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Boehner pledges not to allow debt default

  • House Speaker John Boehner has reportedly told Republicans in private that he won't allow a U.S. debt default, and if necessary, would use GOP and Democratic votes to increase the debt ceiling.
  • Boehner is also apparently looking to negotiate a combined deal for passing budget legislation and raising the debt ceiling.
  • The speculation comes as a group of Republicans, with support from Democrats, are floating a compromise proposal that would enable the government to re-open. In return for passing a federal funding bill, Congress would repeal a tax on medical devices but not delay provisions of Obamacare by a year, as demanded by the Republican leadership at the moment.
  • President Obama has reiterated his stance about not negotiating over budget and debt legislation.
Comments (22)
  • Given the oceans of money that flow into the Federal Government why should there be any default on interest payments?
    If golf courses can remain open, government chefs can keep serving great banquets and fleets of government jets can keep taking the Bosses on useless trips across the planet there is not only enough buy more than enough money to service federal debt.
    This hysteria about debt default is just another manufactured crisis designed to frighten and bully ordinary citizens and benefit Big Media and Big Government.
    4 Oct 2013, 07:02 AM Reply Like
  • I'm not sure but have always understood that the sovereign credit rating agencies take a broader view than just debt servicing. Any payment promised by the United States must be repaid, or the country will be seen as having defaulted. I remember learning that 30 years ago in college (not that learning something in college necessarily makes it true).

     

    But it does make sense, in a way. If you knew the U.S. government wasn't paying a promised entitlement, how much interest would you demand before risking your own money on the next U.S. bond?
    4 Oct 2013, 08:14 AM Reply Like
  • actually Pmiller User 353's question is vital for investors to understand,

     

    there never could be a debt default, but yes there could be a bigger government slimdown if we go past the 17th with no deal,

     

    with regards to other internal payments owed (government workers, etc) they will issue IOU's as did CA and then be forced to reduce the workforce within the money available by treasury (all of which is after debt and interest payments)
    4 Oct 2013, 11:46 AM Reply Like
  • The politicians will continue to be bought and paid for by special interest groups and deficit spend while the Fed continues to print "free" money. when global CBers and the world say no maas this scheme comes to an end. China is absorbing as much gold as possible along with Russia and BRICs. They are already abandoning the dollar in global bilateral trade transactions and CB reserves, the dam is leaking, when does it break suddenly?
    4 Oct 2013, 07:57 AM Reply Like
  • If you want to meet the idiots who run the USA just read this: http://huff.to/1ccpRgf
    4 Oct 2013, 09:15 AM Reply Like
  • Hopefully Americans will wake up in 2014 and vote all of these Tea Party idiots who have no idea what the government actually does and how that works out of office.

     

    I'm not holding my breath though.
    4 Oct 2013, 11:32 AM Reply Like
  • As Americans we should all be ashamed of our non-functioning government. Just imagine how the rest of the world views the nonsense taking place in Washington.
    4 Oct 2013, 02:49 PM Reply Like
  • Even most of Europe can look at the US and say: "well, at least we're not THAT dysfunctional."
    4 Oct 2013, 02:57 PM Reply Like
  • Don't confuse defaulting on the debt with the debt limit. Not raising the debt limit would require us to not increase the debt; however, we can still spend every cent we bring in. Since roughly 30% of spending is paid by taking on additional debt, that still leaves the other 70%. There is plenty of money to pay the interest on the debt and prevent any default on that debt plus a whole lot more left over to pay for other essential services. What we are talking about here is not allowing the debt limit to be raised and thus forcing the US government to prioritize and choose what spending is more and less essential.
    4 Oct 2013, 04:32 PM Reply Like
  • Darren great point!

     

    I wish everyone would get this.

     

    It drives me nuts when so many people report it as a potential "default" which shows that they are either naïve or purposely trying to mislead the public.

     

    the next person who says this should be corrected by those around them,

     

    all that would happen after the 17th is just a bigger government slimdown,
    4 Oct 2013, 05:55 PM Reply Like
  • For convenience, using 2012 budget numbers. You have $2.5 trillion in tax income to spend...

