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Don't Wait On The Debt Limit

Treasuries Decline as U.S. Prepares Debt Auctions Amid Shutdown

debt ceiling must be raised. Shaken faith in T-bills could trigger a credit crunch, drive up interest rates dramatically, degrade equity markets and lead to bank failures. Comments 62 President Obama gestures during a statement on the government shutdown in the Rose Garden of the White House in Washington. (Evan Vucci / Associated Press / October 1, 2013) Also See more stories X By Michael R. Strain and Stan A. Veuger October 3, 2013 Much is in flux in Washington this week. But two important realities have remained constant, whether certain elements in the GOP accept them or not: We must not default on the federal debt, and we shouldn't wait http://www.debtconsolidationloanswiz.com/ until we're on the brink of default to raise the debt ceiling. Here's why. As measured by economists Scott R. Baker, Nicholas Bloom and Steven J. Davis, policy uncertainty was more severe during the previous debt ceiling fight in the summer of 2011 than at any time since the terrorist attacks of Sept. 11, 2001. If the possibility of default produces such turmoil, imagine what actually defaulting would do. As Republicans have so often pointed out in the fight over Obamacare , the ability of firms to make plans is severely hindered when government policies that affect them are in a state of extreme uncertainty. Raising the debt limit before the eleventh hour will help firms plan their activities, hire new workers and keep the (too weak) economic recovery going. Consumer confidence plunged during 2011's debt ceiling fight to a low not seen since the dark days of the recession, and it took a long time for confidence to recover. In a report released last week, Gallup found that economic confidence is already much worse now than it was in May and June, and attributes it to the current budget and debt ceiling battles. Many economists believe that consumer confidence measures serve as an indicator of how households will spend money in the future. If households are rattled by Washington shenanigans, they are likely to rein in spending, which would negatively affect the country's already fragile economy. And even the threat of a default would likely raise the interest rate on Treasuries by increasing their riskiness. This would bring higher borrowing costs for businesses and tighter credit for consumers. As we know from the last debt ceiling fight, the squabbling also costs taxpayers money. The Bipartisan Policy Center estimates that the cost to taxpayers of the delayed debt limit increase in 2011 will total almost $20 billion over 10 years. The United States actually defaulted on its debt once, in spring 1979. Then, as now, the debt ceiling was a source of partisan bickering, and an agreement was reached only at the last moment. The late passage, along with computer problems, meant the Treasury Department was late in making payments on maturing securities to individual investors and in redeeming T-bills. The moral of that story is clear: If Congress waits too long to raise the debt ceiling, the slightest error can throw the country into default on its obligations. Economists Terry L. Zivney and Richard D. Marcus, who studied the incident, concluded that this temporary default on a tiny share of the debt increased T-bill yields by six-tenths of a percentage point and resulted in $12 billion in additional interest payments. If the near-default of 2011 and a very minor default in 1979 cost so much money, imagine how much an actual default would cost taxpayers. After we ran up to the brink of default in 2011, Standard & Poor's lowered the country's credit rating for the first time. The response to that downgrade was not overwhelming, but a second downgrade would in all likelihood be more serious. A wide variety of institutions face restrictions on the risk profile of the assets they hold, and a second downgrade could make it harder for many of them to hold Treasury securities. As if all that isn't bad enough, default could harm the economy in much more destructive ways as well. As the risk-free asset par excellence, Treasury bills are used as collateral in many transactions, including in repo markets, which were a central player in the 2008 financial crisis. Shaken faith in their reliability would potentially trigger a credit crunch, Fedwire could seize up, a generalized flight from risk would drive down equity markets, banks could collapse. In other words, many of the pieces would be in place for a repeat of the 2008 financial meltdown. Federal Reserve Chairman Ben Bernanke probably wasn't exaggerating when he said in July 2011 that default "would throw the financial system into chaos." Of course, no one knows for sure what would happen if the U.S. were to default. (Interest rates could fall in a flight to safety, for example, or the Fed could try to stop the panic by stepping in as the bond buyer of last resort, maintaining the liquidity of Treasuries.) But we shouldn't wait to find out, and we shouldn't charge up to the brink. The GOP's laundry list of demands in exchange for a debt ceiling increase is ridiculous. But President Obama 's position that he won't negotiate on the debt ceiling is also outrageous: Previous presidents have done so, and he should too. Shut down the government if you must, but don't shut down the entire economy. Washington needs to get serious about the debt ceiling. Quickly. Michael R. Strain and Stan A. Veuger are resident scholars at the American Enterprise Institute .

