Ask HN: That happens to T-Bills when the Goverment locks up over debt ceiling? | Hacker News Reader

Ask HN: That happens to T-Bills when the Goverment locks up over debt ceiling?

48 pointsdzink76 comments

Would T-Bill buyers be impacted and how?

Some large T-Bill backed money market funds are avoiding T-Bills with maturity around the debt ceiling date. This is because they need liquidity to ensure the 1-1 dollar parity.

What will likely happen is, T-Bills with those maturity dates will have a higher risk premium and trade at lower values. People like Warren Buffet will gobble them up because they are still zero risk if you are willing to hold them for a few extra months while the debt ceiling issue is worked out. If things get really bad, the fed could offer to buy them with a haircut to ensure markets have liquidity.

The T-Bill is the cornerstone of the global financial system. Even with a technical default, no one believes the government won't eventually pay. And if you believe they won't, you should be buying physical gold, guns & ammo + food stuffs because it would be Mad Max'ish were that to happen.

The real issue is, if the government is in technical default, the credit rating agencies will downgrade the UST bill. That will result in higher interest rates on ALL government debt as it eventually revolves through. That means less money for existing programs.

This specific question I cannot answer, but I think in the long run, people with US gov bonds will get through OK, maybe just a delay payments and they may get a bit more from the US due to the delay.

I think for "main street", it will be a disaster. The fallout could rival the 1930's depression and people's 401Ks will probably loose 30% to 40% of their value.

Why Wall Street is still backing these GOP idiots is beyond me. We seem to be in a shift of US Party priorities. Seems the Dems are heading to support businesses while pushing social conscience. Seems some in the GOP is trying to do what they can to steal from Social Security/Medicare and crash world economy.

There are 2 political parties - they cannot possibly encompass all the wants, desires, priorities of any individual except one that blindly follows every party plank. We also have an openly pay-to-play patronage system. In this system it’s more important to financially support individual politicians who have power and influence over your specific industry sectors and priorities. Therefore I allocate assets to certain politicians that benefit my companies, regardless of political party. That said I tend to favor republicans more because they generally are more pro-business.

> I tend to favor republicans more because they generally are more pro-business.

This POV is very hard to support today. Both parties give full throated support to "business" and only disagree on implementation details.

On its face that sounds right but when I look at my priorities the boosters are mostly republicans

What are your priorities?

My priorities are not popular on HN. My username provides one, oil and gas is another, educational choice is yet another. Taxation is theft, etc. etc.

>Taxation is theft,

I hope you refrain from using stolen property like roads, parks, and GPS.

Both want businesses to thrive, but Republicans want all obstacles removed from business growth, and tend to ignore paths of sustainable growth. Republicans also push for lower taxes, which makes sense if one is wealthy and doesn't need to rely on an external support system.

The odd part comes from the package-deal associated with Republicans: right-wing extremists. Democrats have been okay keeping extreme left-wing out of most policies, but Republicans seem to be increasing acceptance.

> The odd part comes from the package-deal associated with Republicans: right-wing extremists. Democrats have been okay keeping extreme left-wing out of most policies, but Republicans seem to be increasing acceptance.

My theory on this is that Republicans from roughly the 80s or maybe a little before got too good with the propaganda. Because of that and the loose party system we have in the US, people who grew up on conservative propaganda are now prominent elected officials and the cycle reinforces itself.

Either that or it's just grifters who have realized there is no bottom with a substantial portion of "the base". It's probably a combination.

The Republicans are cancer and the Democrats are artificial cancer.

That’s a very biased take on things, evidenced by dismissing the other side as idiots.

A more balanced take might be, why does the US end up with such a high proportion of corrupt idiots on both sides of the political spectrum in Congress and the Senate?

One side complains about scary theoretical possible actions, while the other is defending against destructive attempts to overthrow the government led by the leader the first party. The both sides argument doesn't really work anymore.

I don’t buy that argument. The extremest people on the left are doing ridiculous things as well. Like turning a blind eye to shoplifting or illegal immigration. Not on the same scale as overthrowing the government, I concede.

If enough of you guys on both sides can’t see that there are rational, reasonable people on both sides and come together, that will be end of the American empire. It will end in civil war, complete with nuclear Armageddon for the USA. Let us hope there is enough common ground to avoid that outcome.

Possibly Nothing.

I've seen a few articles by constitutional lawyers that state the 14th amendment requires the US pay its debts, and the debt ceiling is a fiction (although, depending upon how the administration proceeds, it could take time to go through the courts; i.e., if the administration/treasury treats the debt ceiling as real).

https://www.theatlantic.com/politics/archive/2011/05/our-nat...

https://www.law.cornell.edu/constitution-conan/amendment-14

As a foreigner I don’t understand how the debt ceiling is even supposed to work.

