The Very Real Possibility Of A US Government Default In Mid October, 2013

My readers the huge danger here is a miscalculation that leads to a default in the US government’s debt.  Here are some of the terrible possible consequences below thanks to New York magazine:

Here are Some of the Apocalyptic Things That Could Happen If the Debt Ceiling Is Breached

There’s a storm coming.

Even if you’re just tuning in to this fall’s fiscal theatrics, you might have heard that there are two bad things that could happen very soon: a government shutdown, and a breach of the government’s debt ceiling. A government shutdown sounds worse, in the sense that “shutdown” is a scary word and shutting down an entire government seems drastic. But make no mistake: a debt-ceiling breach would be much, much more painful. Economists and policy experts agree that reaching the “X Date” – the date on which we run out of money to pay our bills in full and on time, estimated to be around the end of October under current conditions – could be the start of financial Armageddon.

Here’s what could happen if we reach the X Date with no debt-limit extension in place:

We’d have to start making really hard choices.

On the X Date, the Treasury department (which pays the nation’s bills) would have a major problem. It would have no cash left, and not enough new tax revenue coming in to pay its bills in full. Hypothetically, its best option would be to “prioritize” payments – using the money it does have to pay for the things it deems really important (Medicaid and Medicare expenses, say) and letting the bills for less-important things go unpaid for the time being.

The problem is that there aren’t really any less-important things included in the Treasury’s regular payment schedule. It’s all stuff like food stamps, Social Security, military pay, unemployment benefits, and federal worker salaries. So these choices would be really, really painful. And forget about funding it all – it’s estimated by the Bipartisan Policy Center than 32 percent of the government’s entire spending would have to be cut, in order to spend only the cash it has on hand.

Another problem with prioritization is that we don’t even know if it’s legal, or if the government can physically do it. The Treasury department’s computerized system, the one that sends out payments as they come due, isn’t configured to pay certain bills instead of others. In the BPC’s words, “prioritization would require a massive overhaul and reprogramming of these operations that may be impossible.”

Treasury could also decide to pay an entire day’s payments at a time, once it’s collected enough tax revenue to fund the entire day. This would mean not having to make tough choices between programs, but it would also mean that every government program was on the same terrible, sinking ship – with no lifeboats, even for the neediest ones.

We could default on our debt.

The U.S. has never, ever missed a payment on a bond it issued. That’s why Treasury bonds have traditionally been considered risk-free – you know you’re getting your money back. But under a debt-ceiling breach scenario, Treasury might have to delay or even miss payments to bondholders, putting Treasury bonds into technical default.

Between October 18th and November 15th, more than $370 billion in U.S. government bonds are going to mature. Usually, when this happens, the Treasury department simply “rolls over” the debt – it issues new bonds, and uses the proceeds to pay the old bondholders their principal plus interest. But rolling over debt in a post-X-Date scenario gets tricky, since new bondholders might demand much higher interest rates, or, if not enough people wanted to buy the new bonds, Treasury might have to start paying back the old bondholders out of pocket. It might even have to default on the bonds.

We don’t really know what happens if Treasury bonds default, since it’s never happened. What we do know is that it would destroy the market as we know it. Banks could go under, credit markets could seize up, money-market funds could “break the buck” (meaning that the net present value of their assets would be less than 100 percent of what their investors put in), and ratings agencies like Standard & Poor’s would almost certainly downgrade the U.S.’s credit rating, leading even more capital to leave the country. There is no good default scenario, only lots of really terrible ones.

Investors might run away from Treasury bonds.

If bondholders get scared of a default or a restructuring, they’ll start selling their Treasury bonds. The government will raise interest rates on new bonds to make them more attractive to buyers, which will then cause rates on all kinds of credit to rise. Car loans and mortgages will cost more, and we could see the kind of credit freeze we saw after the financial collapse.

Or, they could run toward Treasury bonds, which might be worse, actually.

