Here's an article from this evening's Wall Street Journal. It attempts to explain what is likely to happen if the U.S. either defaults on servicing it debt, or is simply downgraded by the rating agencies.

http://online.wsj.com/article/SB1000...od=djemheard_t

This is serious stuff, folks. Our national debt is financed with Treasury bonds and notes that have a very short average duration. The average maturity of US Treasury debt is now just 58 months. The Treasury Department has to re-finance about $100 billion in maturing debt every week.

More importantly, the buyers of our debt have shown increasing disinterest in Treasury bills, which have extremely low interest rates, close to zero in recent months. Buyers of our debt have increasingly demanded somewhat longer term instruments which carry higher interest rates. The percentage of our debt financed with short-term T-bills has dropped from 59% of total debt as recently as 2009 to only about 20% now.

What does all this mean to us?

It means that our entire national debt will have to be re-financed in less than five years. If you read the article cited above, it appears very unlikely that the large banks in the U.S. and worldwide can or will be significant buyers of our debt when it rolls over. In much the same way, it is unlikely that foreign governments will have much of an appetite for U.S. debt which may have been downgraded and is issued by a government that clearly is dysfunctional and unreliable to make decisions to protect the interests of their investors, the buyers of U.S. debt instruments. However much we are able to sell will certainly demand a much higher interest rate, a risk premium for an unreliable borrower.

Carrying this scenario one further step forward, if when our debt needs to be re-financed and there are an insufficient number of buyers for our bonds, bills and notes, then our federal spending will have to be reduced very, very quickly. The U.S. is the reserve currency of the world. There is no IMF or European Union or World Bank to bail us out. When we have insufficient revenues and can't borrow as much as we need to run the government there is only one possible alternative--stop spending. I suppose a very quick and very significant tax increase could help, but spending cuts are the more likely response to a sudden shortage of funding. Remember, we currently borrow 42% of all of our federal expenditures.

The big question, of course, is what federal spending will the Congress cut? What departments and functions will need to be quickly eliminated? Which entitlement programs will have to be changed immediately? (Unlike achieving deficit reductions with things like increasing the future retirement age for Social Security, if there is insufficient money to pay the benefits of current SSA beneficiaries, their monthly payments will have to be suspended or reduced right now.)

Folks, just think about the effect on the economy of massive layoffs of federal workers, of the stoppage of federally-funded projects and programs around the country, of the inability for us to continue to fund our military at anywhere near the levels we have for a decade or more? Think what will happen to housing prices if Fannie Mae and Freddie Mac have to wind down because no one will buy their bonds? Getting a home mortgage with Fannie and Freddie out of the system will be impossible.

Once this process begins, it will be impossible to reverse in anything less than years, if not decades. This is life-changing stuff.

Our elected representatives are playing politics and dueling ideologies with a situation that potentially will change our lives, reduce our standard of living, change our importance as a world power, change things I can't even imagine. This is real stuff, folks. Before you continue to make ideological statements or responses, either left or right, please think about what our government is about to do to us.

I wish I could suggest something to do other than sit and watch the potential train wreck. It's waaay to late to write your Congressman...or elect a new one!