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So, if I understand you correctly, you are saying that the government, which must, by law, honor claims for SS, would have made payments after Aug. 2 (absent a debt ceiling agreement) simply by printing money (that is, by having the Fed buy T-bills)?

This would work in the shor-term, but would, in the long-term, destroy the value of the dollar, which would beggar savers and anyone invested in dollar-denominated assets. On the “plus” side (if such a thing can be called a “plus”), it would allow the government to inflate away its outstanding pile of debt, maintaining the fiction that it was “honoring” its commitment to the “full faith and credit of the US”.

Of course, as soon as creditors (and potential creditors) got wind of the scheme, they would refuse to lend money or demand a higher interest rate, which would saddle future generations with much larger debt and pricing current debt (oftentimes linked to T-bill rates) beyond reach (which would cripple businesses).

And, as you noted, this is only possible because the US dollar is the world’s reserve currency; once we lose that, then we are well and truly f_cked.

Would it be fair (in your opinion) to say that raising the debt ceiling $2.4 Trillion is in fact a $2.4 Trillion tax hike, since it must be repaid (with interest to boot!)?

Just curious,
Mike

After August 2, the US Government would have had enough to pay most of Soc. Security to send out the checks just from the current payroll tax. It could then have redeemed some of the bonds or taken money from other taxes received. Social Security checks were never in danger of default after August 2.

Yes, more or less to everything you just said. The leaders of the other countries are very aware, and have been critical of USA policies for quite some time. Did you ever in the past hear the phrase Japan acted to “defend” the dollar, or some other country acted to “defend” the dollar? It wasn't because they love us.

I read the other day, that the dollar lost 15% during QE2. The USA did experience great inflation during the 1970’s and 1980’s. It was crushing to middle and low-income families. Worse than any tax increase I ever experienced.

Yet the news is full of talk about tax increases and spending cuts, but nary a word about the likely inflation, and the relation to monetary policy. It's like a magician who keeps your attention focused on something else, while he pulls a card from his sleeve.

The US government spending on the defense, social security, and health care pretty much is covered by taxes. That leaves most discretionary spending unfunded.

Social Security has minor problems compared to health care and projected increases in the health care spending even without Obama Care. Simply raising the retirement age, deleting the salary cap, adjusting the cola, and/or raising the payroll tax 1% split evenly between employer and employee are some available choices to combine and use for social security.

After Medicare was implemented, Insurance companies quit offering health insurance policies to people who qualified for Medicare. It is not great insurance by itself, but combined with a supplement from private insurance, it is good and relatively inexpensive overall to the people who pay the premiums.

There is no premium for Part A(hospitalization). Part B is around $100.00. Part D varies. A supplement using the most popular F choice costs around $198.00 per month.

Demographics and modern technology are combining to insure that health care spending is unsustainable, but if the most expensive last 5 years of everyone’s life were eliminated, then it's not so bleak.

The talking heads are all bemoaning these expensive last years; None are talking about paying a premium for Part A or raising the premium for part B. Guess they'd rather see old people die or suffer. Of course, they all have enough money that they will be able to pay for the health care they would need when they reach that age.