Adam Davidson makes the case that in the event of a debt-ceiling breach, investors might actually buy more Treasury bonds, running towards supposedly safe assets as they often do in times of market panic. This, weirdly, could be a worse outcome than a Treasury bond flight, since investors who held onto Treasury bonds during a panic might begin to regard those bonds as no less safe than bonds from other countries. America’s bonds have long been thought of as a kind of global reserve currency – the safest possible thing to own. If that status goes away and the U.S. becomes just another country with bonds that may or may not default in the future, Davidson says we’ll lose the advantages we’ve long enjoyed. “The U.S. economy’s peaks will be lower and recessions deeper; future generations will have fewer job opportunities and suffer more when the economy falters.

The central nervous system of the banking system might freeze.

Fedwire is one of the least-known, most important services on Earth. It’s a clearing system, run by the Federal Reserve, that banks in America use to shuttle cash, stocks, bonds, and other assets back and forth between themselves. It processes trillions of dollars a day, and has been around for nearly 100 years. But it’s not set up to allow defaulted Treasury bonds to flow through its system. According to a note from RBC Capital, excerpted by FT Alphaville, if the U.S. defaults on its bonds, Fedwire could “seize” entirely, meaning that banks and other financial institutions could run into real trouble very quickly.

The borrowing window might get jammed.

The Fed also can’t accept defaulted Treasury bonds at its borrowing window, even if those bonds are still trading normally. Usually, how the borrowing window works is: banks or other financial institutions that need short-term funding bring the Fed some Treasury bonds or other very safe securities, and the Fed gives them a low-interest loan, using the safe securities as collateral. But if banks can’t pledge Treasury bonds as collateral, it’s going to be harder for them to qualify for borrowing, and harder to fend off disaster if it occurs.

The repo market might be squashed.

Every day, lots of Treasury bonds change hands through a short-term financing process known as a repurchase agreement, or repo. In the most traditional form of repo transaction, a seller will sell a Treasury bond to a buyer, while promising to buy it back in the future at a certain price. Repo transactions are found in almost every corner of the financial world, and in some ways, they’re the glue that makes the markets stick together. And in a post-X-Date world, they get a lot harder. Just as they can’t be used at the Fed’s discount window, defaulted Treasury bonds generally can’t be used as collateral in repo transactions. Without repo, banks and other financial institutions will be unable to fund themselves in the normal way, interbank lending costs will skyrocket, and a workaround will have to be arranged in order to keep the financial system functioning normally.

The bottom line: A debt-ceiling breach would be very, very, very bad.

Keep in mind that these are all hypothetical scenarios. Reality could be better, or much worse. The truth is that while we sort of know what a government shutdown would look like (since it’s happened in the past), we have no idea what chaos a debt-ceiling breach could bring. If, in a month, we reach the X Date, run out of money, and are stuck in political stalemate, we’ll be entering truly uncharted waters. And we’ll be dealing our already-fragile economy what could amount to a knockout blow.


What A Resourceful Fellow Our Dog Copernicus Is!

Last night Elena cooked a nice roast that we all loved. There was some leftovers. Elena ate a couple of pieces of meat this evening. I was on a day of seafood. The meat was left sitting on the stove. Our dog Copernicus sneaked into the kitchen. He silently got the leftover meat and quickly consumed it all. Elena discovered the vile deed of our dog. I was laughing. I have known for a long time that Copernicus is a very clever and resourceful fellow.

One Song That Describes My Life

Luah is doing a project for her college. She is making videos of various people. I shall be one of her subjects. She asked me to pick a song to be played in the background that described my life. I had to think about it a long time. I picked the theme from Dr. Zhivago. It is a tale full of brutality and danger but also a lot of love and hope.

You Are Much Safer Now Flying On Airliners

Last night I spent two hours watching some programs on the Discovery Channel about great improvements in aviation safety. I believe that we take for granted how safe it is to take a commercial airplane flight. Let me give you a few improvements over the last 30 years that make it safer when you are in the air as follows:

1) 16G passenger seat that better protect one if there is a crash.

2) New insulation in the cabin walls to prevent fires.

3) Major improvements in collision avoidance avionics.

