Blogging the debt ceiling

At this point, what is there to say?  The Asian markets open soon.  The InTrade contract, which for some reason is defined around the end of August, is up somewhat today.  Who knows why?  Brad DeLong and Rortybomb wrestle with the question of how to respond to the credit rating agency vigilantes.

Calculated Risk surveys options.  Ezra Klein’s coverage continues to be very useful.  Keith Hennessey defends some version of a “Republican point of view.”

A Twitter search on “Boehner” yields good updates.  What else works?

Shortly I’m headed out for some food from Sierra Leone, we’ll see what I come back to.  I’m currently predicting a two-stage process, announced fairly soon, without the deal itself quite being there, but the confidence intervals on that call are pretty wide.

Via Michelle Dawson, here is an article on what happens to seven-footers after they retire from the NBA.

Comments

There is also an intrade contract expiring at the end of July, and it has dropped to 33%

http://www.intrade.com/v4/markets/contract/?contractId=745701

Also I've been wondering. They say long term rates could go up by a percentage point if we don't strike a deal. I also read that current interest rates are about a percentage point below the decade average of 4.06%. So the crisis is that we'll return to the average?

Actually, there are multiple InTrade contracts. There are ones that close at the end of July, August, and September. The July one is at http://www.intrade.com/v4/markets/contract/?contractId=745701. And it is down 18% today.

One more thing. I hate linking to HuffPo but the bloomberg article where I first read this mysteriously doesn't have the text about it anymore. But we may have an extra week before the debt ceiling due to better than expected tax revenues!? Didn't see that coming.

http://www.huffingtonpost.com/2011/07/22/debt-ceiling-august-10_n_907480.html

Treasury did a fire sale of stock to bring in cash; (unless you believe the chair of Fiat is going to implode and fail to continue delivering like he has for years with Fiat, Nissan, Chrysler.) That was a $1.5B loss, or more, to get $12B in cash immediately to fund social security payments on Aug 3.

Will Treasury sell all the gold, and other securities its bought to manipulate the dollar, the exchange rate be damned, just to buy a another few days?

Maybe the Pentagon can do a real quick fire sale of hardware, say sell the excess equipment in Iraq and Afghanistan to any bidder even if they are tied to Iran?

The "default" is always two weeks in the future. :-)

I just checked InTrade, and it had the odds of the debt ceiling being raised to $15.1 trillion as 73% by the end of August, 72.1% by the end of September. Is there any way that makes sense?

Usually it's due to liquidity issues. You're seeing the midpoint of the bid-ask, and the spread may be rather large. Or maybe you've found an arbitrage opportunity...they happen from time to time on intrade.

InTrade is never very good on this stuff, imho. Not enough of a market.

Wake me up when I actually miss a bond coupon.

Sleep soundly my friend. Treasuries prices through the Friday close show zero evidence of any concern whatsoever about a default.

With regards to the basketball article, they forgot a few things:

1) Approaching women is really, really hard when you immediately trigger a massive fear response, even when you don't feel morally obligated to go for tall girls.

2) Everyone assumes you're angrier than you actually are, because when you look up at someone with a neutral expression it looks like they're glaring at you. This is my hypothesis, because learning how to maintain a smile as much as possible is very hard. Of course, being angry and bigger than everyone else doesn't help that whole fear thing.

3) Little kids tend to adore you, as you are actually a playground and/or airport.

4) I would wear a name tag with my height on it, but then I don't think I would actually talk to people.

Overall, I'd say 6' 3'' is the ideal height for a guy. Tall enough to be dominant without being a freak.

JUNK ECONO-SPEAK

This blog entry has less junk econo-speak than usual. This is because we are in the middle of a crisis, and junk-speak from the experts is not especially helpful.

However, there are a couple junk items:

vigilantes=profiteers
"some food from Sierra Leone" unsure what this means. leaving an entire country to get some takeout?
two-stage process=I can pick whichever one I like after the disaster is over.
confidence intervals are pretty wide=I don't know what the hell is happening, and I am a Harvard expert.

Allan

"Vigilantes" is the pejorative term politicians give to people who do what they say they are going to do.

The Asian markets are open and, surprise surprise, the weeping and gnashing of teeth in D.C. about "default! default! the end is near!" continues to have no discernible effect on the real world.

The man falling off a 100 story building passing the 70th floor "So far so good, nothing much has happened yet."

But gravity is inevitable. Are we facing something inevitable here? Maybe not. Maybe we can stay in orbit, in free fall, for the foreseeable future.

If something bad happens it's likely to be very sudden. It is poor evidence that it hasn't happened yet.

But if it does happen I won't say I Told You So. I really don't understand the situation.

It looks to me like there are a collection of people who could pull the plug at any moment, if they decide that continuing the current situation is a bad deal. If one of them does, there will be a stampede for the exit. But it's easier to hope that things will turn out well, and every one of them is handling Other People's Money.

The panic is overwrought. SS, Medi, essential military, and debt can all be paid within current revenues.

It really bothers me that so many people are acting as though living within revenues is some sort of existential crisis. It isn't.

TallDave, the USA has a chronic balance of payments problem. We import more than we export, and then we take on debts to make up the difference.

The longer this continues, the worse a credit risk the US economy becomes for foreigners. The US federal credit risk is a function of the US economy, since it's mostly the US economy that they can tax and that they monetize.

The panic is not about the details of how the US government will juggle its responsibilities and pay its debts in US currency. The panic is about whether foreign creditors pull the plug.

We are having our political squabbles in front of interested foreign creditors. They want the USA to turn around our economy.

If you were important in the chinese government, or if you were a swiss citizen who pays for his wine with swiss francs, how would you feel today about extending a low-interest loan in US dollars to the US government?

Then you should, like the average Treasury investor, be encouraged by the fact that the debt ceiling has brought the normally quite free-spending members of Congress to the table to negotiate budget cuts.

P.S. Monday noon Eastern time and the 10-year Treasury note is 2.99%, basically unchanged from Friday. It looks like the prophecies came true and the market crashed, but it was a spiritual crash, not a physical one. Paging Rev. Camping!

FBW, I see no reason to think that federal budget cuts will do anything much to help the US economy.

Just to try the idea out, think of the US economy like a man who has some big venous bleeding. His blood is spilling out.

And government spending is like a transfusion -- the new blood gets pumped through once and then it spills out too.

What he desperately needs is to stop the bleeding. Cutting off the transfusion is not much help.

"SS, Medi, essential military, and debt can all be paid within current revenues" ...which still leaves you defaulting on all other federal contracts, ending all grants to states (which will cause them to default on their contracts), and you're still probably going to have to haircut SS.

And how long will that equilibrium hold when interest rates on the debt shoot up? Living within revenues isn't a crisis generally. It absolutely IS a crisis when it happens suddenly without any planning.

You should try working out the arithmetic for yourself. It's an empowering exercise.

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