What Happens If the U.S. Defaults on Oct. 17?

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Oct. 7 (Bloomberg) -- Bianco Research's Jim Bianco explains what happens if the U.S. defaults on Oct. 17. He speaks with Trish Regan and Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)

We will have a discussion about what will happen with the debt ceiling bill before the 17th.

Let's say it is the 17th and there is no agreement.

We go back into the morning of the 18th and hopefully it is not the incarnation of the mayan calendar at that point.

What will most likely happen is the administration and the treasury will look at the monetization of debt.

They have done it before as far back as 1957. they can actually say this is our priority and what does that mean?

This gets paid first and that gets paid second.

The first would be debt service.

And how do we have that scenario?

We taken about 25 billion per month and tax receipt.

That is about one third of what the government does.

They would have to decide what government activities do we continue to fade for and what 30% do we not continue to pay for?

And the debt service would account for how much?

About 2.3 %. a very small amount.

But it would take a while for the debt to roll over to higher interest rates.

It would not happen immediately.

The biggest -- the bigger concern is that we will find a way to pay debt service and now we are in open water.

When's the next deadline?

We keep arguing and arguing.

Look what we did with the shutdown.

This week today, 400,000 federal workers went back to work for the defense department.

Essentially, about six percent of the government shutdown.

We essentially neutered the whole continuing resolution shutdown because so much of the government is still operating.

The effect on the economy is very small so now everything can focus itself on the debt ceiling.

If we do not have some kind of disaster on that one, we wind up right where we are right now.

We continue pushing this down the road.

We have not had a true budget and 1997. and then effectively, they created a series of omnibus spending budgets.

The last one was in 2009. the only reason we have a continuing resolution is because we do not have a budget.

The government needs a budget on october 1 of every year in order to operate.

If they do not have a budget, then they have to have what is called a continuing resolution to operate.

You are right, we have had such contentious politics in the last several years we cannot agree on what we should spend money on.

We have these stopgap ills all the time to keep the government funded from year to year.

We have been and now for 15 or 16 years.

This is not new in that respect.

It is just the bellicose language and the stakes are perceived to be higher.

So an opportunity for people.

There could be an opportunity, especially if you slide past the 17th and do not have a default.

I would be bad for the economy.

One third of the government has to stop.

That would be bullish for treasuries.

Which ultimately lowers gdp by a 10th of a percent per week.

That was bill gross of pimco.

) because half the government workers came back to work today.

Some 400,000 come back to work.

Jim bianco, thank you for

This text has been automatically generated. It may not be 100% accurate.


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