4) Equipment on board an aircraft to detect micro burst of wind in deadly wind shears.

5) Concrete type foam at the end of a runway that stops an aircraft going off the runway.

6)Sensors at airports that make the job of air traffic controllers easier as every plane is seen in real time with its identification data displayed.

7) Devices in fuel tanks to prevent explosions if there are unwanted sparks.

 8) Devices used by ground crews to detect metal fatigue and faulty rivets.

The US Federal Aviation Administration has been behind these changes. This is one time that we taxpayers got value for money. FAA well done!!!!

According To The Financial Times Of London And NYT 59 Dead In Nairobi Attack

Last updated: September 22, 2013 10:19 am
Kenyan forces work to free hostages at Nairobi mall
By Katrina Manson in Nairobi
A policeman carries a baby to safety after masked gunmen stormed an upmarket Nairobi mall and sprayed gunfire on shoppers and staff on Saturday. At least 59 have been killed in what is the country’s worst terrorist attack in more than a decade.©AFPThe shopping mall in the Kenyan capital is popular with affluent Kenyans and expatriates, including diplomats and businessmen. A woman is trolled into an ambulance©AFPKenyan authorities said on Sunday that they were working to free hostages, but they stopped their updates, saying terrorists were monitoring social media.©AFPThe gunmen targeted the Westgate shopping mall, which is popular with affluent Kenyans and expatriates, including diplomats and businessmen. A woman is trolled into an ambulancePeople, some injured, run for cover from the Westgate shopping mall after a shootout in Nairobi©EPASeveral people have already esA policeman guides people to safety©AFPMany people managed to escape the gun battle. But there are still believed to be up to 15 terrorists in the shopping centre and an unknown number of hostages.©ReutersCivilians escape an area at the Westgate Shopping Centre in Nairobi©ReutersSome hostages have already been freed. A woman who had been held hostage is carried in shock by rescue personnel after she was freed following a security operation©AFPRescue teams and security are on the scene. A rescue worker helps a child outside the mall©APA woman walks past the body of a man as she escapesCivilians who had been hiding inside during the gun battle manage to flee from the Westgate Mall©APThe Kenyan authorities said they are working to free hostages but they have stopped giving updates, saying the terrorists were monitoring social media©APSecurity helps a wounded woman outside the mall©APAn armed official stands guard outside the Westgate shopping mall after a shootout in Nairobi©EPAPeople, some injured, run for cover from the Westgate shopping mall after the shootout©EPA©EPAAn armed offical stands guard at the Westgate shopping mall©EPAPeople walk with their hands in the air at the Westgate shopping mall©EPAIt is inclear what parts of the mall are still under the control of the gunmen.©EPABodies lie lifeless inside the mall after the shootou©EPAOfficials on guard inside the Westgate shopping mallParts of the mall are now under the control of the Kenyan authorities. An armed soldier walks inside the Westgate shopping mall©EPAOfficials help carry an injured man©EPARescuers run wheeling a stretcher during a rescue operation©EPAPeople escape from the fire allegedly started by gunmen©EPAA soldier from the Kenya Defence Forces (KDF) holds his gun as he arrives at the Westgate Shopping Centre©Reuters
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Kenyan authorities on Sunday said they were working to free hostages in an upmarket shopping centre in Nairobi, a day after gunmen killed at least 59 people in the country’s worst terrorist attack in more than a decade.
The attack on Saturday targeted the Westgate mall, which is popular with affluent Kenyans and expatriates, including diplomats and businessmen. The Kenyan government said the country’s president had lost several family members in the terrorist attack, which left at least 300 injured. The UK said that at least three British nationals had been confirmed dead.
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The stand-off between the Kenyan security forces and the terrorists continued on Sunday. The Kenyan interior ministry said that between 10 and 15 terrorists were still inside the shopping mall in two different locations, holding an undetermined number of hostages. “We have established the location of the criminals. It’s a delicate balance and we want to evacuate the hostages safely,” said the ministry of interior on its Twitter account.
