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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

The danger is from the spending cuts, not the potential downgrade

Posted by WARREN MOSLER on July 28th, 2011

The headlines are all about the risks of default or a too small deficit reduction package causing a downgrade of US debt.

And while markets react to those issues, they all miss the point.

The consequences of a downgrade to US govt debt are minor at best.
Note that when Japan was downgraded below Botswana,
with a debt/GDP ratio nearly triple that of the US,
interest rates remained the lowest in the world

The real risk comes from the spending cuts.

No debt ceiling extension is the worst case-
Government spending falls by some $150 billion/month as expenses can’t exceed revenues
Fed Chairman Bernanke mentioned that might reduce GDP by a full 6%
And that’s just the first order effect, as a falling economy means falling tax revenues,
Which means further reductions in Treasury spending in a pro cyclical nightmare.

And if they do extend the debt ceiling it will be with prescribed spending cuts.
This too adds drag to the economy.
The more the cuts are meaningful and immediate, the more the drag on the economy increases.

Because the markets don’t yet understand this,
the feedback they are giving is misleading policy makers,
and encouraging them to make deeper, more meaningful cuts.

72 Responses to “The danger is from the spending cuts, not the potential downgrade”

  1. Walter Says:

    Warren,
    Yesterday on cnbc.com was below mentionded article from John Carney, senior editor. He used to be a lawyer he writes.

    The article is about the possibility of an overdraft of the tsy at the fed.
    Carney suggests this is possible. He claims that it’s up to Obama and Geithner whether they stop writing checks or not.
    He also adds that Peter Morici, former chief economist at the US Intl Trade Commission, describes that the FED could soak up the excess liquidity by selling securities it holds in such case.

    http://www.cnbc.com/id/43899646

    1. Is Carney here correct?
    2. In which law, regulation is the no-overdraft rule?

    Reply

    Arthur Reply:

    @Walter, He is not correct. Daylight overdrafts and carry-over daylight overdrafts are available to Fed member banks based on the discount window provisions of the Federal Reserve Act (Section 13). Since the early 80s, Treasury is not allowed to use the discount window. Carney doesn’t know what he is talking about. Of course the Fed could decide to interpret the law differently, but I don’t think that is what Carney is arguing.

    Reply

    beowulf Reply:

    @Arthur,

    By a fair reading of the Federal Reserve Act, you’re probably right. But fair doesn’t get you very far in lawsuits against the Fed. If Tsy and Fed want to do something there’s not much anyone (short of Congress passing a bill over the President’s veto) can do to stop them. In Reuss v. J Balles and a couple of other cases since the late 70s, federal courts have bounced everyone (including congressmen and bondholders) from suing the Fed because they lacked standing.
    http://openjurist.org/584/f2d/461

    Maybe a Fed member bank has standing to sue to challenge Fed operations or even constitutionality (ha ha, that would be ironic), but during a financial emergency, the courts would put any such a lawsuit on a very slow track. At any rate, I go into the weeds of the Tsy checks are not Tsy obligations argument here.
    http://moslereconomics.com/2011/07/26/treasury-default-requires-reprogramming/#comment-59494

    Reply

    Arthur Reply:

    @beowulf, I agree that you can’t sue these guys. Makes me chuckle whenever I hear someone talk about limited government. I went through the comments you provided regarding Treasury checks, as well as the TNR comments they refer to, but I’m still not sure I understand what you mean.

    Are you saying that Treasury can print it’s own notes that don’t count as debt? Those would just be greenbacks, which Treasury can issue up to $300 million under current law. That’s not very much.

    But I think I’m missing your point.

    beowulf Reply:

    @beowulf,

    Well a note is a Treasury security with a maturity between 1 and 10 years and clearly subject to both debt limit and OMO requirement. The $300 million is the limitation established in the 1870s for the issuance of United States currency notes– Greenbacks. These are basically zero interest bearer bonds that but for the $300 million cap (which the FRA of 1913 may have overridden, but that’s an even weaker case) are exempt from debt limit and OMO requirement.

