The Rollover Chicken Game

From Bloomberg:

Treasury Secretary Timothy F. Geithner today urged lawmakers to raise the federal debt limit in the first quarter of 2011, saying a failure to act could make it impossible for the U.S. to access global credit markets.

If Congress does not raise the debt limit, “the Treasury would be forced to default on legal obligations of the United States, causing catastrophic damage to the economy, potentially much more harmful than the effects of the financial crisis of 2008 and 2009,” Geithner said in a letter to Speaker of the House John Boehner, Senate Majority Leader Harry Reid and all other members of Congress.

The Treasury estimates the debt limit could be reached as early as March 31, and “most likely” between that date and May 16. The debt limit stands at $14.29 trillion, leaving about $335 billion of “headroom,” Geithner’s letter said.

Boehner, a Republican from Ohio, said in a statement Congress needs to pair a debt-limit increase with spending cuts and changes to a “broken” budget process. He said the country can’t afford default or to “recklessly” keep borrowing.

Spending, Taxes

The debt limit should be resolved without being tied to long-term fiscal issues including spending and taxes, the Treasury official told reporters. Lawmakers will probably agree to raise the limit because of the consequences of the idea that the U.S. could default, the official said.

The U.S. had a $1.3 trillion federal budget deficit in fiscal year 2010, which ended Sept. 30. President Barack Obama’s debt-reduction panel failed last month to agree on recommendations for ways to reduce the annual deficit to about $400 billion in 2015.


This game of fiscal chicken is getting very serious. Treasury officials want a blank check to raise the debt ceiling. The Republicans are worried about reckless borrowing and want spending cuts.

Both sides need to consider the consequences of their demands if the other side decides to push the limits. If both sides wait until the last minute to agree on a common action, we could end up with as US bond auction failure sending interest rates sky high.

That would be very bad.

The United States government needs to rollover more than $129 Trillon per year to maintain its profligate spending lifestyle.

Since Geithner's warning is no exaggeration, my hope is first that compromise is met, and second that you, dear reader, have some of that yellow metal in your possession.

HT to reader Bill who provided the link.
Debt Position and Activity Report

Countdown to March 18, 2011
72 days


  1. Adam Smith warned in " Wealth of Nations "

    That in 1776, no Government paid off their Debt and had always defaulted.

    We will have no choice either. There is no hope Politicians will save us for they only form committees to investigate after the
    "Shit hits the fan".

    There was a Politician and a average man standing on top of the Sears Tower when a gust of wind blew them off. The average man being a realistic pessimist, immediately sees he is about to die and begins praying. The Politician, the ultimate optimist, can be heard saying " Well so far so good " as he passes the 4th floor.

  2. PW,

    Any take on Goldman or WB from your end?


  3. Morning update. Bearish short term momentum, intermediate and long term remain bullish. There is a one month uptrend line around 1268 that may offer support. Next short term support level is 1262. Intermediate time frame support level around 1257 (SMA 120 on hourly chart).

    Have a nice trading day!

  4. Not sure why people update the info that everybody can see and is obvious from the chart.

    Babaro you sound just like one of the analyst who says things that everybody can see on the chart.. LOL



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