U.S. Debates Debt Rescheduling

Montreal, Canada

The United States is actually deliberating on whether it might make sense to reschedule its mountain of debt obligations. The comment below was quoted from Paul Ryan, a fiscal conservative trying to slice government spending:

Holders of US government debt would be willing to miss payments “for a day or two or three or four” if it put the US in a stronger position to pay them later on, Rep. Paul Ryan told CNBC Tuesday.

This marks the first time I’ve publicly read an announcement from a government official about debt rescheduling. It’s not something you’d expect to hear – maybe from Senator Ron Paul, but not anyone else. Isn’t this the sort of talk we’d normally hear from countries like Argentina?

PIMCO’s Bill Gross also believes the United States, at some point, will have to reschedule its enormous debt repayments; the country faces of deluge of bills courtesy of Medicare and Social Security, in addition to the $14 trillion dollar national deficit. It’s obvious most of this won’t be repaid.

The debate about whether to reschedule debt or inflate it away vis-à-vis printing currency (Weimar Germany) is growing.

The United States will have to find another major buyer for U.S. Treasury bonds once the Fed exits the market later in June; that leaves a gaping hole to fill and inevitably, according to PIMCO, will force interest rates higher at the long end of the curve as the U.S. is forced to pay higher lending rates to attract borrowers.

Bill Gross and Jim Rogers don’t like Treasury bonds, especially longer dated paper. The odds they’re right about the primary trend turning are pretty good considering their impressive track records. Talk of debt rescheduling is a serious turning point in Treasury’s history and possibly, marks the beginning of the end for bondholders.

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