     

    Interest payments, so we won't default ($225 billion). God knows the mainly-old Tea Partiers will want their Social Security and Medicare ($1.2 trillion). Oh and defense, to beat the terrorists and commies ($700 billion). Getting pretty close already! And keep those farm subsidies ($20 billion)! But can't forget about the veterans ($130 billion). A functioning Justice system might be nice for a democracy like ours ($60 billion). So now you have about $100 billion to fund the entire rest of the government. You might not have noticed the furloughing of 800,000 government employees so far, but it will be noticeable to you and the entire country what happens when the entire rest of the government is defunded. Either that, or we default on the debt, don't pay seniors, and/or active military and veterans.

     

    All the things that people, including the Tea Party, need government for...it starts to add up really quickly.

     

    The world will finally see to it to think of alternatives to US bonds, so say goodbye to ultra-low interest rates. More on interest payments for generations.

     

    Oh and then there's the whole recession thing when the government just decides to spend 30% less all of the sudden.

     

    No, it doesn't mean immediate default - but the mess is great no matter how you chose to resolve it. And it's completely irresponsible, both to current US citizens and future generations.
    5 Oct 2013, 12:16 AM Reply Like
  • pretty fallacious arguments chriff,

     

    but hey, it doesn't bother me that you think this, I respect others in having their own opinions (regardless of how I feel about them),

     

    the facts remain U.S. treasuries will never be defaulted on and that's my point,

     

    (regarding all the other items you mention: each and every department will need to trim the fat, and that's that, my discussions herein do not get political, so let's not get into it okay)

     

    I would agree however that reducing government spending will have economic impacts and this is where companies will get hit, which means lower earnings and lower stock prices, bc of this people will flock towards risk free assets like treasuries,

     

    (since we are talking about the U.S. government not having enough money maybe you would agree with the republicans that we shouldn't have huge new government programs?)

     

    just a jabbing question in jest, I'm sure it will get you riled up, but settle down chriff, I think I already know your answer to this one,
    5 Oct 2013, 01:45 AM Reply Like
  • Darren and Sir.

     

    While we can quibble about the mechanics that may or may not be available to Federal authorities to try to meet day to day financial obligations as they come due once the debt ceiling has been reached, the inescapable fact remains that domestic and global markets once the debt ceiling is reached with no immediate resolution of the impasse evident will view the US Government as financially impaired and will cease to a significant extent to refinance Government bonds as they come due. Chaos will ensue.
    5 Oct 2013, 12:12 AM Reply Like
  • Bob I'm sure you hold fast to your beliefs on this one, but actually I heard similar doomsday stuff about this slimdown and it has been pretty irrelevant thus far,

     

    I'm sure you also think others [the world] will think chaotic thoughts, but really all they care about, and all the capital markets cares about are that interest and principal payment will get paid,

     

    other than that it will be normal budget issues which each government deals with, sprinkled with a market selloff and economic reduction,

     

    the pain will be short lived (2 years) but after it we/the U.S. will be much stronger going forward,

     

    think of it as one big debt counseling session,
    5 Oct 2013, 01:54 AM Reply Like
  • Sir –
    Analogies with personal finance usually don’t work well when analysing a national economy but I suggest that the following does.

     

    Let’s assume I’m reasonably indebted but meeting my financial obligations as they come due; usually out of my biweekly pay cheques but also by credit borrowing. I have a $100,000 mortgage coming due in three months’ time but expect I’ll have no trouble renewing this as I have done so several times in the past. Let’s also assume that for some weird reason a weird court order is made against me and published in the local papers stating that I am not allowed for any reason to exceed a total debt limit of $250,000 (I currently have total debts of $245,000).

     

    One might well thing that I should be OK and that after a year or so of getting use living within my actual income might well be better off for the experience. Even assuming I make every effort to live within my means in the new circumstances however, my success depends also upon me incurring no unexpected financial blows (i.e. reduced income from employment, a health emergency) and also upon my creditors being willing to renew the unpaid balance of my loans when these come due. Out of an abundance of caution, will Visa and MasterCard cancel my cards and demand payment of my outstanding balances? Will the bank refuse to renew my mortgage (and other mortgage lenders refuse to lend to me)?

