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.
Uh...
I’m not so sure you are right. Let’s play with numbers.
Say our debt limit is $1000. We have it maxed out.
Let’s also say I earn $100/mo. And, just for the sake of argument, let’s say that the interest on my $1000 debt is $25.
In August, $400 worth of the principle comes due. OK, fine. I pay out that $400 worth of principle, reducing my total debt by $400. Now I am at $600 worth of actual debt *with a $1000 debt limit.*
It’s a shell game.
It doesn’t matter whether or not you sell NEW DEBT totaling $400 first or second, at the end of the day, you still have $1000 worth of debt. So you can pay that old debt principle with new debt. It doesn’t affect the debt limit.
The revenue still pays the $25 coupon on $1000, leaving $75 surplus for other expenditures.
An overlooked fact. But...
Every dime paid off frees up a dime to borrow.
Only the interest is NEW debt.
But aren’t you ignoring that if you pay off the principle with newly issued bonds, your debt has not risen? In this respect, it is like paying off one credit card with another. The total debt doesn’t change. Obviously, there is a very brief period in time where your debt does increase, in the credit card case, because the transactions are not instantaneous.
You mentioned the principle of 1000$ needing to be paid. But if we borrow 1000$, and use that to pay the principle, our debt doesn’t increase, thus no default.
Obviously, this gets into the question of exactly how the debt ceiling law was written. But it would be poorly written if it didn’t take this into account.
What is more, isn’t it an issue of when exactly that debt is rolled over (within the month)? If they are reasonably well staggered, and the new issuances never breach the debt ceiling, then even this time gap between paying the principle, and selling new bonds, doesn’t seem to even be an issue.