Tim Geithner begins to disinvest the Social Security Trust Fund. As FICA taxes come in, the Managing Trustee of the Social Security Trust Fund (Tim Geithner) asks the Secretary of the Treasury (Tim Geithner) to sell him some government bonds in exchange for the cash, and the Secretary of the Treasury (Tim Geithner) says: "No. I can't." The Secretary of the Treasury (Tim Geithner) takes the cash and uses it to cover the U.S. government's other obligations. The Secretary of the Treasury (Tim Geithner) tells the Managing Trustee (Tim Geithner) that because congress has not raised the debt ceiling he cannot sell the Social Security system any bonds. The Secretary of the Treasury (Tim Geithner) then puts a sign on the front of the Treasury lawn with a continuously-updated number on it: "Because congress has not raised the debt ceiling the Social Security Trust Fund has lost $x billion dollars."All this "Tim talks to Tim" shows that the legal niceties are completely obscure and ridiculous.
And this bit shows that the whole thing may be just a charade:
Tim Geithner announces that by law he is required to spend money on appropriations and entitlements--that he is not allowed to impound--and that there is not enough coming in in tax payments to both do all the spending he is legally required to do and to pay back the debt of the United States as it matures. In the absence of the 14th Amendment, he says, he would be required by law to default on the maturing debt. But, he says, the 14th Amendment forbids him to default. In order to take care that the laws be faithfully executed, therefore, even without explicit congressional authority to do so, he must borrow on the full faith and credit of the United States in order to completely (a) meet his spending obligations, and (b) honor the debt of the United States of America. He begins selling more bonds...DeLong concludes that Constitutional amendments will override the law setting a public debt limit:
The Treasury Secretary's argument would be that the debt in excess of limit issued is required in order for him to faithfully execute the appropriations bills, and that the 14th Amendment makes the debt in excess of limit full faith and credit obligations of the U.S. government in spite of the limit in §3101(b). The excess bonds are not authorized by §3101 and §3102. But they are authorized by the 14th Amendment.My personal view is that the US government will go through a "shutdown" with monies stopped and lots of wailing and gnashing of teeth. But before that circus really gets going, the financial markets will have gone ballistic with institutions (forced by their mandates and "fiduciary responsibilities") dumping US government bonds by the boatload sending financial markets into a free fall and bond rates soaring up to the 30% rate that Greece is now paying on its newly issued bonds.
What will be interesting is when the Republicans back off and say "we were just joking around, here, we'll sign the new debt limit" and watch to see if the financial markets (1) quickly recover to conditions before the panic or (2) whether they continue in shell shocked territory and the US goes into Great Depression 2. I'm guessing that the truth with lie somewhere between these two extremes.
What I find completely unacceptable is that any major political party would flirt with the idea of destroying their own national economy to make a "political point". To me that is grounds for arresting them all as traitors and stringing them up on the first available lamppost. It is complete idiocy.
For those who do not think that governments can commit suicide by idiotic political stands, I have some Confederate Bonds I'm willing to see you... cheap!