Debt Limit taken hostage.

[SirNitram]

Link

Jan 6 (Reuters) - U.S. House Speaker John Boehner said on Thursday that any move to increase the United States' $14.3 trillion debt limit must be accompanied by spending cuts.

"The American people will not stand for such an increase unless it is accompanied by meaningful action by the President and Congress to cut spending and end the job-killing spending binge in Washington," Boehner said in a prepared statement.

Yea, short. But I want some folks who might know about the reprecussions to comment, in the hopes of enlightening me. I think this would mean all T-bills are now toxic assets, would the same happen to the dollar? (Full faith and credit) The Social Security bonds with the same note? Economically, internationally?

[J]

Nothing, the "debt limit" has been exceeded before (shortly before the last time it was raised) and nothing happened. The world didn't end, bonds didn't go worthless and implode and the US dollar didn't collapse into nothing. The debt limit has been jokingly referred to as a debt target, the US aims to reach that level of debt and when it does, the target is raised again.

The actual debt limit is the one that's set by the market, unfortunately we do not know and have no way of knowing in advance where that limit lies, could be $15 trillion, $50 trillion, no one knows until it's reached and by then it's too late. When that limit is breached the US goes the way of Iceland, Ireland and Greece, except unlike the latter two countries there's no one to bailout the US. When that happens, interest rates go sky high, the currency is significantly devalued and the government loses its ability to borrow money so $1.6 trillion per year of spending instantly disappears. Social security will be cut, heck, everything will be cut and holders of US T-bills will likely be taking a sizable loss as well.

It will be bad, but not Mad Max bad. You're looking at a banking holiday for sure; every bank will be closed down for a few days to a few weeks while the FDIC tries to resolve everything, the stock markets go kablooie and you have a Greater Depression.