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Happy Debt Ceiling Day!

In Debt on May 16, 2011 by CQCA

“I am notifying you, as required under 5 U.S.C. § 8438(h)(2), of my determination that, by reason of the statutory debt limit, I will be unable to invest fully the Government Securities Investment Fund (“G Fund”) of the Federal Employees’ Retirement System in interest-bearing securities of the United States, beginning today, May 16, 2011. The statute governing G Fund investments expressly authorizes the Secretary of the Treasury to suspend investment of the G Fund to avoid breaching the statutory debt limit.” —Treasury Secretary Tim Geithner, May 16, 2011 Letter to the 112th Congress.

It took 200+ years, but the U.S. federal government finally reached its debt limit of $14.294 trillion. Wanna know what else is crazy? The Treasury yield actually fell.

The blue line is the Treasury yield on April 15th, 2011, one month before the U.S. hit the debt ceiling. The red line is the Treasury yield on May 16th, 2011, the day the Treasury announced it had reached the debt ceiling. This means bond investors required a lower rate of return on debt issued by the United States government after it had declared de facto bankruptcy, than before. These people clearly deserve to lose all of their money.

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