    The point of The New Republic commenter (who sounds authoritative but then so do doctors on TV dramas) is that Tsy checks and drafts (checks are drawn against a bank account, drafts are issued directly from Tsy) are legally distinct from bills, notes and bonds and so are exempt from the debt ceiling and as such are not “direct obligations” (which is the weakest link of the argument) which Tsy can only buy or sell via OMO.
    The TNR commenter said there was legal precedent (but w/o cites, who knows) but Geithner and Bernanke would need platinum balls to try this. So if it were my call, I’d definitely say, let’s mint one for the Gipper, but it would be neat to watch if Tsy and Fed did start overdrafting, particularly to see how they structured it operationally.

    WARREN MOSLER Reply:

    lots written about this on other blogs.

    i don’t know the exact reg, but seems it’s in the fed reserve act or something like that

    it’s operationally not a problem, but it’s against policy, and the fed only lends on a secured basis.
    overdrafts by banks must be collateralized on statement day

    Reply

  2. zanon Says:

    Warren:

    This is exactly correct. It is also why, whether the debt ceiling is raised before or after aug 2 is not so important. Whatever the deal which comes out, it will drag on government spending, and therefore reduce automatic stabalizer, and bring down AD and raise unemployment. After the Obama Boom, we have Obama double dip.

    YOu can blame barry for focusing the spending on his union vote bank, but the real blame lies at harvard university for not understanding how double entry book keeping works.

    Reply

  3. rvm Says:

    It doesn’t matter who leads whom – everybody is blind.
    When we fall off the cliff again, our “leaders” might chose to finally visit the eye doctor.

    Reply

    zanon Reply:

    @rvm, it absolutely matter.

    if paul krugman was getting it right in the NYTimes every sunday, then we might solve this problem.

    But if some politician, like, say Dick Cheney say “deficits don’t matter” then Paul Krugman calls him idiot faschist hitler and we make no progress.

    on technical matters, politician follow academics. we will not get a change in this mindset until we get change at harvard.

    Reply

    Leverage Reply:

    @zanon,

    We may need a depression for this unfortunately. Functional finance won’t be used until there is a deep change in situation which trigger a deep change in economic thought.

    Too many years of theoclassical economics, monetarism and other crapp. The politicians now have to suck up the monster they helped to create by neoliberal economics.

    Just let’s hope that the situation does not degrade so much that is irreversible socially and politically. Only then, after all this, maybe we can eliminate debt issuing and get policies that exploit our fiat monetary system for the good.

    Until then, pain and conflict.

    Reply

    Benedict@Large Reply:

    @zanon, Politicians MAY follow academics, but they pick which ones they want to follow based on who gives them the most cover. The cover that the politicians are looking for is the cover they need to do the bidding of their sponsors, the idle rich, and the idle rich in turn sponsor academic “scholarship” that fits the needs of the politicians they sponsor. It’s all a rather time-consuming and messy process designed to hide the fact that the idle rich live off the public dole by bribing politicians, but it provides wonderful theater for a media transfixed by all the smoke, never suspecting that the whole place might be on fire.

    Reply

    Zanon Reply:

    @Benedict@Large, We disagree on how this process works then. The standard left wing narrative of politics in US is laughably garbage

    ESM Reply:

    @Benedict@Large,

    Agreed, Zanon.

    Funny how the idle rich are diligent enough to sponsor helpful academic research and bribe politicians. They must be very busy.

    Matt Franko Reply:

    @Benedict@Large, Here’s Krugman on The Coin: “sound ridiculous — but so is the behavior of Congressional Republicans. So why not fight back using legal tricks?”

    To Krugman this is a “trick” that should perhaps be pursued but only because it may be a “trick” against Congressional GOPers. He is so bent that he cannot independently look at what the mechanics are behind the coin operations and then abstract that to the reality of fiscal and monetary operations in a FFNC regime and reach a true understanding. He cant get past his political ideology, and is made moron by this intransigence. It is childish/immature behavior. Sad. And ironically contributes to holding his own pol party back from putting forth better policies.

    I hope I am never reduced to such a meaningless intellectual existence. Resp,

    WARREN MOSLER Reply:

    And get a second Nobel for it as well…

    luigi Reply:

    @Matt Franko,

    Krugman remember me people like Rush Limbaugh, depicted by Bill Hicks.

    you know?