Government shutdown: Where do we go from here? The price of the 2.5 percent note due August 2023 fell 6/32, or $1.88 cents per $1,000 face amount, to 98 29/32. The yields have traded this week between 2.66 percent and 2.58 percent, the narrowest range since April. The bottom of the range was the lowest level since Aug. 12. Rates on Treasury bills that mature Oct. 24 traded at 0.13 percent today, from negative 0.01 percent on Sept. 27, as investors demanded extra compensation for the risk of holding the securities. Curve Inversion Money managers are getting out of Treasuries maturing closest to the debt-ceiling deadline and buying longer-maturity bills, yields indicate. One-month rates touched 0.19 percent today, matching a 45-month high reached in November 2012, while rates on three-month bills were 0.03 percent, the biggest inversion of the spread since September 2008. A bipartisan group of U.S. lawmakers is proposing to House Republican and Democratic leaders a compromise to end the stalemate that brought nonessential services to a halt. Policy makers also face a debate over raising the federal debt limit, which the Treasury has said will be reached on Oct. 17. Boehner has been telling fellow Republicans he wont allow the U.S. to default on its debt, even if that requires Democratic votes, according to two Republican congressional aides. Party leaders are trying to package other Republican priorities with a debt-ceiling increase for a vote as soon as next week. The U.S. Department of Labor postponed the September payroll report scheduled for today because of the shutdown. An alternative date for the employment report, usually released at 8:30 a.m. on the first Friday of each month in Washington, hasnt been scheduled, the department said in a statement. Potential Haven Treasuries can emerge as a haven as the U.S. debt limit approaches, according to Peter Fisher , a senior director at BlackRock and the companys former head of fixed income. For example, U.S. government securities gained after Standard & Poors cut the U.S. rating to AA+ from AAA in August 2011, he said. The decision followed another battle among lawmakers over the borrowing limit, and S&P criticized policy makers for failing to reduce record budget deficits. The Treasury market rallied after the downgrade happened because risk went up in the world, New York-based Fisher said yesterday on Bloomberg Televisions Market Makers with Erik Schatzker and Stephanie Ruhle . The Bloomberg U.S. Treasury Bond Index is little changed this month, after gaining 0.9 percent in September, which was the first increase since April. Bond Insurance The U.S. will sell $30 billion of three-year notes on Oct. 8, $21 billion of 10-year debt on Oct. 9 and $13 billion of 30-year bonds on Oct. 10. Credit-default swaps that insure U.S. debt from non-payment for five years climbed to 42 basis points yesterday, the highest level since February, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. The size of the CDS market covering Treasuries, the net notional value, jumped 8.3 percent in the week ended Sept. 27, data compiled by the Depository Trust & Clearing Corp. show. It was the biggest increase since July 2011 when U.S. officials were also fighting over the debt ceiling. Theres a fear of a default, said Tomohisa Fujiki, an interest-rate strategist in Tokyo at BNP Paribas SA, whose New York unit is one of the 21 primary dealers that trade directly with the Fed. Its a minority view, but theres still a fear. Bill Gross of Pacific Investment Management Co. and BlackRock Inc. (BLK) s Larry Fink said yesterday the U.S. debt standoff will be resolved soon, limiting damage to the economy. Gross, who runs the worlds biggest bond fund, said a default is not a realistic proposition. The congressional dispute that has partially shut the U.S. government will be wrapped up very rapidly, said Fink, the chief executive of the largest money manager globally.

