Bruce Bartlett: When the Treasury Runs Out of Cash

Bruce Bartlett's latest article describes what happens if there is no agreement on the debt limit before the October 17th deadline. The ex-Reagan policy adviser and G. W. Bush Treasure official addresses, among other things, why default really is a big deal (despite statements to the contrary) and the problems with government prioritizing debts. A couple of excerpts:

"Should this [RC insert: government's ability to pay all outstanding debts] lead to bondholders not receiving their payments exactly on time, however, it creates huge financial problems, because the Treasury would now be in default, and defaulted securities cannot be traded, accepted by the Federal Reserve as collateral or held by money market funds. In a note published on Oct. 5, Goldman Sachs said money managers would be forced to dump Treasury securities before Oct. 17 to avoid being stuck with securities that could not be traded."

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"What we know for certain is that we will be in uncharted waters. And given that United States Treasury securities are essentially the foundation upon which the entire world financial system rests, those are dangerous waters indeed. Only a fool would enter them if they could be avoided."

Read the entire article at:

http://economix.blogs.nytimes.com/2013/10/08/when-the-treasury-runs-out-of-cash/?_r=0