Proposed: A Commission to Examine Ways to Renege on Paying Back US Treasury Bonds

[Kurt_and_Hunter]

The US government sometimes (usually... okay, almost always) funds some government expenditures by selling Bonds.

These bonds promise to pay back the principal in/over a fixed period of time with a certain amount of interest on top of the principal.

If we didn't pay any interest the bonds would be profit-making (except in a true nominal deflationary environment) and would pose no problem.

Now here's the thing... just because we *promised* to pay interest on these thing, that was *before* we knew all about the monster deficit. ("before" is a term of art referring to things one always knows but only talks about when a Democrat is president.)

The monster deficit is a game-changer. Obligation schmobligation... we have a deficit! Past promises are obviously negated by a deficit.

So we need a Commission to figure out reasonable cuts to the interest we are paying on all those treasury bonds we have sold.

What? That would destroy America's credibility and bring down the international banking system?

Absurd!

It is well established (Boehner told me) that the government can take money from party X in exchange for a promised return and then decide that the promised return is up-for-grabs if we really, really, really want money to pay for the debt run up to do things like invade Iraq.

We collected money for Social Security and set it aside. That was a promise. (putting the "trust" in trust-fund) There is no notable shortage of Social Security money to pay Social Security benefits. The problem arises only from the fact that we took that money and used it to fund the Bush tax cuts and the Iraq War (and, in fairness, a lot of stuff recently since we need stimulus and revenues are down)

But now we don't feel like paying the obligations and think it would be awesome to have a Commission to figure how much we feel like paying.

Goose meet Gander.

Yes, reneging on treasury bonds to help the deficit would ruin our credibility. True.

The question is why is our credibility of such a lower order of importance when dealing with promises made to the citizens?

_______________

The preceding is Swiftian. Not a real suggestion to renege on T-bills. The point advanced is that we should not consider our promises mere options to be "revisited" when we think we can get away with it as a stunt to transfer money from poor to rich.

[dkf]

1. Those bonds are a special issue that pays interest by issuing new bonds

As far as I can tell they have no maturity date and you cant sell them on the open market because they are non negotiable.

[Kurt_and_Hunter]

2. You are referring to the trust fund IOUs?

Yeah, that sounds about right.

[dkf]

4. What obligation is there to pay on a bond that generates no income and is perpetual?

Can it default?

[Kurt_and_Hunter]

7. I guess not.

Well, we were out-smarted fair-and-square and should take our punishment.

We didn't read the prospectus!

[dkf]

12. Regular treasury bonds are on solid footing. Its the social security bonds that are suspect.

[karynnj]

3. Just print more money - which the Treasry can legally do

Now that reduces the value of the dollar, but the promise was to repay in dollars. You could also say that this could lead to a more equitable distribution of assets. Everyone with lots of money still will have the same number of dollars, but internationally they would be worth less. Foreign products will become more expensive - as will foreign hotel costs.

Now is there a problem with this - YES.

It will make it far less likely that the US could ever get foreigners to buy our debt if we radically devalued our currency, which this would do.

[dkf]

6. It is already a pretty minimal payment. I wonder if it will cover just the medicare premium by then

[girl gone mad]

18. Firstly, we are in an era of deflation.

Monetizing the debt is highly unlikely to lead to any noticeable currency devaluation. See Japan for the past two decades.

Secondly, we have good tools at our disposal to combat inflation. It's a well understood phenomenon and there's not a lot of cause for inflationary concern right now.

[karynnj]

19. There is fear that we COULD go into deflation, but there are few who say we are there

About the only thing that has seriously deflated are home prices.

[Kurt_and_Hunter]

21. Wages are not exactly exploding either.

Actually a LOT of goods and services are cheaper than they were a couple of years ago.

This is disguised by a few things.

Isolated increases in oil, milk, food in general and health-care. (And cigarettes.) The commodity increases in these items are not driven by higher demand -- global demand for oil, for instance, is demonstrably lower then when the economy was booming -- but by particular things happening specific to the commodity. Because these are things people buy often there is a strong impression created of rising prices.

But rents are certainly lower than they were... but moving is a serious hassle. But it is rare to volunteer lower rent to current tenants. Few want to "take advantage" of cheaper rents because it would require moving. (And people have leases.)

Pricing power is so weak that where it exists companies hit it for all it's worth. A new DVD of a major hit movie is quite expensive. But all the back-list titles are much cheaper than they were a few years back. People still feel they *must* have the new Harry Potter movie but are less likely to buy DVDs of old movies. And so on.

The internet is part of the trend also. The internet murders prices.

But you cannot buy milk and gasoline on the internet.

[Phil The Cat]

22. Ten years ago, milk in metro Detroit was $2.99 - $3.99 a gallon

Now I regularly get it for $1.99 to $2.49 a gallon!

Is that good or bad?

[dipsydoodle]

5. Question may be

Who buys those bonds ? That info is kept secret. Someone mentioned here a week or so back the theory that the US buys its own debt just make things look right.

[ipfilter]

8. Anyone can buy US debt.

www.treasurydirect.gov

[karynnj]

10. The bonds are bought by anyone who wants them and can pay for them - just as stocks are

The government knows exactly who has them and pays interest on them as per their design. The problem with the US buying its own debt is that it does not then get money for it - and that was the point of selling it.

[dipsydoodle]

15. "the point of selling it"

The point is that in the absense of interest they'd have a serious issue. I appreciate that anyone can buy them but the oddity is the information being kept secret.

[ipfilter]

17. There have been a few Treasury auctions in the recent past where

the interest curve went negative. There was such high demand for "safety" at the time the demand pushed the rate negative on I believe the 28 day T's. In this case "investors" actually willingly received less principle back at the time of maturity.

[hughee99]

9. Isn't this where the Social Security money goes? n/t

[ipfilter]

11. So you are proposing defaulting on all US Treasuries?

That would ruin the AAA credit rating of the US Government. That would limit all new Government spending to no more than the taxes collected since nobody would be interested in buying US Government debt. It would also destroy the principle invested by pension funds, foreign governments, state and local governments, individuals, and countless other organizations. Defaulting on our sovereign debt would not end well for anyone.

[Kurt_and_Hunter]

14. Only in the way Swift proposed eating the Irish

[closeupready]

13. You nailed it. That's also why I would never consider converting my 401(k) to Roth.

No matter what they say, they are eventually going to find ways to tax the money coming out of a Roth even though they state currently that this will never happen. I'm like, yeah, I'm so sure you guys are telling us the truth, and will keep your promises. :eyes:

[Fumesucker]

16. You are incorrect on a minor point..

Tax cuts and wars pay for themselves and do not require borrowing, indeed these things turn an actual profit.

It is things like public education and building roads that run up the deficit.

/neocon speak

[Kurt_and_Hunter]

20. My bad!

[Faryn Balyncd]

23. Alan Simpson could be co-chairman, so he can do his wheezy imitation of the greedy geezer bond-holde

[Hannah Bell]

24. great idea! i propose to stop paying interest to hedge fund & bank holders of t-bills first.

in fact, i propose to default on their holdings, or make them wait until they're 70 to collect.

let them eat cat food.