    Reply

  4. ESM Says:

    Another way out of this, at least temporarily, is for the Treasury to allow taxpayers to accelerate tax payments in return for a discount on their taxes. So, for example, you could pay $9,500 now, and that would count towards extinguishing $10,000 of tax liability on April 15, 2012.

    This is functionally equivalent to issuing a $10,000 zero coupon bond at a price of $9,500, but it wouldn’t count towards the debt limit.

    Come to think of it, you could replace all Treasury issuance going forward with discounted, prepaid tax cards.

    Reply

    Leverage Reply:

    @ESM,

    Excellent idea! Reversal MMT :D An other one even better:
    1) Increase taxes for the rich & corporations massively.
    2) Then apply your idea.
    3) Win!

    Reply

    Tom Hickey Reply:

    @ESM,

    Come to think of it, you could replace all tsy issuance going forward by letting the monetary base expand and setting the overnight rate to zero. Now where have I heard that before? :)

    Reply

    ESM Reply:

    @Tom Hickey,

    Yes, but the Treasury already has full authority to settle with a taxpayer over taxes owed. The IRS does this all the time.

    Reply

    zanon Reply:

    @ESM, brilliant idea. I actually quite like this.

    It fits wonderfully with the whole situation, much like the platinum $1T coin.

    anon Reply:

    reminiscent of the Mosler proposal to pay taxes with bonds in Europe

    both can create prepaid tax credits

    problem is that taxpayers need money to prepay taxes, discounted or not; it’s contractionary to prepay taxes

    Reply

    Leverage Reply:

    @anon,

    The whole debt ceiling and austerity thing is contractionary, this would just help solve the problem of debt at least temporally.

    Anyway, it pretty much depends who you target with this: there is a lot of idle money on corporations which haven’t been investing in ages and keep increasing revenues. There is also a lot of rich people with ‘excess’ money which is not helping aggregate demand anyway, even it’s counterproductive because it’s channelled to speculation.

    In essence there is an huge money stock doing nothing or creating inflation for the average Joe and not adding to output neither to real demand and the economy. So using it to decrease debt and increase spending again it’s rather helpful (anti-inflationary & adds to aggregate demand).

    Reply

    beowulf Reply:

    @ESM,

    Why stop on April 2012 (unless its Mayan calendar reasons)?
    Tsy could announce a special closeout sale! People could prepay their income taxes now for future years at a discount. Tsy could throw in the sweetener that you lock in current tax rates even if future years have higher rates. Heck, accept prepayment of estate taxes adjusted by taxpayers age on an actuarial chart.

    The late David Bradford would have liked this. :o)
    He once jokingly suggested a “Weapons Supply tax credit” as a way of:
    buying weapons for the U.S. military through the IRS rather than the Pentagon. Here’s how it would work. Instead of being paid to deliver planes, missiles and tanks, defense contractors would receive “weapon supply tax credits” (WSTC). The defense contractors would be able to reduce the taxes they owed the federal government by the prices of the weapons they delivered. Because the tax credit would be refundable, if the prices exceeded a firm’s annual tax liability, the IRS would send a check to the firm in the amount of the difference. In this way, the federal government could finance a massive military buildup — and because tax credits aren’t counted as part of the federal budget, for official purposes the cost of the buildup would be zero!
    http://m.current.com/news/91300013_the-tax-breaks-that-ate-america.htm

    Reply

    djp Reply:

    @ESM,

    That sounds like a great idea!

    Reply

    WARREN MOSLER Reply:

    good idea.

    and the tsy could issue the longer pre paid tax cards and the fed could buy them back so as not to drive up term rates?

    seems they may count as tsy secs?

    Reply

    ESM Reply:

    @WARREN MOSLER,

    If the Fed accepted them as collateral for repo, then they would be economically identical to Treasuries. Accounting-wise, however, I don’t think they would count as debt. Have to check on how retail companies treat outstanding gift cards.

    Reply

    ESM Reply:

    @WARREN MOSLER,

    Outstanding gift cards are treated as a current liability under “unearned revenue.” Not debt. The Treasury could probably get away with this without too much of an outcry. Anybody who realizes the prepaid tax cards are Treasuries probably understands MMT anyway and won’t be upset.

