On raising the US debt ceiling

By skepticlawyer

I have nothing to add when it comes to analysing this super-sized game of chicken, but I do want to share a rather nice quip on the conundrum from one of my friends on facebook. The quotation, apparently, comes from Winston Churchill:

You can always count on Americans to do the right thing after they’ve tried everything else.

The right thing would be nice, you know.


  1. Posted July 27, 2011 at 8:01 am | Permalink

    “Raising the debt ceiling eh?”

    I’ll inform my bank manager later today, that rather than paying my mortgage, I’ll instead be “raising my debt ceiling”.

  2. Posted July 27, 2011 at 8:28 am | Permalink

    What’s the right thing to do? Declare bankrupcy and sell the country at auction? This is one screwed pooch.

  3. Posted July 27, 2011 at 8:38 am | Permalink

    Paul Krugman has been bipartisanly scathing, for the republicans less concerned about the budget balance (the revenue side ignored) but wanting to drive policy direction within any given amount of money, and obama for being unbelievably spineless, standing for nothing. It’s almost as if the are fighting for possession of the ball so they can kick an own-goal.

    I reckon Beijing, with an undervalued currency and a gazillion greenbacks in the larder for so long and starting to smell a bit, is wondering about whether the pain of offloading them early is worth it, taking the opportunity to kick the US while the pants are around the ankles. “Take these greenbacks and stick them up your…”

    If south europe’s debts are largely in greenbacks, and the Euro stinks less by comparison, it’s even more interesting.

  4. Posted July 27, 2011 at 8:45 am | Permalink

    I love quotes apparently by Winston Churchill, he was apparently quite a witty man. 😉 Facetious comments aside I agree with your and his sentiments. It’s a fascinatingly grotesque story, in a economically-nerdy way.

  5. Posted July 27, 2011 at 9:11 am | Permalink

    obama for being unbelievably spineless, standing for nothing

    Skeptic said he had Jimmy Carter written all over him. In a way she’s right. But she’s wrong too. Carter’s problem was that he believed earnestly in certain things but was too rosy-viewed, too ineffective an individual to bring his country along for the ride. Malcolm Fraser’s memoirs contain an anecdote where Carter expresses genuine shock on discovering that Brezhnev has lied to him. Fraser says: Well, what do you expect.

    Obama’s the opposite of Carte;r he seems to be very effective but has no ideological core. He’s a technocrat, a legal one without much of a clue about economics. His effectiveness is more of a disaster than Carter’s ineffectiveness.

    He might provoke a backlash like Carter. Some GOP candidate might come along spruiking small government and actually mean it. But on the GOP side the impediment to small government is the graft of the MIC, the emergence of a ruling class that resembles the British in the late 18th century (a bunch of self-indulgent lushes with a mammoth sense of entitlement) and the theocratic tendencies of their working class constituency.

    These people control the GOP. Let’s not forget this clusterfuck comes courtesy of Bush II’s foreign adventurism. Bush knew better about ‘nation-building’. Obama knew that America had a credit card addiction. So why are the Americans where they are now?

    America, God shed her grace on thee.

  6. Posted July 27, 2011 at 9:11 am | Permalink

    SATP, if you keep this up, you’ll be buying me a new laptop as well!

    One has to laugh, I suppose. The alternatives don’t bear thinking about. The Churchill quip is via S&P, according to Ambrose Pritchard, my currently favourite finance writer:


  7. Posted July 27, 2011 at 9:19 am | Permalink

    What’s an MIC? A quick google search finds nothing. Not familiar with that acronym.

  8. Posted July 27, 2011 at 9:21 am | Permalink

    Military-industrial complex. My, my editor is showing today; English-to-Latin on one thread, and now abbreviations 😉

  9. Posted July 27, 2011 at 9:25 am | Permalink

    Thanks SL. Now makes more sense. 🙂

  10. Patrick
    Posted July 27, 2011 at 9:53 am | Permalink

    That, Adrien, is what the Tea Party is about.

    Rick Perry is a real deal small government candidate, for example.

    It is not, btw, about actually defaulting on the debt. The issue arises because the rates (which are mainly things like social security and medicare) are going up, the budget hasn’t budged (salaries, defence and the whole federal paraphernalia) and revenue isn’t, so the US has to borrow more to keep balancing the cash ledger.

    The issue is that greater borrowing – but there are a wide variety of people who could be paid IOUs instead of cash.

    Also, of course, the whole thing is partly a furphy, if there really is no deal Obama will turn around and say ‘oh, the debt ceiling is unconstitutional’ and keep paying while they fight it out.

  11. kvd
    Posted July 27, 2011 at 10:10 am | Permalink

    Wish I had your confidence Patrick. I think the issue of a ratings adjustment is equally important, because of the flowon effect of interest increases through all level of government. I think the worst thing that could happen is some sort of 2T increase offset by 2T savings (can’t bring myself to say trillion – too scary), allowing the structural problems to maybe be put off till after the next electoral cycle.

    The standout expenditure item is military involvement, but I can’t see that being rapidly enough downscaled to ‘fix’ anything more permanently.

    As to IOU’s – isn’t that we are ultimately talking about?

  12. Patrick
    Posted July 27, 2011 at 11:38 am | Permalink

    kvd you are right that the ratings risk and flow-on impact on collateral and insurance/moneymarket/etc investment mandates is probably the biggest risk.

    On IOUs, yes, treasuries are IOUs, but they are usually backed by cash payment of either the principal (bills) or the coupons (notes and bonds). Obviously the other expenditures are mainly cash.

  13. kvd
    Posted July 27, 2011 at 3:16 pm | Permalink

    Not good reading, but does indicate the ramifications for various levels of government and corporate borrowings if a credible plan is not forthcoming.

  14. Posted July 27, 2011 at 9:19 pm | Permalink

    It gets worse. Gah:


  15. Derrida Derider
    Posted July 28, 2011 at 6:10 pm | Permalink

    The Churchill quote was better worded than that: “One can always rely on the Americans to do the right thing … after they have exhausted all the alternatives”.

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