End of America

"Shutdown" update: Why there is no chance of a U.S. default unless Obama chooses it

end-of-america
From Paul Mampilly:
 
The U.S. Treasury issued a six page report on October 3, to tell you what might happen if the U.S. defaulted on its debt.
 
I'm going to save you a lot of time by telling you what it means.  
 
The report starts off with a lie claiming that U.S. Treasury has never defaulted on its debt before.
 
Anyone with access to Google knows that in 1979 a technical glitch caused the U.S. Treasury to miss payments on $120 million in debt.
 
The report from the U.S. Treasury then goes on to say that a default would be damaging to business and consumer confidence.
 
But the one thing the report does not say is that for investors, the threat of a default is pretty much meaningless, even if the debt ceiling is not raised.
 
Why is that?
 
You see the U.S. Treasury has numerous options to keep paying the bills. And they know this.
 
For example, the U.S. Treasury could operate on a cash-flow basis, meaning it would need to have money in the bank to pay bills as they come due. This is just a fancy way of saying that it would pay its bills with cash instead of a credit card.
 
The U.S. Treasury always has money coming into its accounts. So its always got some amount of cash that it can use to pay interest on bonds. That's especially true right now because the government is partially shutdown and there's no cash going out from its accounts.
 
In fact, when you look at it the U.S. Treasury should simply have no trouble making interest payments on bonds that it has issued.
 
And there's no restriction on the U.S. Treasury prioritizing interest payments. Why?
 
The obligation to pay interest is set by the 1917 Second Liberty Bond Act and laws that commanded the Treasury to pay interest on the debt. You can look this up in section 3123 of Title 31 of the U.S. Code and section 4 of the 14th Amendment of the Constitution and in Supreme Court precedent (Perry v. United States). It's all there in black and white.
 
So the only possible way the U.S. defaults on its debt is if Barack Obama, President of the United States, instructs his Treasury secretary Jack Lew to default on the debt.
 
So, if you think the markets are going to crash or soar because of the default, stop worrying.
 
The politicians are trying to manipulate you and other people into panicking, in the hopes that if enough you panic, the financial markets will do things to help their negotiating position.
 
Now, there might be some volatility as all this gets hashed out. But this Washington D.C. political game is going to pass like the last default drama of 2011.
 
Remember that? Didn't think so. That passed. Don't panic. This too shall pass.
 
More on the "shutdown":
 
 
 
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