It won’t work because you are thinking bonds are like credit cards. They are not. I have posted this on 20 boards in the last few days, it is becoming irritating to deal with people who dont understand the first damn thing about bonds.
Bonds have two components. There is the interest which is called the coupon. For your $1000.00 bond you get $12.50 a quarter. But at the end of the term which now a days is typically two years you must repay the principle, $1000.
I August we have $474 Billion in principle due
We pay this by ‘rolling over ‘ this debt. That is using new debt to part the old. Without new borrowing we will have to pay this out of taxes. Taxes for august might hit $175 Billion.
Leaving $300 Billion unpaid.
Default.
People doing stupid analysis saying we can pay this based on their lack of understanding of bonds are idiots.
No debt limit increase equals default.
A nyone who doesn’t admit this is an idiot.
Very clear and succinct. Thanks.
This analysis is incorrect.
Replacing maturing bonds with new bonds one-for-one can be done within the debt ceiling limit. What can’t be done is funding new spending with new bonds.
Default would only occur if the Obama Administration chooses to use revenues and borrowing for additional spending rather than debt service.