One year Congress passes a budget. Accordingly Treasury sells debt to raise money, and money is being spent. In the middle of the year Congress refuses to raise the debt ceiling. What’s supposed to happen to the budget they just passed?

It seems a lot like Congress orders a three-course meal at a restaurant and then refuses to pay when the bill comes in.

You might argue it’s a different Congress refusing to pay the bill, but that’s not a good look either when the US government is supposed to represent stability and continuity.

You are precisely correct, and that's why it's always been raised. Congress (mostly, but not exclusively, the Republican Party) just uses it as a cudgel to extract budget concessions from the other party in the next budget.

The only way the debt ceiling would make any sense to me is if it didn't apply to the rolling-over of existing debt. If you want a lever to reduce spending, fine, but it should only apply to things after debt-service, which should be automatic and unquestioned.

Any bill passed by Congress which appropriates money is backed by Article I of the Constitution, and there is no legal way for the executive branch to pause that spending in favor of paying back bond holders. The 14th Amendment commitment to repay debt does not trump Article I powers of Congress.

This is the flip side of why “government shutdowns” happen: the executive branch can’t spend money if Congress does not appropriate it. The flip side is that the executive branch must spend money to execute laws that require spending money.

These articles are written solely to provide cover for political positions. The authors are essentially spending their credibility as a donation to politicians they support. It’s not a plausible way to read the Constitution as a whole.

> Any bill passed by Congress which appropriates money is backed by Article I of the Constitution, and there is no legal way for the executive branch to pause that spending in favor of paying back bond holders. The 14th Amendment commitment to repay debt does not trump Article I powers of Congress.

If the debt ceiling “isn’t real” (that is, is unconstitutional), then there is no need to pause other spending to make debt repayment. The only reason such a pause would be necessary is that the debt ceiling was valid.

> The 14th Amendment commitment to repay debt does not trump Article I powers of Congress.

To the extent they conflict, it does, by the usual canons of legal construction in that, all other things being equal:

(1) Newer enactments trump older enactments,

(2) More specific rules trump more general rules.

To the extent there is a reasonable reading without conflict, that may be favored, but to the extent there is an essential conflict, the 14th Amendment definitely trumps Article I.

This is just a fundamentally wrong way to read the Constitution. Amendments are very clear when they are intended to replace prior language; this particular part of this particular amendment does not say that.

There is also the context in which this Amendment was passed; it was not done to relieve Congress of its duty to do its job.

There is also the fact that 14th Amendment was passed 150 years ago and Congress has voted to raise the debt limit, and the President has signed those laws, many many times since then. That precedent imbues the debt limit with legal authority. It’s not like we’re just waking up today and discovering what the Constitution says.

> Amendments are very clear when they are intended to replace prior language

No, actually, compared to most statutes, Constitutional Amendments tend to be extremely vague on that point, with the language rendered inoperative needing to be inferred from the conflict between its effect and the clear meaning of the new language.

> There is also the fact that 14th Amendment was passed 150 years ago and Congress has voted to raise the debt limit, and the President has signed those laws, many many times since then. That precedent imbues the debt limit with legal authority

No, practice without legal challenge does not create legal precedent; otherwise, it would be a backdoor way for federal authorities to amend the Constitution without the required involvement of the states so long as they constrain themselves to situations where there weren’t non-federal parties with standing to challenge actions.

Moreover, to the extent that it involves cases where Congress would have standing to sue ab initio, allowing practice to change the substantive legal rule would violate the well-established principal that Congress cannot bind future Congresses.

There is a line in the constitution that says "The validity of the public debt of the United States, ... shall not be questioned."

Some interpret this to imply that the courts could intervene in any case where legislative action would cause the US to fail to pay any existing debt. I think it's uncertain though, and I am curious what people more familiar with consitutional law think about this.

The more common interpretation is not that the courts could intervene (they clearly can’t unilaterally, and standing would be a problem for anyone trying to seek to have them intervene, though maybe a creditor denied payment would have it), but that the executive could take any action that would be legal without the debt ceiling to continue paying the debt, and that, even should any entity with standing challenge this in the courts (Congress, as a whole, may be the only body that would even have standing), that provision would be a reason that they would fail on the merits.

Thanks for the explanation!

To believe the law works this way, one would have to believe that the Congress and President have been putting themselves through pointless kabuki theater for decades by passing and signing into law increases in the debt limit that were not actually required.

No one actually thinks this. Just like no one actually thinks that we just discovered that the wording of the 14th Amendment is a magical solution to a debt limit fight.

The funny thing is that IF the Constitution actually did work this way, it would remove any leverage the debt limit holds over policy.

So some folks are trying to have their cake and eat it too. They demand policy changes in return for a debt limit raise, while also claiming, separately, that neglecting to raise the debt limit is no big deal because 14th Amendment. It makes no logical sense. And it’s not supposed to; it is just supposed to sound plausible, in parts, to different audiences.

