US Treasury: August 2 Deadline To Avoid Debt Default

14 May

This Monday, the US government will hit its $14.3 Trillion debt ceiling.  By August 2nd, it could default on its mindboggling debts. So says the US Treasury (below).

Remember when Barnaby was widely ridiculed for warning that the US could default on its debts, and for suggesting that Australia needed a contingency plan?

He lost his new job as Opposition Finance spokesman as a result.

October 2009 (emphasis added):

The Nationals Senate leader Barnaby Joyce is openly canvassing an economic upheaval that would dwarf the current global financial crisis, triggered by the US defaulting on its sovereign debt within the next few years.

In unusually pessimistic comments for a senior political figure, Senator Joyce said the US Government was running such large deficits and building up so much debt that it was in a similar position to Iceland or Germany before World War II.

… Senator Joyce insisted yesterday that the dangers to the global economy from the run-up in US private and public sector debt were real and should be debated.

“It is the elephant in the room,” Senator Joyce said.  “This is a huge risk that Australia faces. What is the game plan, what happens if it comes unstuck?”

December 2009 (emphasis added):

The opposition finance spokesman, Barnaby Joyce, believes the United States government could default on its debt, triggering an “economic Armageddon” which will make the recent global financial crisis pale into insignificance.

Senator Joyce told the Herald yesterday he did not mean to alarm the public but there needed to be a debate about Australia’s “contingency plan” for a sovereign debt default by the US or even by a local state government.

“A default by the US means complete economic collapse around the world and the question we have got to ask ourselves is where are we in that,” Senator Joyce said.

His warning came as the Rudd Government ramped up its attack on Senator Joyce as an economic extremist…

Senator Joyce said the chances of a US debt default were distant but real and politicians were not doing the electorate a favour by refusing to acknowledge the risk.

Tick.

Tick.

Tick.

From the New York Times, May 9, 2011 (emphasis added):

Speaker John A. Boehner said Monday that Republicans would insist on trillions of dollars in federal spending cuts in exchange for their support of an increase in the federal debt limit sought by the Obama administration to prevent a government default later this year

[Senate leader] Mr. Schumer and Roger C. Altman, an investment banker and former Clinton administration Treasury official, said the consequences for the nation’s economy could be dire if the government defaulted for the first time in its history or if the debt-ceiling talks were pushed to the brink.

If America were to default, even for 24 hours, that would have an unprecedented and a catastrophic impact on global financial markets and on American markets,” Mr. Altman said.

From Reuters yesterday, May 13 2011 (emphasis added):

The United States is set to reach its $14.3 trillion debt limit on Monday, and will only be able to avoid default until Aug. 2, according to the U.S. Treasury. Efforts to forge a bipartisan deficit-reduction package as a step towards Congress raising the borrowing limit are in turmoil.

A thicket of plans to cut the deficit, which is expected to hit $1.4 trillion this year, have emerged in recent days with virtually no chance of passage in Congress.

The US Treasury now joins Southern Cross Equities’ Charlie Aitken, ANZ chief Mike Smith, global currency expert Savvas Savouri, ABC’s Inside Business and Business Spectator Alan Kohler, credit rating agency Standard & Poors, CNBC, Deutsche Bank, and Barack Obama, in conceding that Barnaby Was Right.

Does Labor have a contingency plan for a US debt default?

Hardly.

They don’t even have a plan on how to achieve a single year of budget surplus.  Instead, they are increasing Australia’s debt ceiling by another $50 Billion to $250 Billion.

And counting their budget chickens way before they’re hatched.

The “surplus” that Labor are proudly talking about as though it is fact, is nothing more than a “forecast”.  One based on Labor “estimates” of years of continuous record-high minerals prices and record-high terms of trade … in other words, on a never-ending China boom.  Even the Americans are laughing at them!

This not going to end well.

Barnaby is right.

UPDATE:

Add American centrist think tank Third Way to the growing list.  They will release a study on Monday regarding the likely impacts of a US default.

From Reuters again:

The Treasury Department is expected to hit its $14.3 trillion borrowing limit on Monday, making it unable to access the bond markets again.

The Treasury Department says it can stave off default until August 2 by drawing on other pots of money to pay its bills.

Treasury officials have warned of “catastrophic” consequences if Congress does not approve a further debt-ceiling increase by then, but have declined to say exactly what would happen.

The Third Way report, based on a survey of existing economic research, spells out the details…

Defaulting on our debt is not an abstract idea that might affect a few institutions on Wall Street; it would harm tens of millions of Americans in profound and lasting ways,” the report says.

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