Yeah, I'm asking a hypothetical to see where it goes. Lots of things that would "never happen" seem to be happening, so I wouldn't be too sure of it.

So, Treasury decides to punch through the debt ceiling. What happens next?

> Capital will never let either scenario occur. It's all just theatre. The US will never default on debt, it's a convenient negotiation tactic

That's true until it isn't. I hope you're right, but I worry that you're probably overestimating our politicians. They're not all playing 5D poker. Some are just plain stupid.

Yep. Maybe when this started it was theater, but more and more i'm wondering if we've got enough idiots who think they stand to gain from something like this. It won't be some shadowy cabal of actors trying to overthrow things, it'll just be a bunch of headline hunting lunatics who can't think past the next hour.

Yea it would be great if it was just stupidity, but we have elected officials actively working to sabotage and undermine the government and economy.

Our system of checks and balances didn’t really account for what happens when a sizable minority in government are bent in destroying it.

Have you even read the Federalist papers? A huge amount of consideration was spent on making sure a vocal and scheming minority could not usurp their design.

Defaulting on the debt would be an erasure of an entire political party nearly overnight. There is only one party that even attempts to hold the country hostage via debt ceiling tactics, and they are incredibly beholden to their corporate masters who would go absolutely nuclear on them should they actually follow through with that threat.

The US will absolutely default on it's debt eventually.

The debt ceiling debates every year are certainly theater though.

The US can supply whatever amount of money is necessary to service any conceivable amount of debt. The US absolutely will debase its currency into toilet paper, but default is not a certitude.

And it's not theater. When these debates occur the legislature is forcing the executive to face taking extraordinary steps. That's leverage used to negotiate budget deals.

The Federal Reserve can choose to print the money the Government spent. They're not the same entity and they don't have the same goals. If the Government spent the money and the Federal Reserve doesn't want to print it, that's uncharted territory.

> that's uncharted territory

Thus, the "extraordinary steps" I mentioned. Some have argued the executive has the authority to do any conceivable thing necessary to ensure that the "validity of the public debt ... shall not be questioned," to include ordering the Fed to honor Treasury overdrafts.

Another extraordinary step by the Treasury would be minting legal tender and depositing it with the Fed. The so called "trillion dollar coin" scheme.

At the end of the day they'll do what they have to do. This story makes it very clear that the Fed is not interested in becoming the political target over US default, so don't imagine they're going to take some heroic stand.

> include ordering the Fed to honor Treasury overdrafts

The Treasury hasn't come close to proposing over drafting. It would sell Treasuries and then have cash. If that became problematic, it would mint. The Fed cannot, by law, lend money to the Treasury. It can't even purchase Treasuries from them directly.

By law the US government cannot permit default. Does that give the executive the power to trump limits on the Fed?

We'll see.

Others argue minting is more palatable. I think legally that's true. I think politically that's false: there is a visceral reaction to any talk of "printing." The various euphemistic ways the Fed can handle it will be preferred. Of course it will end up in front of SCOTUS, but that's a political win: SCOTUS becomes the bad gus trying to "destroy democracy". Or something.

> Does that give the executive the power to trump limits on the Fed?

The point is it’s unnecessary.

Then mint it instead?

https://en.wikipedia.org/wiki/Trillion-dollar_coin

> If the Government spent the money and the Federal Reserve doesn't want to print it

What does this mean? Even if a Treasury auction fails, the Treasury has the power to mint currency. It could literally just deposit paper representing the $200bn of gold at Fort Knox and have money in its Fed account.

Also uncharted territory. So far, that's never been tried.

> Also uncharted territory. So far, that's never been tried.

Minting is more precedented than the Fed. Functionally doing this is trivial. It's legally asserting the supremacy of the 14th Amendment over the Public Debt Acts.

> Capital will never let either scenario occur. It's all just theatre. The US will never default on debt

This supposes there is a lot more control behind the curtain than there is. I know it's comforting to assume there is a shadow cabal pulling the strings. But when people, historically, assumed this, it was because there was nobody in charge.

>> The US will never default on debt

The US has defaulted on its debt several times.

For example FDR defaulted on the debt when he refused to pay back bonds denominated in gold with their face value and instead paid them back in devalued currency. The Supreme Court ruled that he had acted unconstitutionally, but also did not force the government to pay back the full value as FDR had said he would ignore such a ruling.