> To believe the law works this way, one would have to believe that the Congress and President have been putting themselves through pointless kabuki theater for decades by passing and signing into law increases in the debt limit that were not actually required.

So?

Wouldn’t be the first time that routine government practices were found to be unnecessary or invalid because they were premised on a faulty view of the Constitutional powers of some institution of government.

> No one actually thinks this.

Lots of people actually think this.

> Just like no one actually thinks that we just discovered that the wording of the 14th Amendment is a magical solution to a debt limit fight.

That’s true, its not a recent opinion. Just as the opinions that the War Powers Act is unconstitutional (there are two different major ones, as to whether it unconstitutionally limits inherent executive power or unconstitutionally delegates non-delegable Congressional powers) is as old as the War Powers Act, the opinion that the debt ceiling is unconstitutional is nearly as old as the debt ceiling.

The fact that we, as a nation, are still talking about the debt limit is proof that no one with any authority actually believes this theory.

If everyone agrees a gun is not loaded, no one cares who is holding it or where it is pointed.

> The fact that we, as a nation, are still talking about the debt limit is proof that no one with any authority actually believes this theory.

No, its proof that no one has thought that it the best choice given the then-current political situation was to test it. Given that Executive/Congressional relations rely on working relationships, and that a successful challenge (by the Executive, Congress would never be the party to challenge) rather than making a deal where it is possible has the potential to poison that relationship and sink a President’s legislative agenda, there is a strong incentive not topush the issue, irrespective of the merits, except in the worst conceivable pre-existing relation between a President and a faction holding the power to obstruct debt limit increases in at least one house. (This is a similar reason to why you see adherence to the War Powers Act even by administrations that have characterized it as an unconstitutional usurpation of inherent executive power on the part of Congress, that has only the legal effect – where it facially limits the President – of a non-binding request by Congress.)

> No, its proof that no one has thought that it the best choice given the then-current political situation was to test it.

Yes, finally you understand what I’m trying to say. It is still true that no one thinks it is a good choice to interpret the law this way.

Because if we do interpret it this way, the Republicans don’t get to demand policy changes in return for a limit raise. If we do interpret it this way, the Democrats don’t get to shout that the Republicans are holding a gun to the world economy’s head.

Everyone with power still wants that particular gun to be loaded.

The only folks who think this theory might be real are a few egghead professors and some C-grade political strategists.

> Yes, finally you understand what I’m trying to say. It is still true that no one thinks it is a good choice to interpret the law this way.

No, you are confusing legal interpretation with political calculations of whether to put the interpretation to the test. Not understanding the difference means not understanding why the evolving polarization between the parties making putting it to the test more likely.

The parties are not polarized on this issue! They both believe the debt limit must be raised by Congress.

This simply isn't correct.

Both parties may think that it is the path of least resistance to a particular political debate is to have congress raise the debt ceiling, but characterizing either party as having a solidified interpretation of the legal necessity of those actions is silly, it's not really a thing either party has taken a solid position on.

As we saw in the Trump presidency, lots of things that are or were done as "norms" aren't necessary, and violating those norms was completely legal and, in some ways, extremely powerful and expedient for the Trump white house. (the most relevant of these being that Trump bypassed the appointments clause for many positions by having acting heads run certain institutions for months or years without senate confirmation)

https://tailsteak.com/archive.php?num=264

They might not pay out on time. The Treasury will have incoming cash and will have discretion over which obligations it does and doesn't pay. T-bills might very well get priority but I don't know.

If they don't pay there will be a market for them. Everyone will believe the debt ceiling will be somehow fixed and many players will be willing to buy T-bills at some discount -- probably very slight, but who knows? The Fed might also step in to buy them.

The general expectation is that Washington will avoid this in the first place but they're all getting dumber and I think the possibility of it happening eventually is no longer zero.

If you're trying to buy a new T-Bill, you're impacted in that new debt can't be issued so new T-Bills can't be issued freely. For existing debt holders? Yawn. US Tax is revenue is ~ $450 billion/month. US debt service is about ~$60 billion/month. What's impacted is new spending.

Related Planet Money (NPR) episode [0].

[0] Day of the debt. https://www.npr.org/2021/11/23/1058529788/day-of-the-debt

I'd like to add that it's not just T-Bill buyers. Banks tend to buy T-Bills for a place park cash. Even if you don't buy T-Bills you would be effected by a default if you have your money in a bank that's expecting some T-Bills to mature at the time of the (potential) default.

For all you newcomers, the debt ceiling debate is something that happens every few years and is a waste of everyone's time. It's brinksmanship on the part of the Republicans and Democrats, but it won't ever happen. They start cutting services, etc, and conserve cash way before anything happens and magically they get a new deal. It's political theater.

