Skip to main content

View Diary: Debt ceiling 'compromise' appears to include everything far-right demanded (288 comments)

Comment Preferences

  •  No, but... (1+ / 0-)
    Recommended by:
    Time Waits for no Woman

    Sorry, but default doesn't look at all tasty.  A spike interest rates combined with a 40% cut in federal spending would be a complete disaster.

    That said, I also don't like this deal.  And I don't believe that this deal eliminates the threat, but merely pushes it down the road.  The reason being that since this seems to give Republicans virtually everything that they wanted, Democratic agreement on this deal merely guarantees that Republicans will do the same thing again...and again...and again.

    If Democrats reject this deal, Republicans will learn that they're not the only ones that can play this game.  Under those circumstances, I suspect that a more equitable compromise could be reached in time to prevent any real risk of default and in time to minimize greater economic damage.  Furthermore, it would also serve notice to Republicans that playing these sorts of games in the future isn't a winner for them -- which means that we wouldn't have to look forward to facing this same sort of scenario repeatedly.

    Political Compass: -6.75, -3.08

    by TexasTom on Sun Jul 31, 2011 at 06:06:57 PM PDT

    [ Parent ]

    •  A spike in interest rates (1+ / 0-)
      Recommended by:
      Brian B

      Bunch of scare mongering.  The AAA to AA+ spread is something like 14 basis points for a one year to around 90 for 30 year. Right now we have fed rates rolling at less than 25 basis points. Even paper markets are at low rates.

      However, such a change could blow up many interest rate arbitrage schemes that the wall street casino gamblers are playing.

      But the idea that we would see large spikes is crazy. Where is the bond market money going to go if the holders were to dump them in fire sale (which they wouldn't lest they lose more)? Equities? In the face of yet another consumer led downturn? Commodities? And guarantee that the consumer led downturn pulls us into another full blown recession taking at least one of the big banks with us?

      Besides the majority of these bond holders aren't holding to maturity but rather they use the bonds as collateral to buy stocks, currencies, commodities or other asset securities on margin. They can't just dump Treasuries into a fire sale without having to collateralize their positions with cash. They have no choice but to roll them over with new bonds at AA+ to support their house of cards.

      The one percent crowd and their government enablers are bluffing. They know they are trapped. We're not supposed to know they are trapped. They will destroy themselves if they pull a run on the bond market.

      Otherwise you are suggesting that the market will blow up the spread on AAA to AA+ and thus ripple that exaggeration through all the other spreads which would leave the whole financial system in a pile of rubble. But that can't happen. That would imply that a company with an AA rating would be essentially downgraded by the shear force of the bond market adjusting to US Treasuries as AA+.

      That would destroy what little lending is going on out there and the only way the top one percent crowd can make money is if they loan it out. Higher rates will equal less takers, the subpenny shenanigans become money losers, liquidity disappears and they all become bag holders. Plus they shoot themselves in the foot by shoving the consumer further in the ditch.

      They are trapped. And bluffing.

      Spike the long bond and you kill whatever life support housing had plus refinance and once again they shoot themselves in the foot.

      It would be one thing if a default meant that all $14 trillion of Treasuries went to 0. But dropping a notch in the ratings is a different matter completely.

      Call their bluff and the one percent crowd, in short order, will get word to the government to pass a clean debt ceiling rise and tell the ratings people to STFU.

      We will get a debt ceiling increase no matter what. This whole kabuki dance was orchestrated for something else entirely.

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site