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Trump may have to use dangerous ‘secret’ OBAMA debt plan — or choose default this fall

Without substantial spending reductions soon, this cycle of ever-rising debt will not end well

(National SentinelDebt: As the Senate debates a health care “reform” bill that promises to keep billions of dollars in spending as self-centered RINOs like Sen. Lisa Murkowski of Alaska extort taxpayers for special treatment, President Donald J. Trump will have a huge dilemma this fall: Activate a secret plan devised by President Obama to avoid a U.S. default, or let the U.S. default.

Problem is, the plan has been panned by analysts who describe it as a dangerous repayment prioritization scheme. As reported by Bloomberg News:

Deep within the Treasury Department sits a once-secret plan written by the Obama administration that could lead to the first-ever default on U.S. debt. Bond traders are worried that Donald Trump’s Treasury secretary may have to use it.

The U.S. government will reach its statutory limit on borrowing some time in October, the Congressional Budget Office estimates. The Trump administration has asked Congress to raise the ceiling before then, but it is running into the same complications the Obama White House encountered: lawmakers, mostly Republicans, who want to use the debt limit as leverage for controversial policy changes.

First of all, whenever you hear a Left-wing establishment reporter use the term “controversial” to describe something Republicans want to do, that most often means GOP lawmakers are seeking conservative solutions to ongoing problems, meaning, such changes are only “controversial” to liberals.

In any event, more from Bloomberg:

When the nation almost breached its debt ceiling six years ago, the Federal Reserve and Treasury drew up contingency plans that were kept secret until January, after transcripts of an Aug. 1, 2011 conference call at the central bank were released following a customary five-year lag.

One day before protracted negotiations concluded with Congress raising the debt ceiling, Fed officials were briefed about how its staff and Treasury officials had worked together to develop a plan to handle debt payments in the event they had to be “prioritized or at least not fully paid,” the transcripts say.

“I’m assuming that prioritization is the fallback,” said Lou Crandall, chief economist at Wrightson ICAP LLC. The acknowledgment in the Fed transcripts of the existence of a backup plan to pay interest first makes it more plausible, he said, calling it a “truly terrible idea.”

Under the contingency plan, holders of U.S. debt and recipients of social security, veterans benefits and other entitlements would be paid first. Everyone else, including government contractors and federal employees, would be at risk of payment delays or partial payments.

Though the scenario nominally protects holders of U.S. debt by prioritizing the payments they are due, it raises fears that the value of their underlying assets could suddenly decline if the U.S. government’s reputation for creditworthiness is damaged.

In 2011, U.S. debt was downgraded for the first time by S&P Global Ratings; some think if Trump has to use the secret debt repayment prioritization plan, debt could be downgraded again, possibly triggering a negative market reaction.

Some members of Congress don’t like the plan; Oklahoma Republican Tom Cole, a member of the House Budget Committee, calling it a “harebrained scheme that is apt to backfire.”

Neither do economists.

“Proposing to pay interest to the Chinese first, while stiffing American businesses and households that are owed payments by Treasury, hardly seems like a winning political strategy,” Lou Crandall, chief economist at Wrightson ICAP LLC, told Bloomberg. “We’re not sure how the market would respond to that kind of payments twilight zone.”

Finally, at the end of the Bloomberg piece, we get to that “controversial” part:

Conservatives have demanded steep spending cuts in return for their votes, and Democrats — who will almost certainly have to help raise the borrowing ceiling — have said they would reject such conditions.

So there you have it: At a time when the United States’ debt is pressing the $20 trillion mark; at a time when the Fed and Treasury have to come up with a fall-back plan that would satisfy our foreign creditors at risk of destroying our own credit (which would dramatically hike interest rates and the cost of our debt); at a time when “the debt ceiling” becomes a crisis because debt is too high; it’s “controversial” to cut any spending (say Democrats who, of course, can’t spend enough of our money).

Such is the madness of our current situation. Trump will have no choice: Because of the situation bequeathed him by decades of bad fiscal policy and bad lawmaking, he’ll have to insist that the debt ceiling be raised, and in doing so, deepening our overall debt.

Without substantial spending reductions soon, this cycle of ever-rising debt will not end well.

If that isn’t real “controversy,” nothing is.

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