I know I am the voice of pessimism around here and nobody knows what the worst might bring. Nonetheless I have read several articles in the last few days that speculate that Treasury Only Money Market Funds could suffer badly post default. I wonder what might be a reasonable substitute. 1. Prime Money Market, more diversity? FDIC HYS account? FDIC insured 90 day CD’s? Checking accounts at a too big to fail Brick and Mortar Bank? Under the bed? I have a relatively affluent friend who sheepishly revealed to me that he has cash buried in his yard but I wonder if he was pulling my leg. Suggestions please.
Might need the cash if Social Security checks don't go out.
I don't think one money market would be much safer than another if the default persisted.
My off-the-top-of-my-head thoughts are that since SS is roughly 3/4 paygo, the government should be able to make payments of at least 3/4 of "normal" amounts without any impact on debt. That in turn should cover Medicare premiums - a secondary issue that I haven't seen mentioned. (If SS does not make payments, and Medicare premiums are still due, do participants have to come up with the cash themselves?)
The 3/4 figure is based on projections that when the trust fund is depleted, payroll taxes and such will be able to fund 3/4 of amounts due.
IMHO, and without careful thought, the question seems to be whether the SSA can draw money out of its trust fund to cover the other 1/4 as it normally does. As larryB points out, there is a question of what the Treasury will do about paying off Treasury bonds as they become due. The SS trust fund is invested in Treasuries, albeit of a special nonnegotiable type. So ISTM that there's a question of whether SSA will have access to the money in the trust fund.
In contrast, SS payments are made from segregated cash flows (FICA taxes) and the SS trust funds. For this reason, it does not seem reasonable to expect SS payments to be significantly delayed. OTOH, since all checks from from "the Treasury", SS payments might lose priority once the SS cash is comingled in the Treasury's "checking account". Brookings discusses this (see below).
With respect to the Treasury paying off principal, when the Treasury does so it reduces the amount it has borrowed. So it can "reborrow" that money without breaching the debt ceiling. https://www.brookings.edu/2023/04/24/how-worried-should-we-be-if-the-debt-ceiling-isnt-lifted/
I've said before that I don't see an obvious place to keep cash. Thus diversification seems appropriate now - banks, prime MMFs, brokerage cash, CurrencyShares - perhaps you have a yen for Yen (FXY). Planting money in the back yard is only as safe as the value of the currency; certainly it won't sprout a money tree.
Planting paper currency is the ground is pretty silly in light of wildfires and theft. Same goes for gold bullions. @msf gave a very reasonable approach to keep cash handy.
BTW, I think any threat to SSI payments would result in playing the 14th Amendment card.
I think that applies to less than a majority of the GOP, maybe 20%. They hold influence because only 50% of people bother to vote
When your bank closes and the ATM is empty and your SS check doesn't arrive, I suspect people will notice.
The GOP will try to blame Biden, but whether this will work remains to be seen.
I still do not understand why the debt ceiling is not unconstitutional.
I don't think that blaming Biden for a default would stick, either. And I've read this morning that the WH hasn't removed invoking the 14th Amendment from the table ... or letting it go into the courts and let SCOTUS ultimately rule that a default is a constitutional violation -- which would also give Biden cover since it's not *him* or the D's that are making the decision here, it's the judiciary, such that it is.
"The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned."
I would assume the problem with the 14th amendment is it would take time.
But why can't the Treasury just announce that it will continue to print money needed?
If it did not "the debts of the United States would be questioned" and therefor the amendment authorizes it and essentially telling someone who disagrees to take them to court.
Yellen seems to want to have her cake and eat it too and at least at this point is unwilling to commit.
"All I want to say is that it's Congress' job to do this. If they fail to do it, we will have an economic and financial catastrophe that will be of our own making, and there is no action that President Biden and the U.S. Treasury can take to prevent that catastrophe," Yellen replied, later saying, "I don't want to consider emergency options."
Interesting that she does not categorically rule it out.
43 GOP senators say they will not vote for cloture without spending cuts, claiming that raising the debt ceiling allows additional spending.
This is untrue. The Debt ceiling only allows the Treasury to pay debts that are already incurred.
"The right question is whether Congress — after passing the spending bills that created these debts in the first place — can invoke an arbitrary dollar limit to force the president and his administration to do its bidding. There is only one right answer to that question, and it is no."
Mr. Tribe's proposed solution seems reasonable:
"As a practical matter, what that means is this: Mr. Biden must tell Congress in no uncertain terms — and as soon as possible, before it’s too late to avert a financial crisis — that the United States will pay all its bills as they come due, even if the Treasury Department must borrow more than Congress has said it can."
Since their debt ceiling is so high, there are no recurring debates like we have in the U.S.
The closest that Denmark came to reaching the ceiling was 2010 - they doubled it afterward.
It appears this unnecessary nonsense only occurs in the U.S.!
I wonder if McCarthy recognizes how stupid this sounds or does he think that using the words “Communist” and “Chinese” will ensure support among the benighted uber-nationalist base:
Re - “no one is hurt more by inflation than seniors.” Nice of McCarthy to think of us seniors. Powell often uses a similar line of argument about how inflation hurts the “ordinary working class” - all the while seeking to raise the unemployment rate / throw people out of work with highly restrictive monetary policy.
If and when US defaulting does happened, it will affect these rich GOP donors and their pocketbooks too. The consequences are grave to many and they are needless. How can a small extremists hold the nation in hostage?
"Meanwhile, the debt ceiling crisis has not gone away. Director of National Intelligence Avril Haines today told a Senate Armed Services Committee hearing on global threats that a U.S. default on our debts would enable both Russia and China to say 'such an event [demonstrates] the chaos within the United States, that we’re not capable of functioning as a democracy, and the governance issues associated with it.' She explained: 'It would be…almost a certainty that they would look to take advantage of the opportunity.'"
Its context was the Civil War issues and related debt and some links mention that explicitly in its title, although in its final form, there is no reference to "Civil War" debt. Several subsequent interpretations by Congress were rejected by the Supremes, and eventually, there wasn't too much court history on it. So, I suppose a new court fight could become a can of worms if reopened. I think that it may be best as a stick that isn't used.
14th Amendment with title, https://constitutioncenter.org/the-constitution/amendments/amendment-xiv
14th Amendment without title https://constitution.congress.gov/browse/essay/amdt14-S4-1/ALDE_00000849/