Poll: Debt Ceiling Increase Favored By Most Americans

Blame Hamilton. Print Reuters As the US debt ceiling looms as the next crisis on the horizon, youre going to hear it a lot of this. The government has never defaulted on its obligations - White House Press Secretary Jay Carney It is not acceptable for one faction of one party in one chamber to say, Either we get what we want or well shut down the government, or even worse, we will not allow the U.S. Treasury to pay its bills and put the United States in default for the first time in history. When it comes to history, never say never. If you go back far enough, almost everything has happened at least onceand sometimes several times. And thats how it is with US defaults. Original Sin The Steve Jobs Myth Is Wrong The prevailing narrative of US government debt goes something like this. After the US won its independence from Britain in the late 18th century, the country was deeply in debt, owing about $79 million to creditors. Many politicians argued that the nascent country should repudiate its debts altogether and start fresh. Into the breach stepped Alexander Hamilton, who convinced policymakers that the wiser move was to consolidate state debts into a federal pile and then pay debts in full. Hamilton won the day, laying the foundation for the untarnished full-faith-and-credit that serves as the basis for the USs prized position in global finance to this day. But what is often glossed over is that the US didnt just pluckily pay off its wartime debts with a good, old-fashioned dollop of American elbow grease. No, it took the path of modern Greece. It restructured its debts, with decidedly harsh terms from creditors. In fact, the terms were so tough that an important paper on the topic notes that a large part of theface value of the debt was effectively written off. In other words, it wasnt paid. So was this a default? Well, as weve seen during the ongoing European debt crisis, the word default is quite malleable. Technically, Hamiltons restructuring of the US debt was a voluntary bond swap. And voluntary conversions arent always viewed as defaults. But sometimes they are. Just look at Greece, which arranged for a series of voluntary conversions of its preposterously large debt over the past few years. Did that constitute default? S&P says yes , citing two criteria that equate to a default: 1) that investors will receive less than they were promised in the original securities, which was definitely true in the case of Hamiltons debt swap, and 2) the swap was distressed rather than purely opportunistic. (Its not like Hamilton was just taking advantage of a decline in interest rates, for instance.) Inhis excellent, all-encompassing history of public finance, James Macdonald notes Hamilton struck a very hard bargain with creditorsone that stretched the terms voluntary conversion and sanctity of contract beyond their true limits. (Emphasis original.) Golden Handcuffs The other instance of US default came during the worst years of the Great Depression. In 1933, President Roosevelt devalued the dollar against gold. That violated the so-called gold clause, which required that all public debts be paid in gold coin of a fixed weight. (Americas overwhelmingly pro-Roosevelt Congress simply declared all gold clauses null and void .) The 1933 devaluation effectively amounted to paying off debts with devalued currency, which is widely viewed as a default. In fact, in her exhaustive research on sovereign debt, economist Carmen Reinhart clearly classifies the 1933 devaluation as a domestic default . The Computer Glitch of 79 There have been some other instances of default that were just, well, screw-ups. As the Wall Street Journals Jason Zweig recently reminded us, in April and May of 1979during the height of another debt ceiling debatecomputer glitches resulted in the failure of the US to pay interest on $122 million in Treasury bills, which in the hardest sense of the word, was a default. Zweig writes: The Treasury characterized the problem as a delay rather than as a default. While the error affected only a fraction of 1% of the US debt, short-term interest ratesthen around 9%jumped 0.6 percentage point and the US was promptly sued by bondholders for breach of contract. (Investors were later paid in full, with back interest.) Business editor Derek Thompson looks at how such a simple commodity became as pricey as soda. 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The Most Well-Known Fact About US Debt Is Wrong

