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At the Rubicon

Written By: - Date published: 8:11 am, October 8th, 2013 - 91 comments
Categories: us politics - Tags:

As the US federal government shutdown drags on, an even more crucial point is approaching. The US government will hit its debt ceiling in ten days. If that happens, the results will be cataclysmic. But the Republicans who control congress hardly seem to care. Having gone nuclear already over Obamacare by shutting down the government, they can’t back down over the debt ceiling.

If the ceiling isn’t raised (or abolished) the Treasury won’t be able to issue additional debt to cover the government’s outgoings and raise cash to pay maturing bondholders. The US will be in default. That will trigger a cascade throughout the global financial system, which US Treasury bonds have underpinned for generations. The warnings are that the result would be worse than the Global Financial Crisis.

To avoid default, the US government may have to start issuing scrip, IOUs, to hospitals and other contractors in place of money so that it can use its revenue inflow to keep on paying staff and avoid issuing more bonds. The last time a major economy relied on scrip was post-World War 1 Germany. It’s not exactly a good thing to have the world’s largest government issuing IOUs rather than paying its bills.

And it’s all in the hands of Republicans. Especially the millennialist Tea Partiers. It would be a mistake to think that these people will allow for rational compromise or shy from crisis in the interests of the country. These people believe the end times are upon us and they welcome it.

What’s happening in the US reminds me a lot of what you read about the end of the Roman Republic and its replacement with the Roman Empire. The factions became increasingly willing to use whatever tools they had available to hurt their political opponents. Divisions of power that had been created to preserve the Republic by stopping any one person controlling everything were, instead, used to paralyze the government in the face of disaster to try to force the other side to back down.

The Roman Republic symbolically died when Caesar crossed the Rubicon into Italia with his army, breaking the separation of powers designed to put the stability of the Republic first, so that he could punish his political enemies. In ten days, the Republicans will reach their own Rubicon. Will they cross it?

91 comments on “At the Rubicon ”

  1. Colonial Viper 1

    “It’s not exactly a good thing to have the world’s largest government issuing IOUs rather than paying its bills.”

    Uhhhhhh… what do you think a Federal Reserve Note is, if not an IOU? One which these days can no longer itself be redeemed for gold?

    This may finally force the gov to start issuing debt free gov sourced greenbacks, instead of more debt.

    [an IOU would not be legal tender. That’s the difference. MV]

    • Colonial Viper 1.1

      Thats true. However if required the Treasury could define the new notes (IOUs) as ‘lawful money’ which technically has more senior standing than ‘legal tender’. Regardless, once the IRS, banks etc start accepting the new notes as deposits and as payment of taxes, it will become a de facto currency, one which is still backed by the full faith and credit of the gov. Which admittedly doesn’t mean what it used to…

  2. One Anonymous Knucklehead 2

    Or will the Democrats peel off enough moderate Republicans to split the GOP? Which outcome would our home-grown wingnuts prefer? Will they stick with their principles and cheer on a debt default, or follow their self interest and advocate a GOP rout?

    • Tamati 2.1

      Even if a majority of the house support a ‘clean’ continuing resolution, that doesn’t mean they are able to pass a bill. The Speaker must bring the Bill to the floor and Boehner has said he won’t do so unless a majority of his own party supports the bill. Essentially, the Speaker has a veto on any legislation that comes his way! (Similar to how the Nats vetoed Moroney’s parental leave bill.)

      • Pascal's bookie 2.1.1

        there are rumours that the Dems will bring forawrd a clean bill in the senate, which will put GOP senators on the spot. If that passes, it gets shunted down to the house.

        • Tamati 2.1.1.1

          And Boehner will add it to the pile of bills passed by the Senate and ignored by the house. The Senate can’t compel the house to vote on a bill, it’s all in the Speaker’s hands.

          • Lanthanide 2.1.1.1.1

            Apparently a majority of congresspeople can sign a petition to force the congress to vote on a bill, without the speaker’s acquiescence.

            • One Anonymous Knucklehead 2.1.1.1.1.1

              Takes too long…

            • Tamati 2.1.1.1.1.2

              The “discharge petition” isn’t supported by a majority anyway and wouldn’t have to be voted on intil the end of Nowember.

  3. BM 3

    I thought this explained the situation quite well.

  4. muzza 4

    There is little point is pretending anyone has a clue what is behind all this, but it makes for interesting reading the speculation.

    @CV – There will be no issuing of debt free gov sourced greenbacks, the next step is the expansion of the Cyprian experiment, and the end of the dollar as global reserve currency, resplendent in the chaos that will create.

