3 Responses to “Boston real estate and the debt ceiling” »»

1. Nemo
   Comment by Nemo | 07/17/11 at 4:42 am

   Even if the debt ceiling isn’t raised, it doesn’t have to be that way. The Federal government still gets a massive amount of revenue each month. In the current absence of any laws from Congress, the Treasury department (or more likely in something this grave, the Treasury Department under direction from President Obama) decides which bills are paid with the monthly revenue and which are held off.

   So Obama can decide to pay the debt payments, Social Security, Meidcare, and some level of the military costs and close everything else. Or he could decide to pay some other set of bills. While there isn’t enough money to pay everything, there is enough to pay some subset of critical bills.

   Now, what will happen in this case is that, even if the debt payments are paid (and they almost certainly will be) the credit rating agencies would see an increased risk and lower the credit rating of the US. Not to junk status, since we are paying our debt, but to some lower level. This would increase the interest rates of government borrowing and make our financial situation worse. The side effect to the Boston Real Estate Market is that housing loans are tied to the cost of treasury notes, which means that interest rates would increase with all the negative impacts that entails.

   Actually, one oddity here that can occur if the debt ceiling is reached, is that the market for Treasury notes and bonds will not disappear (though will be decreased), but the supply of new bonds will cease. That might result in an offsetting decrease in interest rates for a short time as various investors continue to buy Treasuries.

   Nemo

2. Funny
   Comment by Funny | 07/17/11 at 6:16 am

   Nemo, Revenue in is nowhere near where we need to be to pay our bills and interest payments out. Hard choices would have to be made, all with horrible political (and financial) outcomes.

   Hell, even the GOP is starting to get scared and introducing bills to “make sure” the military and seniors are paid first. What about our interest obligations? The rest of them believe in unicorns and flying monkeys.

   If we can’t even agree to pay our bills due, I can easily see a road to junk status closely behind.

3. Nemo
   Comment by Nemo | 07/17/11 at 11:34 am

   I agree, we can’t pay ALL of our bills and interest out of revenue. That was the point of what I wrote above. The question is, if the debt ceiling is reached, what gets paid and what doesn’t.

   I haven’t heard of any bills from the GOP about paying seniors and military first. I know it’s been discussed, but I don’t know of any proposals from senior politicians that don’t pay the interest first.

   The interest payments will ALMOST CERTAINLY get paid because of the massive economic consequences of not paying it. That would be enough to keep us from junk status in the short to medium term, though it will not save us from taking a hit in our credit rating and some significant financial fall out.

   Social Security will LIKELY get paid because of the political consequences of not paying it. Everything past that depends on Obama’s priorities, unless Congress intervenes.

   Nemo

Leave a Reply »»