Independents were again split down the middle, with 45 percent placing more importance on a debt ceiling hike and 49 percent choosing an Obamacare delay. "You have bipartisan consensus among economists that not raising the debt ceiling would be a disaster, but politically you have a divide. Yes, more people say raise the debt ceiling and fight the health care debate somewhere else, but you have Republican lawmakers going home, most of them to safe Republican districts. And they're being told by many of their constituents not to worry about it, you don't have to raise the debt ceiling," CNN's Chief National Correspondent John King said . Fifty-three percent of Americans said congressional Republicans would be more to blame if the debt ceiling were not raised, while 31 percent said they'd mostly point the finger at President Barack Obama -- nearly the same division of opinion that was found during the debt ceiling showdown of July 2011 . As The Washington Post noted in September , polling on the debt ceiling can be difficult because most Americans pay little attention to the issue. In 2011, polling by NBC and The Wall Street Journal found that support for raising the debt ceiling rose dramatically after the deep consequences of defaulting reached the public's attention. Political scientist Jonathan Bernstein argues that polling on who will bear the blame should also be taken with a grain of salt. "Mostly, asking people to predict how they'll react to possible future political stories is just a waste of time," Bernstein wrote . "People aren't very good at understanding why they have the opinions they currently have; they're usually in no position to predict their future reactions. That goes double, of course, for something which they have very little knowledge about in the first place." The CNN/ORC poll surveyed 803 adults by phone between Sept. 27 and Sept. 29. Also on HuffPost: Loading Slideshow Barack Obama President Barack Obama pauses while speaking in the Rose Garden of the White House in Washington, Tuesday, Oct. 1, 2013, about the government shutdown. Congress plunged the nation into a partial government shutdown Tuesday as a protracted dispute over Obama's signature health care law reached a boiling point, forcing some 800,000 federal workers off the job. (AP Photo/ Evan Vucci) Senate Republicans Senate Minority Leader Mitch McConnell (R-KY) (2ndR), speaks while flanked by Sen. John Cornyn (R-TX) (R), Sen. John Thune (R-SD) (2nd-L) and Sen. John Barrasso (R-WY) (L) after the Senate Republican policy luncheon, on Capitol Hill, October 1, 2013 in Washington D.C. (Photo by Mark Wilson/Getty Images) House Republicans House Majority Leader Rep. Eric Cantor, R-Va., left, looks on as Speaker of the House Rep. John Boehner, R-Ohio, pauses during a news conference on Capitol Hill on Tuesday, Oct. 1, 2013 in Washington. Congress was unable to reach a midnight deadline to keep the government funded, triggering the first government shutdown in more than 17 years. (AP Photo/Evan Vucci) Capitol Protesters A protester covers his mouth with a dollar bill as he joins others in a demonstration in front of the U.S. Capitol in Washington, D.C. on October 1, 2013 urging congress to pass the budget bill. (JEWEL SAMAD/AFP/Getty Images) Lincoln Memorial A US Park Police officer watches at left as a National Park Service employee posts a sign on a barricade closing access to the Lincoln Memorial in Washington, Tuesday, Oct. 1, 2013. (AP Photo/Carolyn Kaster) Chuck Hagel U.S. Secretary of Defense Chuck Hagel listens on speaker phone during a conversation with Deputy Secretary of Defense Ashton Carter and other senior Defense Department officials about the U.S. government shutdown, at his hotel in Seoul, South Korea on Tuesday Oct. 1, 2013. (AP Photo/Jacquelyn Martin, Pool) American Cemetery A notice advising visitors that the American Cemetery is closed due to the partial shutdown of the U.S. federal government hangs from the gates of the cemetery in Suresnes, west of Paris, Tuesday Oct. 1, 2013. (AP Photo/Remy de la Mauviniere) President Barack Obama U.S. President Barack Obama delivers remarks about the launch of the Affordable Care Act's health insurance marketplaces and the first federal government shutdown in 17 years as he's joined by U.S. Health and Human Services Secretary Kathleen Sebelius (R) and Americans who will benefit from the Affordable Care Act in the Rose Garden of the White House October 1, 2013 in Washington, D.C. (Photo by Win McNamee/Getty Images) National Parks Park Ranger Scott Rolfes locks a gate closing a road over the dam at Saylorville Lake, Tuesday, Oct. 1, 2013, in Saylorville, Iowa. About 800,000 federal workers are being forced off the job http://www.debtconsolidationloanswiz.com/ in the first government shutdown in 17 years, suspending most nonessential federal programs and services.

