America’s Secret Plan for the Debt Ceiling

By Lowell Ponte

Sometime this October, the Federal Government is going to run out of money. It will be unable to borrow more until Congress agrees to raise the debt ceiling, a vote that some Republicans want to use to shrink the government.

Usually this has meant that government could “shut down” briefly if debt ceiling legislation leads to deadlock. Millions of “non-essential” federal employees take a few weeks off and get paid for this vacation – on average, they get roughly $2,300 per week; or $460 per day; or $120,000 per year in wages and benefits – when they return to work.

2017.07.14 - Debt Ceiling 2_0

Our national government will not go bankrupt – so long as it has taxpayers who can be squeezed for more, and its printing press can magically conjure trillions out of thin air. But such steps would hurt the economy, anger next year’s voters, and debase the value of the dollars you earn and save.

What may happen instead is “a harebrained scheme that is apt to backfire,” says Congressman Tom Cole (R.-Oklahoma), who sits on the House Budget Committee. It could be U.S. debt “default by another name,” warns former Treasury Secretary Jacob Lew.

If lawmakers cannot resolve the debt ceiling issue, then the government may employ what Bloomberg News on July 14 called a “once-secret plan written by the [President Barack] Obama administration that would lead to the first-ever default on U.S. debt.”

“Bond traders are worried that [President] Donald Trump’s Treasury secretary may have to use it,” reported Bloomberg.

The secret key to this plan is “debt prioritization,” fully paying U.S. debts to some creditors but not others. Those who bought U.S. Treasury notes, or who receive “Social Security, veterans benefits and other entitlements would be paid first,” reported Bloomberg. “Everyone else, including government contractors and federal employees, would be at risk of payment delays or partial payment.”

This. warns Jack Lew, could trigger a review of whether the U.S. still warrants a AAA rating on its debt paper. It would raise fears, writes Bloomberg, that the value of investor-held U.S. “assets could suddenly decline if the U.S. Government’s reputation for creditworthiness is damaged.”

“Using prioritization would set up a dangerous precedent,” which buyers of U.S. debt will expect to see repeated, said Steve Kang, interest-rate strategist at Citigroup, Inc. U.S. debt was downgraded for the first time by S&P Global Ratings in 2011, the year President Obama developed, and the Federal Reserve ran “tabletop exercises” of, his secret debt prioritization plan.

The government seems hooked on perpetual borrowing, which could become much more expensive for taxpayers and users of the U.S. Dollar if fears of America not paying its debts become widespread. The government would have to pay much higher interest to borrow money by selling its debt.

(As Craig R. Smith and I discussed in our book Money, Morality & The Machine, Alexander Hamilton was the lionized “founding father of our national debt” and its use as a marketable asset to be sold. But now, our $20 Trillion debt threatens to sink the dollar and American taxpayers.)

Imagine America’s political future if paying interest to Communist China has a priority higher than paying what is owed to government employees and contractors who are U.S. residents and citizens. This would be Uncle Sam defaulting and reneging on our debts. No wonder so many are diversifying their portfolios by converting a portion of their dollars into gold, which cannot be devalued by running a few trillion dollar bills off a printing press.

Source:

See Saleha Mohsin and Liz McCormick, “Markets Worry Trump May Have to Use Obama’s Secret Debt Ceiling Plan,” Bloomberg, July 14, 2017. URL:
https://www.bloomberg.com/news/articles/2017-07-14/trump-may-have-to-use-obama-s-secret-debt-plan-worrying-markets

To schedule a fascinating interview with Lowell Ponte, contact: Sandy Frazier at 516-735-5468 or email sandy@mystic-art.com.

For a free media copy of Money, Morality & The Machine, contact: David Bradshaw at 602-918-3296 or email him at ideaman@myideafactory.net

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