Breaking Down the Looming Financial Armageddon

Would happen, because it has never happened before.

Many believe this would be armageddon, dante's inferno.

The president, constitutionally, must spend what congress authorizes him to spend, but you must not also borrow more than what congress allows.

If you have more authorized spending and borrowing, the president will be forced to break the law.

Let's go across to the treasury department, where they would be forced to make a choice.

They would have to implement across-the-board reductions in spending, or as bill gross would have it, prioritize payments to certain creditors.

Maybe the bond market.

Or they could delay each days payment until they have enough to pay everyone for that day.

This is not a great option.

We have always been in a situation where your mortgage or rent is due before the paycheck comes.

All the other bills continue to come in and get harder to pay.

The treasury's computers are not set up to prioritize things.

They get 2 million bills a day.

They might be able to pull out treasury interest which is on a separate computer system with the fed, so you could pay the treasury, but if you do that, you have to make a choice.

You have spent almost all your money on that and then some of the important things like social security and medicare become difficult to fund.

A lot of agencies would have to close, including the faa, planes would have to be grounded, and what really gets taxpayers, you would not get your tax refunds.

What would that mean for the economy?

Some studies show that it could bring down the gdp by .4%. that would be recession.

Are economists saying that there is a likelihood of that?

They are saying that these things could happen if we get to the debt ceiling.

Right now there is a 25% chance of a breach.

If that happens, you would see the treasury department making these horrible choices and probably would go with not defaulting, which leaves the rest of the country in a lot of trouble.

Treasury does have to roll over 375 billion dollars in debt over the next month.

If interest rates rise because of this or if we get a downgrade, they may not be able to afford that and they would be forced into default, and then we would have the worst of both worlds.

Not to scare you.

When you bring up dante's inferno, i am not scared.

House speaker john boehner emerged from the white house meeting yesterday to say that the president refused to