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View Diary: Economic Populist: Consol Bonds are the Debt Ceiling Walk Off Home Run (27 comments)

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  •  Yes, John Carney quotes the language ... (3+ / 0-)
    Recommended by:
    limpidglass, TheMomCat, priceman

    ... but doesn't read it closely.

    Indeed, he stares the loophole in the face and believing in advance that it is not there, does not see it.

    Treasury bills are sold on a discount basis ~ they are all face value on majority, no coupon, and the yield is determined by the discount to the face value on maturity at which they are sold.

    Sect. [c] is why T-bills are under the debt ceiling, and specifies how they are to be counted.

    Consols are the opposite of Treasury Bills ~ they are all coupon, no face value on maturity. These Consols would not be issued on a discount basis so "of any obligation sold on a discount basis" does not apply to them, to "the original issue price of the obligation" does not apply.

    Indeed, this point to how the loophole would be closed if a veto-proof majority of both Houses wanted to close that loophole. No face value is legally equivalent to a face value of zero, and so any no face value consol bonds would always be sold on a premium basis. So all that would be required would be:

    "for any month, of any obligation issued on a discount or premium basis that is not redeemable before maturity at the option of the holder of the obligation, is an amount equal to the sum of:"

    Its just an oversight in drafting. The legislation was drawn up with reference to the mix of Treasury securities being offered, and zero face value bonds sold at a premium basis have never been part of that mix. Regular face value long term bonds may, of course, be sold on a premium on occasion, but for the purposes of the debt ceiling computation, they are counted at face value under section (b).

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    by BruceMcF on Fri Sep 27, 2013 at 07:15:13 AM PDT

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