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View Diary: GOP clueless about how sovereign bond market works (212 comments)

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  •  More importantly, they CAN'T prioritize payments (12+ / 0-)

    http://mediamatters.org/...

    The Treasury's systems do not clearly mark what scheduled payments are for what reasons, so it is impractical to try to prioritize payments. And clearing systems like Fedwire do not allow defaulted securities to flow, so the system would seize. In order for the clearing systems to work, the Treasury would need to notify the market of a default almost a day before the default happened (to give everyone time to modify payments), and that is not going to happen because the Treasury will not want to declare default while Congress still has time to pass a bill.
    http://www.businessinsider.com/...
    As we understand it, there are three main systems – the Department of Defense Disbursing Offices, the Bureau of the Fiscal Service (which deals with Treasury security related payments), and the Financial Management Service (which makes all other payments).

    The way that they are set up, they can either be set to “on” or “off” – i.e., a system either makes all of its payments or it doesn’t make any at all

    "He who fights monsters should see to it that he himself does not become a monster. And if you gaze for long into an abyss, the abyss gazes also into you."

    by Hayate Yagami on Tue Oct 08, 2013 at 08:56:33 AM PDT

    •  Very interesting (8+ / 0-)

      not least because we are actually starting to look at the mechanics of how a default will play out.

      Most people have never considered anything like this. Americans are totally oblivious to this soft of thing, myself included.

    •  the real problem is no one knows (7+ / 0-)

      I am certain there are some things they can do, but these systems were never designed to deal with this situation, nor should they have needed to be.

      It's the first part that gets to the heart of the matter - it's all interconnected and when one things fails, there will be a domino effect. I can guarantee you most of the external (bank, etc) systems the treasury interacts with related to bonds are not designed to handle what will happen, either.

      Want a progressive global warming novel, not a right wing rant? Go to www.edwardgtalbot.com and check out New World Orders

      by eparrot on Tue Oct 08, 2013 at 09:41:55 AM PDT

      [ Parent ]

      •  When Lehman collapsed, it rippled out to an (1+ / 0-)
        Recommended by:
        eparrot

        external mutual fund company that had invested its money market assets in Lehman commercial paper which became worthless.  The fund broke the buck and initially announced a value of $0.97, a shock to investors who assume $1 = $1.  Fluctuation is exceedingly rare.  And of course the situation was much worse than what was first announced.  Even the TaxFree US Government Money Market had its assets frozen.  The interconnectedness of the banking and finance system became apparent as more and more people were affected by the money markets that were supposed to be as good as cash but became illiquid.

        There is no existence without doubt.

        by Mark Lippman on Tue Oct 08, 2013 at 07:21:52 PM PDT

        [ Parent ]

        •  yep (0+ / 0-)

          my point was more a technical one in response to the observation that the Treasury has technical challenges regarding prioritization - all the interconnected parts will have technical challenges as well. But you are absolutely correct that the actual economic interdependency is huge.

          Want a progressive global warming novel, not a right wing rant? Go to www.edwardgtalbot.com and check out New World Orders

          by eparrot on Wed Oct 09, 2013 at 08:27:30 AM PDT

          [ Parent ]

    •  Well, if Treasury COULD prioritize payments (2+ / 0-)
      Recommended by:
      Hayate Yagami, PsychoSavannah

      I would cut off Defense contractors like Halliburton first.  That might be fun for Cheney.  Hey his heart might even skip a beat or two

      •  We should resist the urge to contemplate how we (0+ / 0-)

        would do it if we held America hostage...I don't like either side doing it. I know you are (half?) kidding, but I am beginning to see rumblings in some comments of how we could use the situation to our benefit, such as counter negotiations/compromise, instead of condemning the actions of the House Republicans as a whole!

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