    Financial dominoes, which will all be taken down, you can bank on that, along more *war*, more false flags, more smoke and mirrors!

    The debt ceiling is not even the issue!

    • Ennui 4.1

      The whole thing revolves around confidence. Confidence in securities, confidence that debt will be repaid. Confidence that investment will result in a return. All sorts of confidences.

      We sit atop the greatest debt bubble in history, reflated worldwide around the world to arrest the “GFC” (which some media idiots portray as a past event). We never came out of the GFC, we merely convinced ourselves that the financial chicanery was somehow “real”. Now the piper calls the tune.

      Should confidence disappear all will change in the flash of an eye, the greatest deflation ever will result followed by who knows what. I fear that you will be proven correct.

  5. bad12 5

    i doubt that the whole of the Republican Senate are all totally insane, that perspective of course is garnered from never having met one of them,

    Shoving a big stick into the machinery of Government in Washington, and to a lesser extent, across the USA, is one thing but deliberately blowing over the house of cards that is the Global Financial Market???,

    The real madness should occur at the point the US Government can no longer service the ‘interest’ on the debt and i am not sure at what point in the future that little crisis will set the fox among the chickens,

    Perhaps the Republicans have done the math and see that there is little to lose by forcing the issue now, rather than have such an ‘interesting’ event occur while they hold the Presidency,

    i doubt it tho, and expect a sudden out-break of peace,love, and happiness to occur across the political divide for the vote on lifting the US debt ceiling…

    • Lightly 5.1

      its’ the house, not the senate, that’s got the real tea party nutters.

      Government’s don’t ‘pay interest’ as such. Instead, they issue bonds, a promise to pay a certain amount of money at a specific future date, and people buy them at a discount from face value. It’s the size of the discount/the time to the bonds maturity that creates the ‘interest rate’.

      The problem is that to pay out maturing bonds governments issue new bonds. You need to issue more in face value of the new bonds to get the cash to pay out the old bonds (because of the aforementioned discounting from face value that creates the borrowing rate). And that can’t increase the face value of the bonds on issue once the ceiling is reached, so the US won’t have all the cash needed to pay out maturing bonds by issuing new bonds, which will mean it will default on its promised payments to the maturing bondholders.

      On top of that, the US Federal Government is only taking in $3 in tax for every $4 it spends, so it needs to issue additional bonds for the remaining dollar (or issue IOUs to the people its buying goods and services from)

      • Bob 5.1.1

        I’m pretty sure some chap named Ponzi ran a similar scheme, it didn’t work out too well for him in the end.

  6. Pascal's bookie 6

    To avoid default, the US government may have to start issuing scrip, IOUs, to hospitals and other contractors in place of money so that it can use its revenue inflow to keep on paying staff and avoid issuing more bonds. The last time a major economy relied on scrip was post-World War 1 Germany. It’s not exactly a good thing to have the world’s largest government issuing IOUs rather than paying its bills

    This WaPo piece explains how legally, and practically, hard that will be:

    http://www.washingtonpost.com/blogs/wonkblog/wp/2013/10/07/if-we-hit-the-debt-ceiling-can-obama-choose-which-bills-to-pay-2/

    tl;dr

    the US Treasury has automated systems to pay bills as they come in, which is required by law, the system is either ‘on, or ‘off’. There is no mechanism for the Treasury to pay some bills (like bonds) with tax revenue csahflow, and others, like medicaid bills or contractors, with scrip.

  7. Pete 7

    I suspect that if the debt ceiling isn’t raised, the Executive will invoke section 4 of the 14th Amendment, which states:

    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. But neither the United States nor any state shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

    It was one of the amendments passed after the Civil War to prevent this kind of trouble making as the former Confederacy was reintegrated.

    • Timmins 7.1

      As an alternative to invoking the 14th Amenment Obama has the option of minting a $1 trillion platinum coin – minting coinage is a Government privilege – and depositing it with the US Treasury to the Government’s credit.

      Neither the coin nor the 14th Amendment are trouble-free for Obama but they are options. What we still have to see are:

      1. Will the Tea-Party blink first, rather than earning the public odium of causing the US to default? IMHO they won’t as a) a fair number of them are Christian end-days loonies who will merely see they actions as part of the run-up to Armageddon and b) the rest see the chance to make a profit from the inevitable finance chaos, just as many of them did in the GFC,

      2. Will Obama seize the bull by the horns and go for the 14th Amendment/Platinum coin route to show that he won’t be blackmailed and wants to achieve something memorable in his second term – as he acheived nothing in his first term? IMHO he’s shown no sign of it yet.

