existing debt but that is also mandatory. For a while now, the government has not been able to collect enough revenue to meet the demand for its mandatory payments (aka entitlements) and debt servicing (even at historically low interest rates). That means that the government could cut the “discretionary” portion of its budget to zero - AND THEY WOULD STILL BE IN DEFICIT.

Please note here that the “discretionary” portion of the budget INCLUDES military spending. Even if that was cut to ZERO - the deficit would still survive. There is absolutely no prospect of ANY reduction in the debt of the US government (or most any other government) unless and until a meat axe is taken to “entitlements”. This would involve a HUGE dismantling of the welfare state, something that neither side of US politics wants to even discuss. The situation is that simple.

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lolmao500's picture

In another universe : don't raise debt ceiling, cut deficit to 0 overnight.

flacon's picture

Sometime in the near future, perhaps in 2013, the oceans will turn to lemonade. 

economics9698's picture

Wouldn’t it be nice if John Boehner said the Republicans are not doing anything and congress was limited to spending what tax receipts they took in from taxpayers?

No more deficit spending, no more crowding out, no more propaganda about how austerity would hurt the economy.

Just a simple spend what you collect fiscal policy.

I was hallucinating for a second there, a flashback.

 

eatthebanksters's picture

Bohner doesn't have the sack to do it....

Offthebeach's picture

You'd have to get him on a non crying day.

EuroInhabitant's picture

Fiscal cliff will be postponed half a year. And again and again and again. This can will be kicked miles and miles on. Never underestimate the amount of rabbits "they" have in their hats.

EuroInhabitant's picture

Let the can kicking of the Fiscal Cliff begin. Start with half a year.

CrashisOptimistic's picture

You do not understand the depth of hatred of George W Bush on the left.  There is no way possible after winning the White House in the recent election that they are going to allow tax rates for the rich to remain what they are.

Additionally, both sides have said they will end the payroll tax cut rate.

So there is at least one tax increase agreed to by both sides.

Chupacabra-322's picture

The “Poppy Bush Drug Cartel” tax cuts brought in by Dumbya-nuts lowered income taxes only a paltry 3 % for normal people who pay 50-70% of their incomes in taxes of one form or another. Those same tax cuts dropped 20% off the income taxes of the wealthy fat cat pharaohs who only paid 30-40% of their incomes in taxes of one form or other.

Since Owe-bomba Ben Trotsky is a Menchovik he cannot and will not support this, so he has to do something AND break his promises.

smlbizman's picture

yep...can't violate that constitution...

CrashisOptimistic's picture

My point was that there is not going to be a total can kick because one of the tax items has already been agreed to by both sides.  It's 120 Billion, or about 0.7% off of GDP next year.

That's the GDP drag before negotiations even begin.

formadesika3's picture

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.

So they propose to use this language in 14th amendment to end-run the debt ceiling. Ultimately, doesn't this lead to a conflict with the 1st amendment as interpretation expands to fit their needs?  Will be considered treasonous to even question the debt in public debate or on internet forums?

Scary.

Lednbrass's picture

Sadly enough the adherents of both parties consider questioning their agendas treasonous at this point.  Anyone advocating Federal restraint or reduction is a traitor to the statists who like Team Blue, anyone questioning the military and empire is a traitor to the statists who like Team Red.

Everybodys All American's picture

The payroll tax cut is not that big of a deal.

Harbanger's picture

In this universe we raise the debt ceiling until we cut spending to zero overnight.

iDealMeat's picture

It is not a question of how or when the ceiling will be raised..  It is a question of style..

The path with the most convoluted confusion and maximum polarization will be chosen. + Add a heaping helping of lobbing and loopholing..

 

dogshit food for thinkers in America..

 

fonzannoon's picture

which one of the four scenario's is bearish for gold?

Chupacabra-322's picture

Iran Accepts Payment in Gold to Get Around Sanctions

Yet another reason the US government hates gold, unlike dealing with paper money in bank accounts, there is no way they can stop international trade in gold and it is difficult to track gold movements.

WSJ reports:

Turkey on Friday acknowledged that a surge in its gold exports this year is related to payments for imports of Iranian natural gas, shedding light on Ankara’s role in breaching U.S.-led sanctions against Tehran.

The continuing trade deal offers the most striking example of how Iran is using creative ways to sidestep Western sanctions over its disputed nuclear program, which have largely frozen it out of the global banking system.

The disclosure was made by Turkey’s Deputy Prime Minister and top economic policy maker Ali Babacan in answers to questions from the parliamentary budget committee.

http://www.economicpolicyjournal.com/2012/11/iran-accepts-payment-on-gold-to-get.html

 

That’s the same thing Saddam and Gadaffi did, they accumulated enough gold and silver bullion to declare their own “sovereign currency” free and independent of the centralized banking cabal, now going by the name of the Federal Reserve. Before they were called the Federal reserve, our founders referred to them as the “Federalists and others have referred to them as the Rothschilds.

