As the high drama continues to intensify in Washington, D.C., my confusion also continues to increase. According to the Treasury Department (a reminder to all that Tim Geithner is no longer at the helm — what a shame — and the new guy has been conspicuously absent) the borrowing limit will be reached a little later this month, on October 17th. But the real problem would be reached on October 31st, as all the Treasury Department tricks will have been exhausted. This I fully understand, these are merely expiration dates. So, at this point, when October 31st ultimately arrives, the Treasury supposedly won’t have enough money to pay its debts, and therefore, according to Barack, Harry, Nancy, and even John (that’s Boehner and McCain), the government will default on its debt. Not having money is a major problem, this I also fully understand.
However, according to a recent analysis performed by the co-Chief of FICC Research at Barclays, the total interest due during the October 17th to October 31st time period is approximately $6 billion. The average citizen might ask, “What about the principal payments for treasury bills, notes, and bonds coming due during the same time period?” That’s a very good question. The answer is that the Treasury Department will do what they have always done, namely conduct a refunding auction. In other words, they’ll simply rollover debt that’s coming due. Thus, the only concern is not principal, it’s interest to the tune of $6 billion. Nevertheless, it would be a real concern for me, if from the October 17th to the 31st time period; the Treasury Department only took in $3 billion or $4 billion. A default under that scenario would be quite obvious to the prior cast of abovementioned characters and even myself.
My bewilderment results from the fact, that according to Barclays, the Treasury will collect $100 billion in that 17th to 31st time period — that’s $94 billion more than they need to pay our debts. Consequently, it would seem quite logical to me to take the word “default” off the table by simply announcing that the first $6 billion that’s collected will be paid on our interest. After that, we’ll go back to the drawing board regarding everything else.
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At one time, it was common knowledge for American households — although it appears that it’s a questionable concept these days — that when you pay your bills, at the very least, you pay the interest first, and whatever is leftover is then applied to other expenses. Those types of decisions are made every single day. Unfortunately, with this bill paying strategy in mind, career politicians would be forced to deal with medicine, Social Security, and a dozen other set-in-stone government programs. And that’s the rub. Career politicians are so afraid to tackle what needs to be done, that they revert to the scary word “default,” and once again, they’ll raise the debt ceiling.
To the gentlemen and ladies in Washington, D.C., just pay the interest and get on with what you’re supposed to be doing, specifically decision making.
Calling a decision maker, there’s a phone call for a decision maker, is there a decision maker in the house?
MacroProfit
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