    Reply

    beowulf Reply:

    @Warren Mosler,

    Or the US Postal Service starts issuing refundable jumbo stamps (its earnings go to Tsy), if par value were tied to current price of 1st class stamp, it’d even be inflation protected. :o)

    As much as I’m a fan of platinum coinage for obvious reasons, from an MMT perspective the ideal solution would be for Tsy and Fed to just start overdrafting Tsy checks or drafts by jointly declaring them to be excluded from definition of Tsy obligations subject to debt ceiling and OMO limitations. The law is pretty hazy (I doubt Tsy could force it on Fed), but if they jump off the bridge together, no one has standing to stop them in court. More details on Cee-Lo Green option here (10:28pm).
    http://moslereconomics.com/2011/07/26/treasury-default-requires-reprogramming/#comment-59516

    The interesting question with overdrafting is, just as with prepaid tax cards, how would Fed book it? After all, Tsy rolls over its debts instead of paying them off. Thanks to recent Fed accounting change, I imagine Fed banks could honor Tsy drafts and then book them as a liability of Tsy (and of course using IOR to peg Fed Fund rate).

    In other words, the US Govt is constrained by debt limit but could writes a draft that’s cashed by the Fed, an agency of the US Govt unconstrained by debt limit, who could then books it as a US Govt liability, one that’s unconstrained by debt limit. Apparently, the Fed is like the big black guy in The Green Mile who can transfer his magical powers just by touch.
    “The change essentially allows the Fed to denote losses by the various regional reserve banks that make up the Fed system as a liability to the Treasury rather than a hit to its capital. It would then simply direct future profits from Fed operations toward that liability…
    “Any future losses the Fed may incur will now show up as a negative liability as opposed to a reduction in Fed capital, thereby making a negative capital situation technically impossible,” said Brian Smedley, a rates strategist at Bank of America-Merrill Lynch and a former New York Fed staffer.”

    http://www.economicpolicyjournal.com/2011/01/hot-fed-hides-major-accounting-change.html

    WARREN MOSLER Reply:

    the fed could buy the world’s largest ball of forever stamps from the post office to fund the tsy and then make money on it as a tourist attraction, and be inflation protected as well. have a booth at the iowa state fair?

    JKH Reply:

    @Beowulf,

    that negative liability is supposed to represent a claw back of future profits that would otherwise be remitted to Treasury, so its linked to the capital account

    arguably, it is unrelated (directly) to monetary policy implementation

    it’s a fiscal accounting adjustment

    an overdraft is a “natural” negative liability, that is not linked to capital account

    arguably, it is directly related to monetary policy implementation

    (fyi – just my interpretation – don’t know if it matters to your argument)

    beowulf Reply:

    @JKH,
    “arguably, it is unrelated (directly) to monetary policy implementation”

    If I was a Tsy lawyer, I’d argue that platinum coinage is the smarter play because the law clearly allows it with or without Fed’s concurrence. Tsy and the Fed working together could get away with overdrafting because no one can stop them, but ignoring (potential) legal obstacles in that way is no way to run a railroad. My point was, if they DID pull the trigger on this, that would create a hell of precedent for going back to the well again.

    Once the Fed accepts the draft, the cakes already baked. they can adjust their books anyway they like. After all, a debt that’s written off is ordinarily charged against bank capital, no? So instead book it as a negative liability and all’s right in the forest.

    JKH Reply:

    @Beowulf,

    Coin or overdraft, whatever.

    Coin is cool; overdraft is provocative.

    Just on the overdraft accounting again – its plain vanilla bookkeeping – either a negative liability or an asset (if crystallized as a loan). There’s no issue of write-off – the balance sheet balances through reserve creation.

    If you want to start writing off that overdraft, that’s a different issue – writing off the negative liability (or the equivalent asset), which destroys capital.

    Those two “accounting events” are quite separate.

    (The writing off part also applies to Paul’s suggestion for disappearing the entire Fed held debt.)

    blah … accounting

    :)

    beowulf Reply:

    @JKH,
    Yeah, basically it comes down to Tsy writing checks when it knows it has insufficient funds and it expects depositary banks to cash anyway (legal impediments can be ignored, public opinion cannot).
    In other words, the Department of the Treasury would engage in banking practices that, for any other party, would lead to criminal charges. The more I think about it the more I think Tsy should stick to its knitting and just use its power to create money, which as unique selling propositions go, is damn hard to beat.