Regardless of who and what anyone calls them, the centralized banks have always and traditionally represented a monetary cabal – a currency monopoly devised by criminal minds, that ends up controlling every nations infrastructure and politics once they entrap and entangle any particular nation.

There is actually a very long history about this cabal going back 100?s of years and this cabal solicits nations to fund their budgets and always bankrupts thise nations that succumb to their sand trap techniques.

During and after the Civil war in the US, these scum bags solicited Lincoln for funding America’s recovery, but Lincoln refused to sign on for such massive debt and used US Treasury bullion to back the US dollar and it was called the Greenback. Garfield made the same mistake earlier, as did JFK a century later, as did Saddam and Gadaffi.

You see folks, any leader or nation that does not sign on for massive debt with the undisclosed banking mafia, now referred to as the Federal Reserve, well, umm, their leaders always get assassinated and their nations distroyed into rubble.

So now that Iran has a means to aquire bullion, well, umm, the cabal will eventually assassinate their leader, as history has proved with Garfield, Lincoln, JKF, Saddam and Gadaffi, because the central banks of the world HATE SOVEREIGN & INDEPENDENT CURRENCY backed by gold because they can’t hijack a nations institutions otherwise.

Because America is in such massive debt to these evel minded bastards, they now write our executive orders for our puppet leader to sign and they now command our Military.

 

xtop23's picture

2013 = automatic cuts removed , debt ceiling raised , slow motion austerity implemented , and continued death of little brown people to spread democracy ( dont pay any attention to that man behind the curtain it has nothing to do with petrodollar protection )

forward !!! they aren't even going to tap the freakin' brakes.

SIOP's picture

They will kick the can.

As it sits right now, there are more fist fights over Black Friday cell phones at Walmart than there is over budget cuts and the future of our very nation.

yogibear's picture

As they have done before. The treasury secretary proposed elimination the debt ceiling. We all know where this is going. Before Geithner announced it Obama and the other staff members knew.

It's unlimited can kicking until she blows. The Fed has setup for unlimited Treasury buying.

 

eatthebanksters's picture

Two longterm outcomes:  1. Raise the debt ceiling, print to infinty and watch inflation destroy the middle and lower class - Greece but worse.  2. Cut entitlements and set off social unrest...Greece and maybe worse.  Tell me who bails us out at this point?

Didn't the wise Kyle Bass say (paraphrased),"If we have an orderly restructuring it will be painful, if we have an involuntary restructuring it will be incredibly painful."   Get ready for the pain... 

xtop23's picture

 I believe the word he used was "apocalyptic". please fasten your seat belts and put your trays in the upright and locked position.

 Dilbert @shadowstats is calling for a 2014 inflationary crisis. we'll see how accurate he is.

thecoloredsky's picture

Thanks for the tip xtop. Googled and found the article you were referring to if anyone is interested.

http://www.shadowstats.com/article/no-445-special-commentary-review-of-e...

Crises-related actions taken by the Federal Reserve and the federal government in 2007 and after, and the systemic impact from the severe economic downturn, rapidly accelerated dollar selling and official efforts at dollar debasement.  These issues also triggered massive deterioration in the government’s already untenable fiscal circumstances, moving the likely outside timing for a U.S. hyperinflation to 2014 from 2018.  The outside timing for the onset of a U.S. hyperinflationary great depression remains 2014 at this time, but the vulnerability today of the U.S. dollar to a massive sell-off leaves open the real prospect of dollar a panic at any time, a panic that could provide the start-up conditions for a hyperinflation.

yogibear's picture

Fixed it.. per Turbo Timmy.

 

Eliminate the debt ceiling, print to infinty 

ZippyBananaPants's picture

free lunch for all, of course, until it runs out.

MrTouchdown's picture

Don't worry - Michelle Obama is going to have a bake sale! Except it will be all vegetables and fruit. Totally flawless plan. We're saved!

adr's picture

Michelle starts a drive to confiscate every last Hostess product in the country. In return you are given a serving of vegetables for each box.

Michelle's ass grows two sizes each week for the next year.

Walter_Sobchak's picture

michelle, like all urban folk, refer to it as a bake-sell, not a bake sale, cracka

Seasmoke's picture

i guess the plan is, we will all be dead when this finally blows up

OneTinSoldier66's picture

+1 for the humor. Here's my two cents that has a little different take on it...

 

On a long enough time line, even the survival rate for the debt ceiling is zero.

USS Bernanke's picture

A transitory problem if I have ever heard of one.

