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The October 17 Deadline for a Default Is Fake.

Written by Gary North on October 9, 2013

Treasury Secretary Lew has used this date as a deadline for the end to his cooking of the books. He will run out of “extraordinary measures” to keep cooking the books.

To deal with this, he must prioritize payments: who gets what. He says he will not prioritize. If he doesn’t, then he will have to break the law. He will have to keep borrowing money, even though the law says he isn’t allowed to. He will call Ben Bernanke and say “keep buying our bonds.” Bernanke will do just that.

It will be great fun to see what he does. He will backtrack on something he has said: no prioritizing, or no more extraordinary measures, or not borrowing after the official figure goes over $16.7 trillion.

The sky will not fall, one way or another. The government will go on. There will be no collapse of the stock market or the bond market. Investors will wait and see.

If not much happens, the public will decode that it will not be so bad. Voters will watch cable TV, chat on Facebook, and go on with their lives. The President will demand that the House pass a “clean bill” and stop holding America hostage. Boehner will say that the President must negotiate on delaying ObamaCare for a year, as if a delay of one year were meaningful.

Meanwhile, nothing much will happen on October 18, October 19, and October 20.

The government will borrow from Peter to pay Paul. It always does. It has been doing this ever since 1837, the last (and only) year in American history when the federal government had no debt.

Could the federal government’s debt receive a downgrade from the ratings agencies? Yes. Will that mean much? No. There will be higher interest rates, we are told. When 3-month T-bill rates are 0.5%, a move to 0.7% will not make much difference. A move to 1% would not make much difference. These are historically low rates.

If investors and the public cease worrying about deadlines, then the politicians can play kick the can with the debt ceiling. Both sides will find that the other will not budge. If the negative sanctions against coming to an agreement do not impose pain on the elected participants, the rhetoric will go on.

The longer kick the can goes on, the less that Congress will be able to get done. With all eyes focused on the debt ceiling, the less possible it will be to get bills passed into law. It will stymie Congress.

ObamaCare already looks like the one and only big-ticket program that Obama will get. The next President may get none.

Conclusion: the longer the government can stall on the debt ceiling, the better it is for the country.

It will be entertaining to see which side backs down. Obama and Boehner have a lot riding on their reputations as refusing to compromise on this issue, since they have not been known as hard-liners in the past.  There are probably office pool bets on which one will back down first.

The longer nothing happens, the better. The public will learn to ignore the politicians’ warnings. Distrust in the Washington Beltway will grow.

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11 thoughts on “The October 17 Deadline for a Default Is Fake.

  1. If we can believe the contention that as of Oct. 18 the government will no longer be able to pay for anything because it will not prioritize which expenses to pay, so it will pay none? Obama gets no pay check either?

  2. If government won't pay, is time for states to take over national parks and pay for fewer to keep them open! Pay for dead soldier funeral expenses and stop paying tax for same. Ask for contributions from fellow citizens.

  3. I'm of the belief that the sky will not fall. The politicians already know this and don't want the public to realize that their talk is just that,"talk"! So, a compromise will happen and the American tax payor will be the only loser AGAIN!!!

  4. Jack Lew and his 10/17 deadline to avoid default isn't the only fake in this article, he has the company of a lot of Democrats in the US Senate, most notably, Harry Reid! They have decided to sacrifice good governance for America for potential political gain.

  5. ken1lutheran says:

    What is never commented on is the question of how much responsibility the Democrats bear for refusing to negotiate with the Republicans.

    A year's postponement in the Obamacare program is very significant. Once people depend on Obamacare for their health insurance, it will be forever untouchable, because people, no matter how bad they think the system is, will be terrified of becoming ill and having no insurance. It's like Social Security. No one in his right mind thinks Social Security is well-run; but it is untouchable because too many people, even those who know it's badly run, are dependent on it.

    • According to Obama the United States WILL NOT default on it's debts to it's creditors. The Social Security participants are holders of bonds issued by the federal government. Therefore, for Obama to cease mailing out Social Security checks is to default on his obligations to creditors of the federal government. So either he is lying about honoring the debts of the government, or his rhetoric about withholding social security checks is an empty threat. Which is it, Mr. Resident?

      • According to the Supreme Court, Social Security recipients are not bond holders. The have no legal contractual rights to the money. Their benefits can change at any time should Congress choose to do so.

  6. You're right that Lew is lying. At my house when funds run short we prioritize. Lew needs to do the same thing.

    Or better, he could call Hairy Reed and tell him to pass a CR!

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