Kenyan authorities had stopped their updates, saying that the terrorists were monitoring social media. Cars and ambulances carrying casualties continued to arrive early on Sunday to a makeshift hospital outside the shopping centre. At least one hostage was freed.
British and Israeli officials are also believed to be helping the Kenyan authorities in Nairobi. “Mossad, British – everyone is in there,” Kenya military colonel Justin Mwinde told the Financial Times. Asked about the participation of Israeli advisers in the negotiating strategy, a senior Israeli official declined to confirm or deny the reports, but he said: “We are willing to help any friendly nation in the combat against terrorism.”
Westgate, which describes itself as “Nairobi’s premier mall”, is a symbol of Kenya’s rapid economic growth over the last decade, and includes a cinema and 80 shops and restaurants over five floors.
Kenyan President Uhuru Kenyatta vowed in a televised address on Saturday night to fight the terrorists. “I have personally lost family members in the Westgate attack,” he said as he addressed the nation, adding: “We shall hunt down the perpetrators, we shall get them, and we shall punish them for this heinous crime.”
Although the president did not blame any particular group, attention has turned to al-Qaeda-affiliated militants al-Shabaab in Somalia. Kenya sent troops into its neighbouring country two years ago as part of a UN-backed mission to push back al-Shabaab. The Islamist group had promised retaliation.
The Somali group, in Twitter messages on Sunday that could not be corroborated, said the Kenyan government had renewed calls for negotiation. It said: “We’ll not negotiate with the Kenyan govt as long as its forces are invading our country, so reap the bitter fruits of your harvest #Westgate.”
Experts said a homegrown group affiliated to al-Shabaab could be behind the attack, or at least have provided logistical support for it, rather than al-Shabaab directly. A UN report published this year said Kenyans made up many of the foreign fighters with al-Shabaab and noted that several other domestic fundamentalist groups operated in Kenya.
The attack is the worst in Kenya since al-Qaeda bombed the US embassies in Nairobi and Dar es Salaam in twin attacks in 1998, killing more than 200 people and injuring hundreds. Kenya is reliant on safari tourism, and the attacks – if confirmed as al-Qaeda-linked terrorism – could hit the industry, derailing growth in east Africa’s largest economy.
Kenya is also a key trading hub in the continent, and an ally of western countries in security matters in the volatile Horn of Africa, a region that includes Somalia, Eritrea and Ethiopia.
The White House, in a statement, said the US condemned “in the strongest terms the despicable terrorist attack”. John Kerry, US secretary of state, said in a separate statement that there were no reports of any Americans killed, but the wife of a US Agency for International Development employee died in the attack.
William Hague, UK foreign secretary, told the BBC that “undoubtedly” British nationals had been caught up in the attack. He called the terrorist onslaught “callous and cowardly and brutal”.
Canada said that two of its citizens, including a diplomat, were killed, and France confirmed two French nationals were also among the dead.
The onslaught in Nairobi resembles the 2008 Mumbai terror attacks in India, in which Pakistani militants targeted public spaces including an upmarket hotel frequented by westerners killing dozens of people.
Additional reporting by Javier Blas in Lagos and John Reed in Jerusalem
Copyright The Financial Times Limited 2013. You may share using our article tools.
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15 Years Ago Today I went To Jail

15 years ago today I was arrested by a team of 6 US Marshals. I was not charged with a crime. I was charged with civil contempt of court. I was hauled to the Santa Clara County Jail. I was facing up to 18 months in Federal prison. Ironically the US Marshals who arrested me felt bad about what they had done. They got me an incredible criminal defense attorney named Nicholas Humy. He thought that my case was hopeless but took some big risks. Then three people stepped up and fought to get me released-Joao Santos, Djenane Santos and Louvern Costner. What they did was heroic. I ended up with a very light jail sentence and was able to start my life over again. Dear Nicholas Humy died of cancer two years ago. Joao, Djenane and Louvern are still doing well. Today is a sad day for most as we remember September 11, 2001. For me it is a joyous day because my life was saved by 4 wonderful and special people who helped me so much when I was helpless and facing the trillion dollar might of the state.