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!

VK, you hit it right on the head. When this happens, not if this happens, gold, silver and bullets with be the new currency.

I sure wish that you were wrong and this would never happen, but I think its to late to fix the problem. Starting with our children our standard of life will go way down. America is quickly turning into 3d world country.

Having been in lots of 3d world countries, it is not something that I want to see happen to this great country. Lots of folks aren't going to like it.

You can bet that not one of the pols will lose a dime, but those of us, seniors, children etc., will take the blunt of the cuts.

The US will fastly become another Greece with riots in the streets. Hungry people are not happy people.

The Administration has been talking about this problem for a least 14 months and orchestrated this debate to be a last minute "crisis" on purpose, with the expectation of getting people into classic "Chicken Little" mode. It seems they've succeeded.

Originally Posted by RichieLion

The Administration has been talking about this problem for a least 14 months and orchestrated this debate to be a last minute "crisis" on purpose, with the expectation of getting people into classic "Chicken Little" mode. It seems they've succeeded.

Watch, Richie.

THE problem is that for some reason people do not understand the problem.. one more time....
The problem is NOT just the debt ceiling.. it is the Debt ceiling AND the DEFICIT SPENDING..
The rating agencies are saying they will downgrade our rating EVEN IF THE DEBT CEILING IS RAISED.. UNLESS we also make significant progress in getting our DEFICIT under control.
do not just raise the debt ceiling.. That is what Obama wants.. and that will NOT Do it..
We must make significant progress in getting our DEFICIT under control.. THAT IS hundreds of billions of dollars every year cut NOW.. even Ryan's proposal which was demagogued by Dems is not enough..
PHONEY deals with Boehner and McConnell and Obama are not going to do it... and unfortunately that is all we are going to get..
Our credit rating is going down.. soon.. according to the interview with S and P on Cavuto this morning.. very possibly before Aug 2nd.. and Cavuto implied even possibly monday morning.

ain't a goin to happen

If it does happen, you will see prices rise 25% or more over night. But on the other hand, all your investments will get an increase also, so you will be making more fiat money to spend on items that cost more. No gain in profits, but you will be spending more for basic stuff, meat, potatos, bread and other food items, along with a huge increase in the cost of fuels.

I sure hope that this gets fixed, because if not hang on to your hat, its gonna be a wild, wild ride for a while. Like I said before, gold, silver and bullets will be the new currency.

I heard this morning that we go 1.7 billion a day into debt. When will it ever end?

Getting a substantial deal matters as much for financial markets as the political future of the U.S. political leaders. Standard & Poor's has said it would lower its AAA rating on U.S. government debt if it believes any deficit-reduction agreement is inadequate or the triggers put in place aren't credible. A lower rating would immediately boost borrowing costs for the U.S., businesses and households, harming the recovery and roiling financial markets worldwide.

"What we mean by credible is something that we think people are actually going to do," David T. Beers, managing director of sovereign and public finance ratings for S&P, said in a recent interview.

John Fath, managing partner for BTG Pactual, the large Brazilian investment bank said, "If I was a foreign holder of U.S. debt, I'd be asking myself, 'Who is running that country anyway? This is like riding on a motorcycle and steering it right in front of an 18-wheeler. Are they out of their minds?'"

There is a possibility that the dollar could be removed as the "world's reserve currency." If this happens, we will become a 3d world country over night.

This happened to the UK in the 1950s when the dollar took over for the Pound Sterling. Google the history of "world reserve currency" and find out what it did to the UK.

I only hope that this does not happen to us.

Originally Posted by Villages Kahuna

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!

Bush Sr. is a good example of a President serving only one term because of a bad economy at the wrong time. Do you think that the Republicans are willing to let this disaster hit and then use their spinmeisters blame it on Obama?

Yes they will let us hang out to dry. The republicans and the tea party are into two things..destroying Obama and protecting the rich and the corporations neither of which pays their fair share in taxes. Our country was founded on compromise it would not exist without it yet these tea party fools just have their one agenda and thats it the heck with everything else. What makes things worse is that the repub leadership does not have the guts to call these people out. If the stuff hits the fan as some say it will what will the tea party say?

Originally Posted by waynet

Yes they will let us hang out to dry. The republicans and the tea party are into two things..destroying Obama and protecting the rich and the corporations neither of which pays their fair share in taxes. Our country was founded on compromise it would not exist without it yet these tea party fools just have their one agenda and thats it the heck with everything else. What makes things worse is that the repub leadership does not have the guts to call these people out. If the stuff hits the fan as some say it will what will the tea party say?

Before I Galted, I paid more than 50% of my salary and investment income in taxes.
Exactly how much is my fair share?
JJ

you must have had a bad tax lawyer to pay 50%. The wealthy pay about 16% now with all the tax loopholes and capitol gains stuff. Corporations? next to nothing....some of them even get subsidies in times of record profits. What do these T-Party people say about this. Here is what I hear all the time....They create the jobs. And here is what I say....NO they don't. The middle class consumer creates jobs by spending our money on products. Why is the T-party and repubs ignoring us?

http://www.vanityfair.com/society/fe...printable=true
JimJoe for your eyes