    Ramanan Reply:

    @ESM,

    Sorry whats cooking here ?

    A Treasury Security is a promise to pay xyz at maturity and coupons semiannually.

    Now whats this prepaid tax card ? A promise to … ?

    “If the Fed accepted them as collateral for repo, then they would be economically identical to Treasuries.”

    The Fed also accepts Jumbo Pfandbriefe issued in Germany. Are they equivalent to US Treasuries ?

    Reply

    ESM Reply:

    @Ramanan,

    The prepaid tax cards would be equivalent to zero-coupon Treasuries, not coupon bearing Treasuries.

    When the tax card matured, it could be used to pay taxes, dollar for dollar with its notional amount. A zero-coupon Treasury of course pays you dollars, dollar for dollar with its notional amount at maturity. Since dollars are nothing more than tax credits, albeit transferrable ones, the prepaid tax card would be substantially equivalent as long as it is transferable. Having the Fed accept them as collateral for repo completes the equivalency and addresses Anon’s problem with their issuance still being contractionary. If they can be used for repo, then their issuance would have the same effect as Treasury issuance (which we know does not materially alter aggregate demand vis a vis “printing money”).

    “The Fed also accepts Jumbo Pfandbriefe issued in Germany. Are they equivalent to US Treasuries ?”

    Of course not. Being acceptable Fed collateral is a necessary but not sufficient condition for an obligation to be economically equivalent to Treasuries.

    Reply

    Ramanan Reply:

    @ESM,

    “The prepaid tax cards would be equivalent to zero-coupon Treasuries, not coupon bearing Treasuries.”

    Ok. My statement was just a general definition of Treasuries.

    But how is it equivalent ? The ZCB pays me funds .. and the Prepaid tax cards … nothing.

    ESM Reply:

    @ESM,

    “The ZCB pays me funds .. and the Prepaid tax cards … nothing.”

    The ZCB actually pays you tax credits. It just so happens that it’s easy to trade those tax credits for goods and services, or to use them to pay back your own debts.

    The prepaid tax cards might not be immediately exchangeable for goods and services, but you should be able to trade them for the familiar tax credits, i.e. dollars. If you actually have a tax obligation yourself, then you can use the prepaid tax cards and keep the familiar tax credits, i.e. dollars, to use on other things.

    Ramanan Reply:

    @ESM,

    “The ZCB actually pays you tax credits. It just so happens that it’s easy to trade those tax credits for goods and services, or to use them to pay back your own debts.”

    Not sure if someone will accept it. Apple cannot raise money in the secondary markets by issuing iTunes gift cards. There is no secondary market for used iTunes gift cards.

    Lets come back to the anti-security. After it matures, not sure why someone would accept it – so one can only use it to extinguish his/her own tax liability. Someone can hope to become Warren Buffet and pay less taxes than his Secretary – don’t know why he would accept the risk of overpaying taxes in advance.

    Nobody is like the utility-optimising agent of New “Keynesian” Economics and agent prepaying taxes sound like that NKE agent.

    Ramanan Reply:

    @ESM,

    “Apple cannot raise money in the secondary markets by issuing iTunes gift cards.”

    Sorry meant primary markets.

    ESM Reply:

    @ESM,

    “Apple cannot raise money in the [primary] markets by issuing iTunes gift cards.”

    Of course it can. And it does. I’ve bought many of them as gifts. Where do you think the money goes — to Microsoft?

    “There is no secondary market for used iTunes gift cards.”

    You can trade them on ebay or here.

    Unless by “used” you mean expired or used up. Then of course they are worthless.

    I don’t know if the Treasury can make prepaid tax cards transferable. That might be beyond its authority. However, I think even tens of billions of dollars of non-transferable prepaid tax card could be sold for discounts comparable to corporate bond yields. I would probably buy a 9-month maturity one for an implied yield of 3%, for example.

    Ramanan Reply:

    @ESM,

    “Of course it can. And it does. I’ve bought many of them as gifts. Where do you think the money goes — to Microsoft?”

    Sorry meant to the kind of big numbers you are talking about.

