By James West
January 23, 2011
Timothy Geithner, U.S. Treasury Secretary, admitted in a letter to congress dated January 6th, that the United States Treasury would be forced to default on its credit obligations without clearance from congress to raise the amount of money that the treasury is allowed to borrow.
After citing a list of “extraordinary measures” congress has had to resort to int he past to avoid entering a state of defualt, Geithner stated, “Once these steps have been taken, no remaining legal and prudent measures would be available to create additional headroom under the debt limit, and the United States would begin to default on its obligations. The extraordinary measures include, “suspending sales of State and Local Government Series (SLGS) Treasury securities; suspending reinvestment of the Government Securities Investment Fund (G-Fund); suspending reinvestment of the Exchange Stabilization Fund (ESF); and determining that a “debt issuance suspension period” exists, permitting redemption of existing, and suspension of new, investments of the Civil Service Retirement and Disability Fund (CSRDF).
That the United States has already defaulted on its obligations is beyond dispute, at this point, as its the rate at which its debt service obligations is growing exceeds the rate at which the United States GDP could possibly grow, meaning that, without drastic cuts to governmenbt spending, the debt can only continue to grow.
Before our very eyes, the so-called leadership of the world’s largest economy is intentionally bankrupting the country and devaluing its currency in what can only be a precursor to rampant inflation. Since the integrity necessary to manage this problem does not exist within the United States political system, the rest of the world has no choice but to stand by and watch the value of their United States Treasury Bills diminish incrementally on a daily basis. Selling them will only exacerbate the problem, but the question must be asked, how long until the remedy is preferred over the miserable condition?
Geithner goes on to say, in a remarkable baring of the national soul,
However, if Congress were to fail to act, the specific consequences would be as follows:
The Treasury would be forced to default on legal obligations of the United States, causing catastrophic damage to the economy, potentially much more harmful than the effects of the financial crisis of 2008 and 2009.
- A default would impose a substantial tax on all Americans. Because Treasuries represent the benchmark borrowing rate for all other sectors, default would raise all borrowing costs. Interest rates for state and local government, corporate and consumer borrowing, including home mortgage interest, would all rise sharply. Equity prices and home values would decline, reducing retirement savings and hurting the economic security of all Americans, leading to reductions in spending and investment, which would cause job losses and business failures on a significant scale.
- Default would have prolonged and far-reaching negative consequences on the safe-haven status of Treasuries and the dollar’s dominant role in the international financial system, causing further increases in interest rates and reducing the willingness of investors here and around the world to invest in the United States.
- Payments on a broad range of benefits and other U.S. obligations would be discontinued, limited, or adversely affected, including:
- U.S. military salaries and retirement benefits;
- Social Security and Medicare benefits;
- veterans’ benefits;
- federal civil service salaries and retirement benefits
- individual and corporate tax refunds;
- unemployment benefits to states;
- defense vendor payments;
- interest and principal payments on Treasury bonds and other securities;
- student loan payments;
- Medicaid payments to states; and
- payments necessary to keep government facilities open.
I personally am stunned. No mention is made of sales of assets held by the United States government. Rather than liquidate its own real estate to cover its debt, the defective and fiduciarily delinquent U.S. government plans to first eradicate the incomes of its poorest citizens.
If this document is not a harbinger of impending civil unrest ona national scale in the United States, i can’t imagine what is. Big big changes are on the horizon though. Of that there is no doubt.
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