Simple as that. :-)

“Technically, the debt ceiling could render the government unable to pay its bills, but the law has little credibility because enforcing it would almost certainly cause more harm than good.”

How can there be a law on the books that so clearly violates the constitution? It is clearly illegal – and a breach of each Congressman’s sworn Oath of Office – “to uphold, protect and defend the constitution” – to even suggest that the government can default on its debts.

Besides that, Congress sets up the budgets each year, based on a bunch of completely arbitrary political decisions and another bunch of baseless projections.

Since the Fed’s letter discusses the effects of health care on gov’t finances:

Health Care is a right. The government should pay for health care for most people. Private health insurance should be for wealthy people who can afford to pay for it themselves. It will probably be cheaper for them anyway because the wealthy are usually more healthy than the rest of the population. With the sick and terminally ill taken out of the private insurance pool, the premiums for the wealthy should be reduced dramatically.

I agree that the probability of default is greater than zero, but the CDS market implies much too high a probability. There’s obviously more going on there than just expected payoffs in a true default situation.

What’s your market Neil?

10y cds
My guess is you haven’t sold any protection yet.

Never say never… there absolutely is a non-zero probability of default. As Warren has stated many times, it’s a choice, but it does trade.

“Where is the law that treasury can’t have overdrafts at the fed? Has anyone found it? Seems to me we have a myth of the law.”

It is annual budget which always describes the sources of financing. It has to.

Where is the law that treasury can’t have overdrafts at the fed? Has anyone found it? Seems to me we have a myth of the law.

That I know for a fact that defaulting on debt payments is unconstitutional. No big risk to lend to the government then?

In any case this argument is silly because defaulting on payments would cause mother of all economic disturbances. It would quickly lead to changes in the system.

And if deficits are financed by direct money creation, outside conditions of so called “liquidity trap” they cause hyperinflation. They believe all hyperinflations in history have been caused in this way. They have fanciful theory where bank calculate complex multiples of government money they have and base lending decisions on that.

It is clear to me that mainstream economist have been taken over by political ideologists and their lies. Their ideology is to shift as much income from bottom 99% to the upper 1% as they can.

The point being there isn’t an independent entity deciding whether your payment goes through – as there is with a business or an household.

The person deciding whether to default is the same person deciding to make the payment.

With a household or business the sequence is business/household decides to pay and bank authorises that decision. The bank may overrule the decision.

With a sovereign government the sequence is government decides to pay and that is the authority. No other entity can countermand that decision once it is made (unless you’re in a country running a constitution that doesn’t give complete payment authority to the parliament).