U.S. debt row keeps dollar near eight-month low, stocks subdued

The dollar <.dxy> was up for the first time in six days before the start of trading on Wall Street where the S&P 500<.spx> was expected to bounce around 0.3 percent after its worst day in over a month on Thursday. <.n> The U.S. shutdown delayed the closely-watched nonfarm payrolls data, normally out on Friday and a key factor in Federal Reserve deliberations on when to scale back its stimulus. The postponement had no noticeable market impact. Several Fed officials are due to speak later in the day. Two senior policymakers, as well as the U.S. Treasury and the International Monetary Fund, warned on Thursday of dire consequences if the country defaulted on its debt. ITALY SHINES This week's troubles left world stocks on MSCI's global index <.miwd00000pus> heading for a second weekly loss in a row of 0.6 percent, but analysts saw that as of minor significance considering their recent strong run. Asian shares had been led lower overnight by a weak Nikkei <.n225>in Tokyo but European shares <.fteu3> overcame a difficult morning to stand almost flat on the day by 1200 GMT. Italian stocks <.ftmib>, up 1.4 percent, enjoyed another strong day following this week's confidence vote for the country's fragile government which has cut the risk of snap elections that would have reignited euro zone crisis fears. Italy's government bonds also outperformed leading a broad fall in euro zone periphery yields from Greece to Ireland. "We are seeing reduced political risk in Italy following relief that Letta survived the no-confidence vote," said RIA Capital Markets strategist Nick Stamenkovic. THE D-WORD The focus remained mostly on the dollar <.dxy>, however, after it hit an eight-month low against a basket of major currencies on Thursday following a 3.5 percent drop during the last three weeks of political wrangling. Hitting the debt ceiling could lead to an unprecedented U.S. default, an outcome the market assumes is unthinkable. "By far the biggest risk is October 17. If the debt ceiling is not raised beyond $16.7 trillion words like default are going to start rearing their head," said Neil Williams, chief economist at fund manager Hermes. "Is the world's biggest economy http://www.debtconsolidationloanswiz.com/ really going to default on its debt when the wheels of the Fed's printing presses are still turning? I highly doubt it." The euro had looked to be eyeing up its 2013 peak of $1.3711 in Asian trading, but as the dollar began to firm in Europe the single currency dropped back half a euro to $1.3585. Sterling also fall 0.75 percent to $1.6041. Debt markets remained largely relaxed about the U.S. tensions, and yields, which move inversely to prices, were slightly higher on benchmark U.S. Treasuries and German Bunds as U.S. trading started. Commodity markets remained choppy. Brent crude edged up 0.4 percent to $109.46 a barrel, reversing a 0.2 percent decline overnight after slower U.S. service sector growth in September compounded worries about demand for raw materials. Gold was broadly steady at $1,312 an ounce while copper prices stabilized at $7,190 a tonne after tumbling 1.3 percent on Thursday. (Additional reporting by Emelia Sithole-Matarise; Editing by John Stonestreet/Ruth Pitchford) @yahoofinance on Twitter, become a fan on Facebook Related Content Chart Your most recently viewed tickers will automatically show up here if you type a ticker in the "Enter symbol/company" at the bottom of this module. You need to enable your browser cookies to view your most recent quotes. Search for share prices Terms Quotes are real-time for NASDAQ, NYSE, and NYSEAmex when available. See also delay times for other exchanges . Quotes and other information supplied by independent providers identified on the Yahoo! Finance partner page . Quotes are updated automatically, but will be turned off after 25 minutes of inactivity. Quotes are delayed at least 15 minutes. All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein. Fundamental company data provided by Capital IQ . Historical chart data and daily updates provided by Commodity Systems, Inc.

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