4 Debt ceiling possible outcomes. HOW about a 5th, DO NOT RAISE THE DEBT CEILING!!!

Discussion in 'Economics' started by S2007S, Jul 6, 2011.

  1. S2007S


    Why would that even be one of the outcomes, oh I forgot this economy is already worthless and needs to spend more to try and dig its way out! If they really wanted to cut spending and do something serious this second they would not raise the debt ceiling and start cutting immediately, not 5 years from not 10 years from now, right the fuck now!!!!!!!!

    4 Debt ceiling possible outcomes.

    1. $3-$4 Trillion Increase

    2. $1-$2 Trillion Increase

    3. Short term increase in the debt ceiling as discussions continue.

    4. Default


    I would have to say Default is completely off the table, why anyone even mentions this word over and over and over again is beyond me, its not happening so its not even an outcome....

    I think it will be an in crease of $1-$2 trillion no questions asked, a possibility of a short term increase is also there to keep discussions going until they resolve the problem which should be to NOT RAISE THE DEBT CEILING!!!!

    4 Debt Ceiling Debate Outcomes

    ByJeff Kleintop, Contributor to TheStreet , On Wednesday July 6, 2011, 9:57 am EDT

    NEW YORK (TheStreet) -- Last week, President Obama and Treasury Secretary Geithner reiterated that as of Aug. 2, the United States will have exhausted its ability to borrow under the existing federal debt ceiling of $14.3 trillion. Both sides have failed to craft a deal by the end of June as they had hoped. Moreover, based on public comments made by the President and members of Congress last week, the debt ceiling/deficit negotiations in Washington did not seem to go well.

    Senate Majority Leader Harry Reid announced that the Senate will remain in session over this week rather than recess for the holiday to work on the negotiations. Increasingly over the next four weeks, the major issue for the markets will be these negotiations. If a deal is not reached, the markets may "hit the ceiling" as the United States is forced to default on its obligations or must undertake emergency measures to avoid a default.

    We see four potential outcomes with various probabilities emerging from the debt ceiling debate over the next month.

    Large Debt Ceiling Increase of $3 Trillion to $4 Trillion: While we only give this a 20% probability, it could likely be a very favorable scenario for the markets. To achieve $3 trillion to $4 trillion in savings over 10 years, this outcome would likely involve major entitlement reform, substantial tax cuts, and some revenue increases, and would put the United States on a path to fiscal sustainability.

    The stock market would likely post a sizable double digit gain over the following weeks with companies in cyclical sectors, such as Consumer Discretionary, potentially winning out over defensive sectors that may bear the brunt of the cuts, such as Health Care. High-quality bonds would also rally although the already low yields would limit overall gains to a few percentage points. The dollar would likely strengthen sharply, leading to declines in commodity prices ranging from gold to oil.

    Some may believe 20% is too high a probability that in the next month a historic policy change would take place and that either party would want to address the third rail of politics, entitlement reform, and cast tough votes just six months ahead of the 2012 primary elections. Usually that would be the case.

    Indeed, President Obama's 2012 budget avoided the nation's long-term budget problems and actually boosted the deficit. But polls show the political momentum has shifted to the Republicans, and those in the House have proposed a budget that not only addresses the key issues, but proposes big changes including halving Medicare spending by 2021 relative to current law projections. With such a dramatic proposal already on the table and the momentum for change increasing, a historic policy change is not merely plausible, but possible.

    Small Debt Ceiling Increase of $1 Trillion to $2 Trillion: We believe this is the most likely outcome by Aug. 2, with a 60% probability. This outcome contains spending cuts, the closure of a few tax loopholes that raise revenue, and a modest change in the way Social Security benefits are calculated all totaling $1 trillion to $2 trillion over 10 years, but no substantive entitlement reform. This outcome merely "kicks the can down the road" on when the entitlement programs that make up more than 50% of federal spending will need to be addressed until after the 2012 election. The markets have largely priced in this outcome and are unlikely to make a major move in either direction if this is the result.

    We place a 60% probability on this outcome because it achieves the near-term objectives of both parties. It appears to make a large dent in federal spending, it defers tough decisions on entitlements and taxes to the next Congress (after the 2012 election when the Republicans may control both houses of Congress), and provides a victory for members of both parties going into the 2012 elections. The GOP will likely be successful in holding out against any significant tax hikes. However, there are some "loopholes" that they may agree to that would raise revenue in the range of $100 billion to $300 billion over 10 years.

    Emergency Measures to Avoid Default: If no deal can be reached, Congress or the Treasury may take emergency steps to prioritize debt payments to avoid default on U.S. debt. Among these steps could be a $100 billion to $300 billion increase in the debt ceiling to give legislators another month or so to craft a deal. This may only be the outcome if the two sides are getting closer as we approach the Aug. 2 deadline.

    We peg this at a 20% probability, a sizable uptick after the events of the past week, which saw ongoing negotiations led by Vice President Joe Biden break down. This would be a negative outcome for the markets, but not devastating. With the two sides unable to reach a deal with so much on the line, confidence among investors (and consumers and businesses) would likely plunge. Stocks could pull back 10% or so as the impasse lingers. Treasury yields would rise as bond prices fall on rising fears of default. Precious metals may rise as investors seek a safe-haven alternative to Treasuries.

    We saw this happen earlier this year with the 2011 budget. Every few weeks, Congress would pass a new continuing resolution to fund the government for a little longer in exchange for relatively small budget cuts until a more comprehensive deal could be reached. However, this is a more substantial issue, with much more at stake. Any credit for holding to their principles would be overwhelmed by the appearance of an inability to function and would not work in favor of any members of Congress up for election in 2012 as voters look for candidates who claim they can get the job done.