Plus the US Treasury can unilaterally create a $1 trillion coin and increase the debt ceiling that way.

I have been completely ignoring this nonsense since 2 or 3 iterations ago, don't get too sucked into this.

Nit: it’s brinksmanship by the republicans. They happily blow up the deficit and raise the debt ceiling when they’re in power, but then cry foul as soon as there’s a democrat in the White House. I don’t know of any time the democrats have refused to raise the debt ceiling as a negotiating tactic.

My favorite rhetorical trick is definitely the one-siding of a two-sided issue in a two-party political system. /s

Back in 2021 the Democrats had the option from the get go to do a clean unencumbered unconditional debt ceiling increase with just the votes they had and chose to try to pin it with a spending bill they wanted to push through but didn’t have the votes for, as described in even this blatantly partisan CNN article bylined by CNN’s Editor-at-large[1]: https://www.cnn.com/2021/09/22/politics/debt-ceiling-increas...

The parent comment was correct the first time. It’s brinksmanship by both Democrats and Republicans.

[1]: Genuine question: how is this different from an Editor-in-Chief?

https://en.wikipedia.org/wiki/Editor-at-large

It's a senior role generally more focused on journalism rather than the traditional editor position which handles the higher level stuff.

Ah, the byline makes more sense now.

Thanks!

Wrong. You're probably a bit too young, but as the other poster pointed out, this also happened with Dems. Both parties are stupid.

Bush presided over a few debt ceiling fiascos run by Democrats - I think the first ones in modern times were under the Bush administration. Trump wasn't in office for long enough with an opposition congress to have had any time for congress to play these games: his cronies raised the debt ceiling a lot in his first 2 years in preparation for the next 2. Otherwise, the only presidents since Bush have been Democrats, so the opposition party doing this would be the Republicans.

See here: https://www.nytimes.com/2021/09/28/us/politics/debt-ceiling-...

> Over the weekend, Germany conducted a hard and close-fought election with calm, ease and not a peep about voter fraud

Yeah, I'm gonna trust this guy for sure.

The good news is that you don't have to trust this guy about the fact that Bush had a debt limit fight: it was a pretty big deal in 2006-2007 and it's all over every source that you might bother to look at. Also, this is the New York Times, which is pretty well known for not getting facts wrong, although their opinions are often suspect (and not always constrained to the editorial section).

As always the devil is in the details, and I'm old enough I was around and paying attention for the Bush years. The debt limit fight referenced in the essay was actually extremely minor - there was never a real risk of a shutdown, unlike 1995, 2011, and 2013 - and the Democrats' position was broadly not "don't raise it" but "if you're gonna raise it, how about also we fund something other than wars". It's not at all comparable to the times the Republicans have a) actually precipitated or enacted crisis, sometimes with no specific demands, and b) when they do have demands, it's a hard line of tax cuts plus lower expenditures.

Your bias is showing here. Someone could easily come in and say that the Republicans weren't saying "don't raise it" they were saying "if you're gonna raise it, how about we give people some tax cuts too?" And those Republicans really meant it, too (/s)! It's not magically better or less of a political play when the side you like does it, even though Democrats generally cave on their own threats too early.

Yep, this is solely Republican tactic. It’s a shitty way to govern. Holding the country hostage for political power.

I don't have faith in much, but I'm sure that the Treasury will make bond holders whole. A substantial default would be the end of global capitalism, and every one of the right wing psychos know it.

I predict the Federal Reserve will buy them at close to 100% non-default value while dry heaving over their involuntary involvement in politics. I further predict that those shorting the securities will lose their court case against the Fed, since the action would be protected by the 14th amendment:

Section 4

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

If someone's shorting the security at maturity, there won't be a court case; they'll simply lose money when the inevitable government action redeems the notes at face value via some mechanism.

While it is possible that the United States could default, a naked short to take that position would be like saying, "Hey, I bet you $100 that this steamroller will stop if I jump right in front of it."

If you think the US will default, it might be wiser to go long something that will grow in value in the chaos that would immediately follow.

I wouldn’t be sanguine about the latter — are you paying attention to Florida? Some of them view the destruction of global capitalism as a feature, because they think they’ll have some kind of advantage over everyone else and be immune to the worst of it. Some of them know better but secretly expect the Democrats to save them. Some of them are just frightened of the MAGA mob and lack the moral fortitude to do the right thing.

> I wouldn’t be sanguine about the latter — are you paying attention to Florida?

None of the actors in Florida control the federal executive.

You're not wrong about some considering it a feature, but there's not a lot of them (Gaetz, Bobert, etc) and they tend so be so stupid that they're not good at much more than getting on TV.

They are the public face of a much more fundamental power structure.

also, the debt ceiling is always raised.

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