    “You can trade them on ebay or here.

    Unless by “used” you mean expired or used up. Then of course they are worthless.”

    Partially used .. as in a $100 iTunes card used by purchased $10 worth of songs.

    “However, I think even tens of billions of dollars of non-transferable prepaid tax card could be sold for discounts comparable to corporate bond yields.”

    Haven’t seen them.

    More importantly, that’s the point. Only hypothetical utility-maximising agents pay taxes 10 years in advance.

    beowulf Reply:

    @Ramanan,

    Alas, the Fed can only eat homemade cooking (and no, there is no platinum loophole for foreign coinage). Beyond that, while Eurozone members mint their own coins, quantity and denomination are controlled by ECB.

    United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues. Foreign gold or silver coins are not legal tender for debts.
    http://www.law.cornell.edu/uscode/31/usc_sec_31_00005103—-000-.html

    Reply

    Ramanan Reply:

    @beowulf,

    But the Fed accepts Pfandbriefe as collateral. What does that have to do with legal tender ?

    Ramanan Reply:

    @beowulf,

    “Beyond that, while Eurozone members mint their own coins, quantity and denomination are controlled by ECB.”

    No, the ECB doesn’t control the money supply.

    beowulf Reply:

    @Ramanan,
    “No, the ECB doesn’t control the money supply.”

    You know Ramanan, sometime I sense that you don’t trust me. :o)

    Too many coins and banknotes in circulation could lead to inflation, which is precisely what the ECB aims to control by maintaining price stability. Therefore, the ECB is responsible for approving the volume of coins that euro countries may issue. In the case of banknotes, the ECB both approves the volume and issues the notes.
    http://www.ecb.int/euro/coins/html/index.en.html

    Ramanan Reply:

    @beowulf,

    “You know Ramanan, sometime I sense that you don’t trust me. :o)”

    Beowulf, what you quoted is a rhetoric carried out by the ECB. Go to the Monetary Policy Impelementation Document and you will find no reference to money aggregates. The ECB accomodates whatever currency needs are of the private sector.

  5. anon Says:

    The platinum coin has just hit CNN.

    Reply

    beowulf Reply:

    @anon,

    Ha ha, I’ll have to check that out. Thanks for heads up. :o)

    Reply

    anon Reply:

    @beowulf,

    yeah, they interviewed the guy who wrote the article posted at Norman’s

    he was complimentary of the idea; said it was unlikely for implementation, but that desperate times call for desperate measures

    still, high profile; Blitzer was blazing on it

    congratulations

    Reply

    anon Reply:

    @beowulf,

    give it a couple of more days

    it may still turn out you’ve saved the union

    Reply

    Matt Franko Reply:

    @beowulf, I do believe their main studio is in Atlanta…….. ;)

    Reply

    beowulf Reply:

    @Matt Franko,

    Oh yes, I used to date a girl who worked down there. I wonder if that restraining order has expired (just kidding). :o)

    Unforgiven Reply:

    @anon,

    Wouldn’t it just be a dream come true if the Prez got on the air, opened a display case of platinum coins and told Congress:

    “Remove the limit. Cut payroll taxes to zero. You’ve got until Noon tomorrow.”

    Reply

    Art Reply:

    @Unforgiven,

    That would be sweet…but far more likely from an FDR or Truman than from this president.

    Reply

  6. anon Says:

    Here’s to Beowolf:

    CNN video of the platinum coin proposal

    http://www.cnn.com/video/?/video/bestoftv/2011/07/28/exp.tsr.snow.obama.options.cnn

    Reply

    Leverage Reply:

    @anon,

    As long as it’s not clear why this does not cause inflation to the public MMT will still be rather obscure. People needs to understand what inflation means and how is created, if not the immediate reaction is “OMG hyperinflation Zimbabwe”.

    Reply

    Unforgiven Reply:

    @Leverage,

    Well said!

    When it becomes clear that the currency can be supplied without operational, the discussion might become a more honest one about inflation and what causes it in its various forms.

    Well, right after the realization that neither taxes nor bonds are needed for Federal revenue.

    Reply

    Unforgiven Reply:

    That should have been “without operational limits”.