GCT's picture

This exercise of raising the debt ceiling is a joke.  Just forget it and let the fools print.  This will come crashing down alot quicker.  Infinity and beyond for the USA.  The rating agencies will then raise our rating back to AAA! 

I do not know what to really type anymore as I watch this country go to hell in a handbasket.  We all know they will not cut anything.  Pretty soon the whole USA will be government employed.  This just sickens me to think at times what is going on.  Maybe it was better to have taken the blue pill and eat my steak.

yogibear's picture

... And free

Food Stamps 

Cell Phones

Housing 

Welfare

Education and college for illegals.

Pot allocations for everyone. 

Confiscate 401K, IRAs and Savings to redistribute.

Max wealth allowed, except if your a political party member (just like communism).

The ultimate liberal plan.

Mad Cow's picture

And 16 hour workdays. Sorry no vodka :(

Rathmullan's picture

TeTeTeTimmy will threaten to wet his pants and the ceiling will disappear.

Meanwhile: Crap! Tomorrow's cyber monday. In the eyes of the cokehead, pastrami munchin, pinky ring wearin swine... that's gotta be worth 2 or 3 hundred dow points to the upside tomorrow, propelled by some gangnam-style, glasses wearing strategist at one of the primary stealers barking about how tomorrow "broke all previous cyber-monday records" (confusing a secular trend with a cyclical "burst"). Sea of shit where it rains piss and hails pus and jonnie horzine is god.

PaperBear's picture

How about this as a possibility -

'We The People Now Re-Declare in 2012…. The Declaration of Independence!' soldierhugs.com/sign-re-declaration-of-independence-2012/ http://wh.gov/IIKC

asteroids's picture

Obama and co have short circuited Congress. When was the last time you Americans actually had a budget?

Rathmullan's picture

budgets don't matter, deficits don't matter, debt can simply be "cancelled" and gold's a relic in the eyes of the statists,

s2man's picture

Oh, we always have a budget .  The problem is, since the '80's, the bottom line has been a big, red, negative number.  That used to mean borrowing.  Now, it means printing.  Either way, it sucks.

Everybodys All American's picture

The budget process is a joke. It has turned into the Continuing Resolution bill process. Completely broken. Completely sickening..

Racer's picture

ZH have you got a chart of  the  number of the debt limit increases and the actual and  % increases for our perusal?

Ta very much in anticipation

lordbyroniv's picture

Pistachio ice cream for everybody on Tuesdy (s)!!!!!!!!!!!!!!!!!!!

Surrealist's picture

"There is absolutely no prospect of ANY reduction in the debt of the US government (or most any other government) unless and until a meat axe is taken to “entitlements”. This would involve a HUGE dismantling of the welfare state, something that neither side of US politics wants to even discuss. The situation is that simple."

Imagine the pandemonium if welfare is abolished given the millions of recipients and imagine how many businesses will go bankrupt asap with a huge amount of spending that vanishes. Government benefits are a form of stimulus. Dismantle it now and goodbye America!

P.S. I'm from Australia. We haven't indebted ourself to infinity through funding wars around the world.  

 

yogibear's picture

Eventually a confiscation of wealth and distribution. Max wealth allowed rule.

Can't have non-political/non-socialist living better.

The Free Stuff Army demands more and will get it. 

devo's picture

Why not dismantle the corporate welfare state instead? At least citizens pay into "entitlements". It's not their fault government abused that revenue and used it for weapons, war, subsidies, etc. Corporations receive more welfare than citizens. At least be honest and present a balanced picture.

Harbanger's picture

"At least citizens pay into "entitlements". "  Sure they do....It's all about feel good, it's all about brainwashing until economic reality hits.  They don't teach history or economics  anymore, that's why 1/2 the braindead population thinks the Govt needs to play a more active role in their lives.  Forward!

devo's picture

This started in the 1930s before I was born. I want the govt less involved in my life, but I have paid over $100,000 into these programs and I'm still young. I better get it back when it's my turn, or receive a check for what I paid in if they want to dismantle the programs. What I don't think is right is for ZH to write anti-entitlement articles and not mention corporate welfare/corporate entitlements or the people who have paid into these programs, and how they should be made whole. It comes off as very Ayn Rand/pro-industrialist/anti middle class, which is just a retarded philosophy since not everyone can be a fucking architect or industrialist. It makes me wonder who's funding this site. Again, cut any program, but have a viable plan on how to pay people back in currency that has equal purchasing power to when they paid in. Otherwise, you have to keep the programs going and adjust them for inflation. It's not that people want the govt taking care of them; it's that people don't want to give the govt 100k+ and never see a penny returned. If they cut me a check for 100k + inflation I'd say dismantle all of it, but I'd also say dismantle corporate welfare, too. If the Ayn Rand industrialist is so superior, he shouldn't need to ride the govt coattails.