Well, it's been a whole day since we apparently ran out of borrowing power and so far no rioting, fires or horsemen on the horizon. I'm kind of disappointed.
Check out yesterday's letter to Congress from Tim Geithner that explains the not-so-complicated scam:
I am writing to notify you, as required under 5 U.S.C. § 8348(l)(2), of my determination that, by reason of the statutory debt limit, I will be unable to invest fully the portion of the Civil Service Retirement and Disability Fund (“CSRDF”) not immediately required to pay beneficiaries. For purposes of this statute, I have determined that a “debt issuance suspension period” will begin today, May 16, 2011, and last until August 2, 2011, when the Department of the Treasury projects that the borrowing authority of the United States will be exhausted. During this “debt issuance suspension period,” the Treasury Department will suspend additional investments of amounts credited to, and redeem a portion of the investments held by, the CSRDF, as authorized by law.
In addition, I am notifying you, as required under 5 U.S.C. § 8438(h)(2), of my determination that, by reason of the statutory debt limit, I will be unable to invest fully the Government Securities Investment Fund (“G Fund”) of the Federal Employees’ Retirement System in interest-bearing securities of the United States, beginning today, May 16, 2011. The statute governing G Fund investments expressly authorizes the Secretary of the Treasury to suspend investment of the G Fund to avoid breaching the statutory debt limit.
Each of these actions has been taken in the past by my predecessors during previous debt limit impasses. By law, the CSRDF and G Funds will be made whole once the debt limit is increased. Federal retirees and employees will be unaffected by these actions.
I have written to Congress on previous occasions regarding the importance of timely action to increase the debt limit in order to protect the full faith and credit of the United States and avoid catastrophic economic consequences for citizens. I again urge Congress to act to increase the statutory debt limit as soon as possible.
Timothy F. Geithner
This is really no different than what happens to the Social Security "taxes" lifted out of your paycheck. Check out the Social Security Trust Fund FAQs for more details on that particular scam:
Tax income is deposited on a daily basis and is invested in "special-issue" securities. The cash exchanged for the securities goes into the general fund of the Treasury and is indistinguishable from other cash in the general fund.
So this is why Timmy is so afraid that the debt ceiling will not be raised - he's got $2 trillion in IOUs to fund and not a penny to do it with. You read that, right? Your Social Security taxes go right into the Treasury's pocket, traded for worthless pieces of paper that are allegedly backed by the credit of the United States. Well if we default and/or no one wants to loan us any money that could be a problem.
Republicans aren't buying Timmy's doomsday predictions (ironic, since some of them are likely packing their celestial bags for Christ's return on May 21st). Said Reuters:
Since January, Geithner has changed his forecast of when the U.S. would hit its borrowing cap, and the final deadline for raising the debt limit, at least four times -- fueling a belief among rank-and-file Republicans that his latest August 2 deadline is artificial and can be ignored.
Some Democrats are increasingly worried that the changing calendar has been counter-productive, complicating efforts to get the $14.3 trillion borrowing cap raised because many conservative Republicans do not believe the country will start to default for many months.
"You can only cry wolf so many times," a former economic official in the Bill Clinton White House told Reuters. "If you are jumping from May to July to August, you can see people thinking that maybe you can jump from August to October.
We've been here before. Think back to, oh, the fall of 2008 when then Treasury Secretary Hank Paulson warned the sky would fall if we didn't pass TARP. At the time, TARP was intended to buy up toxic assets (oxymoron) that were somehow destroying the financial system. We passed it, the sky did not fall and everyone went home happy, except JP Morgan, who got pissed for being forced to take TARP money they didn't actually need. It's a rough life.
Let me tell you a story. When I was five or six, I was playing out in the yard one day when I decided it would be a good idea to stand in the road and dare a car to hit me. Don't ask where my mom was, she could see me from the window of our duplex I assume because when she caught me out in the street playing chicken with mid-80s clunkers racing through Milwaukee, she beat my ass. Keep in mind this is a woman who did not believe in spanking but sure enough, that earned it.
Congress is doing the same thing except it's a freeway and no one's mom is going to come running downstairs to kick their asses.
Instead of talking about what could happen if we do not increase the debt limit, let's talk about how to set to fixing things when we do not increase the debt limit. Of course we all know Congress doesn't have the large, robust cojones necessary to execute such a move.
Wait until they start forcing 401(k)s to buy Treasurys, then we can all run downstairs and start kicking some ass ourselves. Thanks, mom.