      3. Is this just kabuki with Obama proceeding with his Great Betrayal of Obamacare etc. on the grounds that the wicked Repubs left him no choice. My bet lies here.

  8. Lanthanide 8

    I’m pretty sure that they won’t breach the debt limit.

    Yesterday on morning report they spoke to a correspondent in the US who was saying that Nancy Pelosi was working on some sort of petition, where if they get a majority of congresspeople to sign, they can force a vote on a debt bill (against the wishes of the house speaker, a republican). The correspondent said there were 20-40 moderate republicans who would sign the petition and also vote for the bill, which would be a majority and it would pass.

    Even if that doesn’t happen, the executive still has the Platinum Coin Trick that they can use. Faced with default vs not-default, I think it’s pretty easy which option to choose when your back is against the wall.

  9. Richard Christie 9

    If default is what it takes to permanently end government by ongoing extortion, then it is probably worth the price.

    • blue leopard (Get Lost GCSB Bill) 9.1

      @ Richard Christie,

      I agree, wouldn’t defaulting also allow the global financial system to recalibrate and become based on something more real and reliable than money that has no real value (aka the American dollar)?

    • Draco T Bastard 9.2

      It wouldn’t end government – it’d end business and representative democracy. What we’d get is anarchy.

      • blue leopard (Get Lost GCSB Bill) 9.2.1

        Sorry Draco, but representative democracy is fairly defunct in America now didn’t you realise?

        Two parties with the same backers, could hardly be called choice. Choice is required for democracy to be authentic.

        The people with the most money (as in corporate persons) are the people with the most power in America.

        These ‘people’ were leaders in getting rid of regulations for the banks etc. Lack of rules = anarchy in my book.
        That is what we are seeing now in the financial markets. Anarchy.

        So what is all this about representative democracy being lost and anarchy being introduced in response to America defaulting? These two things are already occurring.

        • Draco T Bastard 9.2.1.1

          Lack of rules = anarchy in my book.

          Nope, lack of rules = chaos. Anarchy is a different beast altogether.

          • blue leopard (Get Lost GCSB Bill) 9.2.1.1.1

            The link that you leave, leads to an article that relays that anarchy has many different meanings, I took care to define the sense in which I was meaning the word, and that definition is included in your article.

            The article also touches on the definition of freemarket ideology being related to anarchic principles.

            As I was saying this concept is already thriving and democracy is not in America

            So what is your point?

            • Draco T Bastard 9.2.1.1.1.1

              I took care to define the sense in which I was meaning the word, and that definition is included in your article.

              Yep, right at the beginning where it’s mentioned as a mistaken meaning.

              • blue leopard (Get Lost GCSB Bill)

                Oh is that what “it has surely not impact on the definition” meant. I found that obscure:

                “Anarchy is said to have more than one definition. Some use the term “anarchy” to refer to a society without a publicly enforced government.[1][2] When used in this sense, anarchy may[3] or may not[4] be intended to imply political disorder or lawlessness within a society. But it is only a way to use the term. It has surely no impact on the definition of the term Anarchy” ~ Wikopedia

                So some people use one of the many definitions, but the Wikopedia article states they are wrong to do so.

                Wiktionary clears up my confusion somewhat:

                “Anarchists feel it is inappropriate to use anarchy to mean “a state of chaos or confusion”. However, this has historically been a common use of the word.”~ Wiktionary

                So I was using the word in the common garden way and you are correcting me regarding the technical meaning; which appears to be lack of authority or lack of ruler.

                It is interesting to learn the technical meaning, and I see I confused rulelessness with the lack of enforcing rules.

                I note that in practice these two concepts can have very similar effects.

                The sense of what I was saying still holds even using your definition of the word. The state of government lacking authority is exactly what America effectively has now. They have a government who are captured by big money and the government as a representative of public interest does not effectively exist; holds no authority. Rules that exist in the financial sector are not being enforced or are being removed completely by those acting in that sector. I am specifically talking about the financial sector, here, as I believe this is what this post was about.

                Your first comment states:

                “It wouldn’t end government – it’d end business and representative democracy. What we’d get is anarchy.”~DTB

                You appear to be stating that the government would still exist but it wouldn’t, or the government would have no authority.

                I continue to hold the view that that is the state of their government now.

                What do you mean?

