Monday, January 14, 2013

John Carney — The End of 'The Coin' Is A Lot More Dangerous Than You Think


John Carney waves the red flag now that the WH has rejected TPC and rejected negotiation over the debt ceiling, signaling that default is on the table. John cites Warren's dire outlook on the US if that should come to pass.

Will this be reflected in markets as the deadline approaches? If so, how will that affect the politics? Who is going to blink?

CNBC NetNet
The End of 'The Coin' Is A Lot More Dangerous Than You Think
John Carney | Senior Editor

UPDATE:

John Carney, Did Obama Just Take Default Off The Table?

Did the president just signal that he intends to direct the Secretary of the the Treasury to prioritize interest payments on the national debt over other spending?

5 comments:

mike norman said...

Matt Franko's been writing about that on this blog for weeks and breaking down the numbers from the Treasury's Daily Statement. No one has done as good a job as Matt. Carney, give Matt a shout out why dontcha.

Matt Franko said...

"Will this be reflected in markets as the deadline approaches?"

imo no.

If a liquidation starts, it will be due to inadequate $NFA flows of some sort as a result of Treasury's current constrained condition wrt the "debt ceiling", not the "UN-confidence fairy"...

99.999% of people believe the deficit is "a bad thing"... who knows, if we sell off people could actually move to accelerate the adoption of austerity policies in order to "fix it"...

No one in policy is there on either side to push for a large $NFA injection as is always required to arrest a liquidation... such as in 2003 and 2008 (twice) and 2011.

"this sucker could go down..." ... situation indeed looks dangerous.

Other than spending down the Cash Account (which looks like it has already reached low levels in January), Treasury cannot respond with fiscal to exceed the rate of UST redemptions that are taking place in the Federal retirement portfolios and the other sources in the "extraordinary measures" that are being utilized currently by Treasury as we operate at the "debt ceiling"... this looks like it HAS to be about a bit above a 5B per day rate average... if it's not, something like a liquidation of sorts may start to happen...

A corrective fiscal policy does not seem like it would at all be available here at "ceiling" due to the poisoned political environment... scary!!

We need to get the ceiling raised substantially and pronto...

rsp,

Matt Franko said...

"prioritize interest payments on the national debt over other spending?"

Sounds like armageddon.

Pay the foreigners and the Fed their interest and watch the domestic non-govt sector go down the tubes?

This is even scarier! rsp,

Matt Franko said...

Bob,

This is a very serious situation we are facing this is no time for ideological arguments... we need concerted action by well informed policy makers and pronto ... rsp,

Peter Drubetskoy said...

"I thought the treasury could and always did just spend and spend and spend money into creation out of nothing because "that's how our modern monetary system really works". No theory, just facts, right?"

Sloppy, Bob. Not "treasury" but government (sector), the Fed included in the consolidation.
But regardless, there are three types of constraints that MMT recognizes:
Imagine a runner who decides to run with his shoelaces cross-tied: this is a self imposed constraint and is the easiest to overcome.
Now, the runner has to routes to reach a certain point and one is harder and the other is easier. Once he has chosen the harder route, it is very hard to change his mind and switch to an easier route. This constraint is still self-imposed as the first one but is much harder to deal with.
The third constraint is the innate ability of a human to run - this is a constraint that cannot be overcome.
So, MMT sees the legal framework that forces the Tsy to issue bonds to cover the deficit as the first type of constraint - very easy to undo with a change in law (or TPC). The second constraint is the choice of the monetary system. We already chose the easier path by ditching the gold standard.
The real resources is the hardest constraint and is recognized as such by MMT that emphasizes that excessive deficits could lead to demand pull inflation.