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Alternatively, the default can be selective, targeted only at the Fed's holdings.

Unless Obama is in league with the Tea Party in this Kabuki why would it be advantageous to selectively default only on Fed holdings? That would only validate their rhetoric that defaults don't matter. It would seem better to just direct the Fed and Treasury to cancel bonds that the Fed holds. That would reduce the debt and give some room without an actual default. And the re-issuance of bonds at a super-premium could extend this indefinitely. Default off the table Obama could hold out on signing a bill, leaving the government shut down, until he got at least part of the sequester, preferably all of it, eliminated. Then tell the Tea Party that, if they want to change the laws, go out and win majorities in the House, Senate and take back the White House. The Republicans would be challenged just to hold the House after this recent string of events and their party would be a five alarm fire.  

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Oct 13th, 2013 at 04:37:45 PM EST
[ Parent ]
Unless Obama is in league with the Tea Party in this Kabuki why would it be advantageous to selectively default only on Fed holdings?

Because an across-the-board haircut would be an event of such magnitude as to shake the entire American trade system in its foundation. Not end it - that ultimately comes down to carrier task forces, and how the default is structured doesn't matter to that question. But shake it.

It would seem better to just direct the Fed and Treasury to cancel bonds that the Fed holds.

Better, but unfortunately illegal under present law.

And the re-issuance of bonds at a super-premium could extend this indefinitely. Default off the table Obama could hold out on signing a bill, leaving the government shut down, until he got at least part of the sequester, preferably all of it, eliminated. Then tell the Tea Party that, if they want to change the laws, go out and win majorities in the House, Senate and take back the White House. The Republicans would be challenged just to hold the House after this recent string of events and their party would be a five alarm fire.

And if the Dems had the requisite foresight, the populist instincts, courage of their convictions, and suitable convictions to begin with, then that is what would have happened a years ago during the first debt ceiling blackmail game.

But they don't, so it didn't.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Oct 13th, 2013 at 05:38:38 PM EST
[ Parent ]
How is it illegal for the US government to cancel bonds it issued that it currently holds?
if the Dems had the requisite foresight, the populist instincts, courage of their convictions, and suitable convictions. But they don't, so it didn't.

Far be it from me to defend the Obama Administration, but there is always the possibility that they have learned something since the last time and they have the fact of an existing shutdown that is grinding the Republicans to dust already in place. Issuing super-premiums now would take the threat of default off the table for the time being and get them to the 2014 election which they might fight on more favorable terms. But then Obama might again be faced with his nightmare scenario of having total control of House, Senate and Administration and having to prevent anything really progressive from happening.


"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Oct 13th, 2013 at 07:26:52 PM EST
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