    • greywarbler 9.3

      i don’t think rc that you have thought out all the ramifications – after the first second and third big quakes there all the smaller ones thud by thud.

  10. vto 10

    The system is mad, completely barking mad.

    The GFC was a warning tremor to the main quake coming.

    Don’t say you weren’t warned.

    Our own government recently passed a law permitting bank deposits to be taken if necessary to preserve the system.

    • Sable 10.1

      Parasites are hard things to get rid of and will try to find novel ways to survive.

      • Ennui 10.1.1

        Parasites die when they kill their hosts….that is the unpleasant fact. Wise animals tend to groom themselves in order to keep parasites under control. Mainly they kill them in the process. Nature is wonderful don’t you think?

  11. Sable 11

    The US has always been a breeding ground for freaks and fanatics. Think about those who settled the place, especially in the Southern states, all the whack jobs and religious extremists the UK didn’t want.

    The US wont fail as such but it is in decline and will not in coming years be the economic powerhouse it once was. Of course, like any dangerous wounded animal its going to do a lot of damage before it accepts its new place in the world much like the UK.

    The danger for us is backwards looking sycophants like Keys buying us a ticket on the sinking ship when we should be looking elsewhere to grow our economy.

    • Chooky 11.1

      +1…agree Sable ….look elsewhere to grow our economy…make it more self-sufficient and diversify away from an unhealthy and unsustainable long term reliance on Fonterra monoploy

  12. johnm 12

    “The Real Crisis Is Not The Government Shutdown”
    “The real crisis is not the “debt ceiling crisis.” The government shutdown is merely a result of the Republicans using the debt limit ceiling to attempt to block the implementation of Obamacare. If the shutdown persists and becomes a problem, Obama has enough power under the various “war on terror” rulings to declare a national emergency and raise the debt ceiling by executive order. An executive branch that has the power to inter citizens indefinitely and to murder them without due process of law, can certainly set aside a ceiling on debt that jeopardizes the government.”

  13. Rogue Trooper 13

    China, the US’s largest foreign creditor, holds 1,277 Trillion in US Treasury Bonds.

    • Sable 13.1

      The US is China’s little bitch just like the rest us and with the new leadership coming in China plans to increase restrictions on foreign investment in their domestic market. What that means of the US and EU, well lets wait and see.

    • Pete 13.2

      That shouldn’t matter. China can’t call in its Treasury Bonds until they mature. So the $1.3 trillion wouldn’t be called in all at once. A bond matures at 20-30 years (as opposed to a Tresury Bill, which matures in 1 year or less and a Treasury Note, wich matures in 2-10 years). These bonds would be “laddered”, so a portion matures this year, another the next year and so on.

      About half of US government debt is held domestically. By other US government departments – Social Security and the Federal Reserve and by private investors – pension funds, investment banks and so on.

      In total, China holds around 1/12th of US public debt.

      • greywarbler 13.2.1

        That’s a good summary of how it is Pete. Hard to get one’s head around. Are the figures factual or from memory, so as to give a rough concept of the situation?

  14. joe90 14

    Blazing saddles…

    Failure by the world’s largest borrower to pay its debt — unprecedented in modern history — will devastate stock markets from Brazil to Zurich, halt a $5 trillion lending mechanism for investors who rely on Treasuries, blow up borrowing costs for billions of people and companies, ravage the dollar and throw the U.S. and world economies into a recession that probably would become a depression. Among the dozens of money managers, economists, bankers, traders and former government officials interviewed for this story, few view a U.S. default as anything but a financial apocalypse.

    http://www.bloomberg.com/news/print/2013-10-07/a-u-s-default-seen-as-catastrophe-dwarfing-lehman-s-fall.html

  15. And once again Michael Valley follows the MSM given party line. In this case the : blablablabla republicans blablabla teapartiers blablabla Blood on their hands blablabla line.

    For those of you finding it hard to get a take on what is happening in the US why John Key is chairing the TPP negotiations instead of Obama here are a few points you might want to take into account.

  16. clifford wright 16

    A very pertinent comment. As an Historian I am continually struck by the parallels between Rome in the 5th century AD and the 21st century USA.
    All the money is going overseas (in both cases largely to China), the armed forces are becoming demoralised and pointless faction in politics is destroying the economy and the whole social fabric.
    The so called “tea party” strike me as the very epitome of selfishness. Have you ever held your nose and watched Fox TV lately?