    Unforgiven Reply:

    @Leverage,

    Another approach would be a more Daoist, and (rightly) agree that the problem would be about inflation, not about “running out of (fiat) money”.

    Reply

    Ramanan Reply:

    @Leverage,

    Plenty of options the Treasury has.

    It has some balances at commmercial banks which could last for two weeks.

    The Federal Reserve and Intragovernmental Holdings hold about $5.66T of Treasury Securities.

    http://www.gpo.gov/fdsys/pkg/ERP-2011/pdf/ERP-2011-table89.pdf

    Remove Fed’s Holdings, and still one is left with many Treasury Securities to sell to finance spending.

    Reply

    Roger Erickson Reply:

    @anon,

    Note that “selling assets” seems more favored than issuing more currency. And, they officially concluded with the TINA defense.

    Sounded to me like their minds are made up.

    Most chilling part is that even Obama may actually want a default. His main backers – the 0.1% wealthiest – would benefit the most from they chaos following a default.

    Reply

    WARREN MOSLER Reply:

    and many believe they are doing the Lord’s work

    Reply

    Unforgiven Reply:

    @WARREN MOSLER,

    Just like the guy in Oslo.

    zanon Reply:

    @WARREN MOSLER, barak obama beleives he is doing the God work too

    Ramanan Reply:

    @anon,

    NYMag as well http://nymag.com/daily/intel/2011/07/trillion_dollar_coin_debt_ceiling_balkin.html

    Has an illustration of the coin.

    Reply

  7. Art Says:

    Big question: Because we have a self-imposed debt ceiling, are we actually at risk of becoming like Greece (if it’s not raised)? Or will Fed and/or Treasury (or Exec branch, if only) come up with something that keeps us on the Japan path?

    Reply

  8. Dan Furlano Says:

    Latest tweet from David Frum:

    “Seems economic growth in US is again grinding to a halt. Obviously what we need to do is stop the govt from buying stuff and paying people.”

    http://www.frumforum.com/

    This is the closest I have seen any (relevant) pundit come to making an assertion that we need government spending.

    Reply

    beowulf Reply:

    @Dan Furlano,

    David Frum is perhaps the most intelligent and fair-minded conservative pundit. Which is as an uncomfortable position to be in as being the fattest passenger in the Donner party. He was bounced last year from the American Enterprise Institute for being a little observant. Frum pointed out Obamacare was basicallythe same insurer-drafted, GOP-sponsored alternative to Clinton’s HCR plan of the early 90s (Bruce Bartlett was bounced from another conservative think tank for similar thoughtcrimes a few years ago).

    Frum is no slouch on economics, he’s repeatedly endorsed a full payroll tax holiday. It should go without saying, any kin of Jon Frum is a friend of mine (“a bizarre cargo cult… holds America in god-like esteem. The Jon Frum movement celebrated the 50th anniversary of its founding yesterday”). :o)
    http://www.telegraph.co.uk/news/worldnews/1542869/Islands-cargo-cult-celebrates-50-years-worshipping-the-US.html

    Reply

    ESM Reply:

    @beowulf,

    Eh. I disagree. There’s no doubt that Frum is smart, but he is one of those “reasonable” = pandering conservatives like David Brooks. The kind that likes being liked by the beltway liberals. They’re known as cocktail circuit conservatives because they exchange public attacks on conservatives for invitations to hoity-toity cocktail parties in DC.

    And by the way, Frum fully deserved to get booted from the AEI. He was being paid six figures to actually do some work, and at the very least to be physically present at the AEI in order to interact with the other staff and mentor.

    He was apparently never there and spent most of his time writing for his blog. That’s called moonlighting and is generally not acceptable to your employer.

    Reply

    Dan Furlano Reply:

    @ESM,

    I agree Frum is a pundit but I been on his forum since it stated and he has been fairly consistent with his message about moderation.

    The story I have heard/read on his departure from AIE was about ideology.

    Not holding the guy up as a savior but we need all the like minded people we can find. And he does have a decent following.

    ESM Reply:

    @ESM,

    “…he has been fairly consistent with his message about moderation.”

    Yes, well, the problem I have with the self-described moderates and the No Labels people is that they are very quick to accuse people who disagree with them of being immoderate.

    It’s one of the finest examples today of unintentional irony.

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