    Default: The worst outcome by far. The global financial system seizes up as Treasuries become illiquid. The economy lurches back toward recession. Stocks enter a bear market with a 20% or more decline and Treasury interest rates would soar as bond prices plummet. Gold and other precious metals would likely be beneficiaries of the flight from other assets to a safe haven other than Treasuries.

    Even a default of just a week or two would have steep consequences. The United States and the dollar benefit from the vast pools of cash held in dollar-based U.S. Treasuries for their unparalleled liquidity and safety. Even a day or two of default would invalidate this thesis for holding Treasuries by the world's central banks, businesses, and individuals resulting in the permanent loss of Treasuries "risk-free" premium status and perhaps even the dollar's reserve currency status. The rating agencies would immediately move U.S. Treasuries from the highest rating, AAA, to the lowest, D or default.

    Finally, even if a deal is hammered out, there are two paths the negotiations could take: a deal by mid-July and a last-minute deal by Aug. 2. By mid-July, the Treasury will likely present the plan for who gets paid in August and who does not. This will be a sobering assessment as federal spending would be cut by a sharp 40% to 45% of the payments it needs to make in August, including $29 billion in interest payments, if the debt ceiling is not raised. If no deal is on track by mid-July, markets could begin to sag as the deadline looms.
  2. The Mother of All No-Brainers

    If the Republican Party were a normal party, it would take advantage of this amazing moment. It is being offered the deal of the century: trillions of dollars in spending cuts in exchange for a few hundred billion dollars of revenue increases.

    A normal Republican Party would seize the opportunity to put a long-term limit on the growth of government. It would seize the opportunity to put the country on a sound fiscal footing. It would seize the opportunity to do these things without putting any real crimp in economic growth.

    The party is not being asked to raise marginal tax rates in a way that might pervert incentives. On the contrary, Republicans are merely being asked to close loopholes and eliminate tax expenditures that are themselves distortionary.

    This, as I say, is the mother of all no-brainers.

    But we can have no confidence that the Republicans will seize this opportunity. That’s because the Republican Party may no longer be a normal party. Over the past few years, it has been infected by a faction that is more of a psychological protest than a practical, governing alternative.

    The members of this movement do not accept the logic of compromise, no matter how sweet the terms. If you ask them to raise taxes by an inch in order to cut government by a foot, they will say no. If you ask them to raise taxes by an inch to cut government by a yard, they will still say no.

    The members of this movement do not accept the legitimacy of scholars and intellectual authorities. A thousand impartial experts may tell them that a default on the debt would have calamitous effects, far worse than raising tax revenues a bit. But the members of this movement refuse to believe it.

    The members of this movement have no sense of moral decency. A nation makes a sacred pledge to pay the money back when it borrows money. But the members of this movement talk blandly of default and are willing to stain their nation’s honor.

    The members of this movement have no economic theory worthy of the name. Economists have identified many factors that contribute to economic growth, ranging from the productivity of the work force to the share of private savings that is available for private investment. Tax levels matter, but they are far from the only or even the most important factor.

    But to members of this movement, tax levels are everything. Members of this tendency have taken a small piece of economic policy and turned it into a sacred fixation. They are willing to cut education and research to preserve tax expenditures. Manufacturing employment is cratering even as output rises, but members of this movement somehow believe such problems can be addressed so long as they continue to worship their idol.

    Over the past week, Democrats have stopped making concessions. They are coming to the conclusion that if the Republicans are fanatics then they better be fanatics, too.

    The struggles of the next few weeks are about what sort of party the G.O.P. is — a normal conservative party or an odd protest movement that has separated itself from normal governance, the normal rules of evidence and the ancient habits of our nation.

    If the debt ceiling talks fail, independents voters will see that Democrats were willing to compromise but Republicans were not. If responsible Republicans don’t take control, independents will conclude that Republican fanaticism caused this default. They will conclude that Republicans are not fit to govern.

    And they will be right.


    Mentally defective people.
  3. Just remember...for every trillion they raise the debt ceiling, thats another $3,225 out of your pocket that the government will HAVE to eventually get from you one way or the other. Dont forget to add about another $2,000 in interest payments give or take.
  4. Paul Ryan's response:

    RYAN: What happens if you do what he’s saying, is then you can’t lower tax rates. So it does affect marginal tax rates. In order to lower marginal tax rates, you have to take away those loopholes so you can lower those tax rates. If you want to do what we call being revenue neutral … If you take a deal like that, you’re necessarily requiring tax rates to be higher for everybody. You need lower tax rates by going after tax loopholes. If you take away the tax loopholes without lowering tax rates, then you deny Congress the ability to lower everybody’s tax rates and you keep people’s tax rates high.


    Anyone want to explain this? How the heck did he get elected? Did he say he could talk to Jesus or something?

    I think this is what happens when you have the Koch brothers in your state. I hate to see what is taught at the economic departments those guys have been buying up.
  5. kind of like the republican meme that cutting all government spending will create jobs.
  6. piezoe


    That claim that you're better off with no insurance then you are with medicaid is one of my all time favorite political nonsense statements! It's right up there with the often trumpeted "it's the wealthy that create all the jobs, so if you raise taxes on the wealthy you'll be cutting jobs."

    And I heard, just today in the news, that some researchers have actually bothered to study health among those with medicaid and those without and concluded that those with medicaid where much healthier. Surprise, surprise!

    There must be some sort of I.Q. test administered before you're allowed to join the Republican party. I wonder what the upper cut off score is, probably around 120. :D
  7. canmo


    hilarious! "Taken a step farther, some suggest, the law may make the debt ceiling itself unconstitutional"


    Just simple psychology issue of indebted to eye-balls borrower - finds for himrelf excuse to borrow more to delay the game over ..
    No more debt ceiling! Bring your all paper into the printer !! Yahooooooooo!!