    Recently there was a programme on TV boasting about new weapons the US forces were getting.
    Talk about the devil in the detail- The new sniper rifle was made in the UK, the helicopter in France and parts for a new armoured vehicle were being made in Eastern Europe.
    This sort of thing is EXACTLY like decadent Rome.
    There massive farms run by slave labour drove small farmers off their land. Wealthy men controlled
    society without responsibility and taxes were levelled on the middle classes to subsidise both the poor and indirectly, the rich.

    • Paul 16.1

      Well, we’ve got the same circuses as they had.
      Ever seen a film called the Four Horsemen..here’s the link.
      Watch from 6.28 to 12.25

    • Ennui 16.2

      There is a theory of thermodynamics about the failure of Rome. In a nutshell it was that Rome devoured all the resources of the Empire at a greater rate than they could sustain. In the end to keep the supply of energy from the periphery to the centre coming became unsupportable. For example, grain fields in Sicily and Africa became over harvested and lost fertility, the supply of slaves to grow the grain came from further and further away etc etc, then the grain came from further afield. Rome had to expand in the same way our oil based economies did to sustain itself. When the energy invested in returning energy reached a zero balance collapse had to follow. Those lovely barbarians had a different EROEI dynamic, which proved enough to tip the balance against Romes expansion, and then hastened collapse.

      The world oil economy is reaching this point. When we see debt, it represents production of wealth, paid for with the production of wealth in the future. We spend tomorrows wealth in the expectation that tomorrows economy will have grown, and will have a greater energy supply. Finite resources run out…and there are no alternatives to oil despite what techno narcissists, spin doctors, the oil industry etc would have us believe. Rome it is, history does after all repeat.

    • SHG (not Colonial Viper) 16.3

      How to destroy an Empire: add Christianity to the government and sit back.

  17. Rich 17

    The US government could mint the trillion-dollar platinum coin: http://en.wikipedia.org/wiki/Trillion_Dollar_Coin

    They’ve said they won’t but it could still happen.

  18. captain hook 18

    the USA is suffering at the hands of mischief makers at the moment.
    they will soon get blown away but as Robert Kennedy said:”20% are against everything all the time so there must be a valve for these knothead extremists with their very own deathwish.
    they the man who squats behind the man who works the soft machine.

  19. joe90 19

    FT: China and Japan warn US on default*

    Zhu Guangyao, vice-finance minister, told a media briefing that China has made clear its unease over the political impasse in Washington. In Japan, the Ministry of Finance is very worried about the potential impact on currency markets, according to a senior official. A US default could cause investors to dump the US dollar, which would sharply push up the value of the yen.

    *link goes to google result.

    (hint – when you’ve used up all your free articles google the title and click through the result).

  20. Puckish Rogue 20

    Does make me more appreciative of how NZ is run

  21. Tiger Mountain 22

    If the yankee devils end up crashing their own government (the public service parts thereof really) for much longer there should be public mobilisations. The 99% movement tried to educate people with the occupations. Failing a spirited reaction one is tempted to think the soda guzzling burger munching idiocracy deserves what it gets.

  22. joe90 23

    Bill Moyers.

    “When the president refused to buckle to this extortion, they threw their tantrum,” Bill says. “Like the die-hards of the racist South a century and a half ago, who would destroy the union before giving up their slaves, so would these people burn down the place, sink the ship.” He goes on to tell us where the “reckless ambition” of the Republicans could lead us.

    http://billmoyers.com/segment/bill-moyers-essay-shutdown-showdown/

  23. Draco T Bastard 24

    It’s not exactly a good thing to have the world’s largest government issuing IOUs rather than paying its bills.

    /facepalm

    And just what do you think bonds are?

  24. Steve Wrathall 25

    But surely all these Obama voters who love big govt so much are stepping forward to fund it voluntarily…aren’t they?

    • Paul 25.1

      Was this intended to further the discussion?

    • Colonial Viper 25.2

      But surely all these Obama voters who love big govt so much are stepping forward to fund it voluntarily…aren’t they?

      Hey Steve, it’s just like you to suggest that the wealthiest 1%, the ones shirking their responsibility for the orderly governing of the nation, should be carried along by ordinary hard working Americans.

    • One Anonymous Knucklehead 25.3

      But surely all these strawmen add up to something don’t they?

      Nope: they add up to sweet wrathall in fact.

    • Murray Olsen 25.4

      They already have funded government – by paying their taxes. Your lot are committing fraud on any and all American taxpayers.

  25. RedBaronCV 27

    Apparently Texas can seceede from the USA. Would it solve their problems if the USA pushed it out?
    Would it get rid of enough of the nutbags?

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