ThomWV
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Mon Jul-18-11 04:20 PM
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On that upcoming debt payment |
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As they taught in school, we constantly refinance our debt. We do that by selling bonds. Bonds work something like this: They have a face value and that is how much money the holder will be paid when its term has ended. The bonds are sold at auction, and the sales price is lower than the face value. The difference can be, and is, expressed as the percentage rate the bond pays. The lower the bond sells for the higher the interest rate it pays. Our debt is revolving in that as one bond comes due we pay it out by selling a new bond. This can be thought of as baseline debt and we also borrow on top of that for the day to day operation of Government.
So, comes tuesday the 3rd of August and the people who go to cash in their bonds - something that they had always been able to do in the past - they will find that the Government will not buy them back. So, as long as the impass lasts with the Congress we will be in default and the bonds that come due during that period will be essentially worthless paper. When the debt limit is passed those bonds will be honored and the holders will get their money, so its not that they are going to lose anything. Nope, the problem is not with them. The problems comes the next day when we have to go out on the market and auction off our bonds again. How much do you think the world will be willing to pay for those bonds once its plain to see that we will refuse to honor them because of the whims of some political nut cases? The selling price for our bonds should drop like a stone, and that my dear friends will give us an instant jump in interest rates. We will see the interest rates move up more in five days than we have seen in the last five years.... if we default that is.
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damntexdem
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Mon Jul-18-11 04:40 PM
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1. And a good portion of those bonds are held by Social Security. |
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Our money is involved -- and for those already collecting SS, they may not be collecting SS. And for many, SS is the only source of retirement income.
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DU
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Fri Apr 26th 2024, 08:37 AM
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