Wednesday, October 16, 2013

Who Doesn't Love the Circus

I have purposely refrained from writing any posts about the government shutdown or pending debt ceiling fiasco.  The entire thing borders on the ridiculous.  Here's what Warren Buffett said  in a CNBC interview on October 3, appearing somewhat exasperated as he spoke.
"We will go right up to the point of extreme idiocy, but we won't cross it"

Well, here on October 16, we may have reached the point of extreme indiocy.  How do I know that we are close to this point? Well, when I googled "government default" this morning, google returned 867,000,000 results (To provide some perspective, if you google bo#bs, you get only 245,000,000 results).

I also know that we are close to extreme idiocy, because TD Ameritrade felt obligated to produce this FAQ about the"U.S. Debt Ceiling and Treasury Default".  I can't say that I either agree or disagree with most of what TD Ameritrade says in this lengthy explanation, but I do understand why they felt they needed to post it.  What's more important to me is that the answer to the third question starts like this:

One of many possible outcomes of this situation could be...

Which I translate to mean that neither we, nor anyone else in the world has any idea what would happen if the US Treasury "defaults" on any of it's obligations.  

It has never happened.  It is actually not clear if the Treasury could even technically become in "default".  My sense of the Constitution is that Congress authorizes all new spending, but the Treasury has complete authority to meet all prior agreed upon spending, which it can and does do by borrowing. 

The answer to the question of why government bonds are considered risk free has two parts: 1. The debt is backed up by the full taxing authority of the US Government and 2. They can always print the money.

Which brings me full circle to my main point; I can't believe we are actually having this conversation to the point where government shutdown is three times more popular than bo#bs!  But then again, it seems to me that congress is acting like a bunch of bo#bs anyway.