Moody’s Directly Contradicts Barack Obama on Danger of Default if Debt Limit Not Raised:

“There is No Direct Connection between the Debt Limit and a Default” – 10/9/13

Quote ( Washington Post ):

”We believe the government would continue to pay interest and principal on its debt even in the event that the debt limit is not raised, leaving its creditworthiness intact,” the memo says. “The debt limit restricts government expenditures to the amount of its incoming revenues; it does not prohibit the government from servicing its debt. There is no direct connection between the debt limit (actually the exhaustion of the Treasury’s extraordinary measures to raise funds) and a default.

Comment:

The only way to have a default is for the President to order that the debt not to be serviced as long as there is a shut down.  There is no legal authority for him to do that.  In fact, it would be downright illegal.

Back in the 70's during the Watergate Era, President Nixon attempted to impound funds that were appropriated by the Congress.   The Congress said he couldn't do that, and so every president since then hasn't been able to do that.  If the funds are there, they have to spend them.  That's the law.

It gets even weirder than that.  A lot of the debt is owed to the government itself.  To default on this debt would be tantamount to the government welshing on a debt it owes to itself.  For instance, the government borrows the money, prints the money that it creates to buy the debt, the Fed holds the debt, the Fed collects the interest, and then remits it back to the Treasury.  In other words, from one pocket to the other.  If the government doesn't pay the debt at all, who would know?

Only those who bought the debt with earned money would be the only real live human beings who would know when there was a default.  This is about half of the 16 trillion dollar debt.  So, if Obama breaks the law and doesn't pay the debt, he has to go out of his way to do it, and even more so, he has to do it to private investors who hold about half of it.  He could pay those first, if extreme conditions truly obtained, and default on the rest and nobody would know any better.  So, in order for this to be a problem, he has to order that private debt must not be serviced.  How could he ever expect to get away with this?

He'd have to be insane.  He's bluffing, plain and simple.  He has to convince as many people as possible that he's crazy enough to do that.  He'd have to hope that you'd get too scared to see if he really was that crazy.  I want to find out if he's that crazy, because that would be a perfect reason to get rid of his ass.

If there's a real problem he could try to handle it creatively.  That would be a positive sign of a functioning mind.

For instance, that printing a coin business could actually work---here's how:  the government could mint coins, deliver it to the Fed and use those coins to pay interest on the debt.  The Fed could issue a receipt for the coins, and then send the coins directly back to the Treasury.  This is what they do anyway.  In fact, you could dispense with the coins and just make bookkeeping entries.  Two signed receipts and that would be it.  The minted coins could be in a warehouse.  The Fed could deem that the coins existed and were legal tender and accept them in principle.  Meanwhile, the real money from taxes could pay the real investors, who hold about half the debt.  This would free up those funds for spending on real people with real priorities.  All of this with a bookkeeping entry and it would all be legal as anything else the government does anyway.

Default talk is just scaremongering unless the President wants to go rogue.  That's why I said all bets would be off if this happened.  It's tantamount to a declaration of war against the rest of the country.  It's one thing to leave 4 guys in the lurch at Benghazi, it's quite another to leave the whole country in the lurch if he tried to pull this stunt.