     

    Admittedly the example given is artificial but it does illustrate that we typically depend on the availability of credit to meet legitimate short term cash flow needs (and some legitimate longer term needs such as housing) as well as for improving our lifestyle (the latter we should be able to control or avoid). It follows that, if we suddenly and with little lead-time hit a credit wall, then we also lose the capacity to borrow to meet short term cash flow needs (some of which might be unavoidable, urgent and unforeseen).
    Arguably, the same analysis applies with added urgency and complexity to the operation of a corporation. This urgency and complexity increases exponentially for a national government.

     

    In short, the US is the only nation that imposes upon itself by legislation a debt ceiling. It is also the most complex financial entity ever created. Does it not follow that, if it is forced in two weeks’ time to immediately and arbitrarily cut back its operations 30% or more to attempt to achieve immediate zero further growth in its national debt, then chaos will ensue (and, at minimum, that most holders and potential holders of current US government debt will not be prepared to renew their holdings thereby throwing the US into default)?
    5 Oct 2013, 01:36 PM Reply Like
  • Bob I don't agree with your opening statement, but applaud your desire to give an example that you feel illustrates the situation (as you see it),

     

    yet any company, individual, or government that needs constant credit to fund both short-term and long-tern operations usually falls under the category of "soon to be closed" or a "credit zombie"

     

    I will agree with you that short-term credit for short-term operations is necessary, and long-term credit when your debt ratio warrants the safety, but constant credit forever is reckless,

     

    In this instance we have more than enough fat to trim, just look at the last 10 years of how big our expenditures have gotten,
    6 Oct 2013, 07:01 PM Reply Like
  • Sir -

     

    Two things arguably undercut the argument in your latest comment.

     

    1. The larger and more complex the enterprise, the correspondingly larger the line of credit it needs to facilitate its day to day operation. This is so quite independently of what credit shape the enterprise is in; it's intrinsic to the scale of operation. It follows that if the US reaches its debt ceiling, then it is very difficult to envisage how a creditable line could function.

     

    2. A further implication of the scale and complexity of the US Government is that the day to day operations of all its bits and pieces can not be reorganized instantaneously to reflect on a week to week basis the requirement that total operating costs would be reduced by more than 30%. In face of the chaos and likely technical exceeding of the debt ceiling, the bond markets for US Federal debt would likely collapse.
    6 Oct 2013, 08:13 PM Reply Like
  • bob,

     

    too much time necessary to untangle your thinking on all of this,

     

    simple principles of sound money policy work for both small and large enterprises (government included),

     

    all that changes is the complexity and items involved,

     

    debt ratios, and other ratios like debt-to-GDP are fundamental to running any country,

     

    have you looked at our latest debt-to-GDP figure?

     

    http://bit.ly/NR2hHu

     

    we went from 64.8% debt-to-GDP in 2008 to 101.6% in 2013 !!!!!!!!!!!!!!!!!!

     

    some day you will realize no matter how tricky- or fancy- or justified, or bulletproof your ideas/positions are for more debt, that you are completely wrong about it,

     

    I would be just as adamant about this if it was a company or a family,

     

    moral of the story debt ruins those who take on too much,

     

    now, with regards to the U.S. I actually advise buying the debt, for one reason:

     

    safety, as no way will we ever default on our debt, and as government is forced to pull back its spending which has acting as a crutch for the economy, the economy will get weaker which hurts equities, and drives people to yield and risk free assets,
    7 Oct 2013, 12:42 AM Reply Like
  • Sir

     

    I hope that events do not unfold over the next month in a way that proves which of us has the better grasp of all this.
    7 Oct 2013, 12:18 PM Reply Like
  • Sir,

     

    Here is an opinion piece that makes my point rather better than my earlier attempt.

     

    http://bit.ly/19lntRb
    9 Oct 2013, 06:00 PM Reply Like
  • Hi Bob, thanks, I will take a look,

     

    (regarding current unfolding events = no deal) could see bloody murder in the markets on Monday,

     

    I have already gotten calls from friends at firms in Singapore, Hong Kong and Paris,

     

    12 Oct 2013, 09:44 PM Reply Like
  • Here is an interesting analysis of how matters would unfold if the US hits the debt ceiling without an imminent prospect of resolution of the political standoff:

     

    http://bit.ly/15SNao6
    5 Oct 2013, 04:14 PM Reply Like
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