It’s easy to understand why the government will have more trouble borrowing if it fails to pay its debts. It’s a bit harder to see why ordinary Americans, the city of Pittsburgh, hospitals in Iowa, or medium-size corporations will have more trouble borrowing.
But they will.
And their trouble borrowing is the primary way a default, or even something too close to it for the market’s comfort, could deal a body blow to the economy.
It all comes back to U.S. Treasury bonds, which are the foundation of almost all other financial products — the base of the global financial pyramid.
If the federal government’s borrowing costs rise, so will everyone else’s. Mortgages rates will jump, car loans will be harder to come by, universities won’t be able to float bonds, cities won’t be able to fund themselves.
Treasuries are supposed to set the rate of “riskless return” — the price of loaning someone money and knowing, with perfect certainty, that they’ll pay you back, with interest. So when lenders decide how much to charge, they start with the riskless rate and then add to it to cover the risk that you won’t pay them back, and the inconvenience of having to wait for you to pay them back.
already put a bid in: $19 for the I-95
Is it not true that the government has plenty of money to cover debt service next month, provided that other expenses are cut?
Cut spending, cut the drama and let’s enjoy our summer.
I hope those of you taking road trips have a good time and return home safely and happy. The USA is still a magnificent country in many ways.
Until you reign in your military deployments and spending, thats never gonna happen.
Otherwise the living conditions for the poor (50% of America? 80%?) are going to get even worse.
Time to brush up on your spanish??
http://www.raptureready.com/featured/duck/dd47.html
The year was 2006. George Bush was in the White House.
“The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies.
Over the past 5 years, our federal debt has increased by $3.5 trillion to $8.6 trillion.That is “trillion” with a “T.” That is money that we have borrowed from the Social Security trust fund, borrowed from China and Japan, borrowed from American taxpayers. And over the next 5 years, between now and 2011, the President’s budget will increase the debt by almost another $3.5 trillion.
Numbers that large are sometimes hard to understand. Some people may wonder why they matter. Here is why: This year, the Federal Government will spend $220 billion on interest. That is more money to pay interest on our national debt than we’ll spend on Medicaid and the State Children’s Health Insurance Program. That is more money to pay interest on our debt this year than we will spend on education, homeland security, transportation, and veterans benefits combined. It is more money in one year than we are likely to spend to rebuild the devastated gulf coast in a way that honors the best of America.
And the cost of our debt is one of the fastest growing expenses in the Federal budget. This rising debt is a hidden domestic enemy, robbing our cities and States of critical investments in infrastructure like bridges, ports, and levees; robbing our families and our children of critical investments in education and health care reform; robbing our seniors of the retirement and health security they have counted on.
Every dollar we pay in interest is a dollar that is not going to investment in America’s priorities.
Senator Barack Obama
Senate Floor Speech on Public Debt
March 16, 2006
$3 for Mount Rushmore. I figure since I’m willing to pay cash they can throw in Teddy Roosevelt’s grill for free.