Why am I bringing this to your attention? I can't think of anything more important to retirees than their financial stability. What happens with the markets makes a tremendous difference in both our savings and the ability of the NYSTRS to pay our pensions. The last financial upheaval hit most of us by surprise. Many experts say this one could be worse, but we can see it coming and have some time to figure out what to do.
I don't give financial advice. Frankly, I'm trying to figure out if I should do anything with my savings to protect them in the face of this possible oncoming train wreck. All I'm trying to do is get you to pay attention so that you can make intelligent choices for your particular situation.
Ezra Klein of the Washington Post had some additional information yesterday concerning this situation. Here's how he lead his Wonkbook column:
“If the president doesn’t get serious about the need to address our fiscal nightmare, yeah, there’s a chance it could not happen," John Boehner told Politico. "It," in this case, isn't a golf game, or a bipartisan potluck. It's a vote on the debt ceiling before the Treasury runs out of room to cover our debts. Properly understood, what Boehner actually said is "if the president doesn't get serious about the need to do what the Republican Party wants on fiscal policy" -- note that allowing the Bush tax cuts to elapse would cut the deficit substantially, but wouldn't calm Boehner -- "yeah, there's a chance I am prepared to trigger a fiscal nightmare."
"There is nothing about the deficit that suggests a nightmare scenario developing any time soon. But there is no doubt that if the government defaults, a fiscal nightmare would envelope us instantly. Boehner knows that, but he also knows that he needs to show some willingness to risk those consequences if he's going to negotiate effectively with President Obama. As Alan Greenspan put it on Sunday, “you cannot have a position which stipulates that, ‘I will never allow the United States to default. But on the other hand, I will not allow the process to go forward unless there are additional actions with respect to the debt.’” In other words, if you’ve said you won't shoot the hostage, you can’t simultaneously demand a ransom."
"So Boehner is saying he'll shoot the hostage -- because how else can he demand a ransom? The danger in this is that as the rhetoric ramps up, the market may not realize this is all just more of Washington's fun and games. Brinksmanship runs the risk of misjudging what is the last minute, or the maximum amount of uncertainty, that the market will accept before it reevaluates the American government's capacity to pay its debts back in a timely and smooth way. Remember that the danger here isn't simply that we don't make our payments. It's that we run such a terrifying and uncertain process that we make the market think it's more likely that we won't cover our debts at some point in the future. Giving the market a demonstration of exactly how we could fail them is almost as bad as actually failing them."
One popular misconception running around the internet is that we don't need to raise the debt limit because the government can simply print enough money to pay our debts. Klein refers to an article by Brian Palmer in Salon which puts that idea to rest. According to Palmer:
"Wait, if the government were really at risk of default, couldn't it just print enough money to pay its loans? No. The independent Federal Reserve manages the national money supply to maintain stable credit conditions and prevent systemic economic risks, not to prop up the Treasury. Neither the president nor the treasury secretary can order it to print money. In addition, the Fed isn't a charity--it's a bank. It doesn't give money away without taking something in return. When the central bankers issue money to commercial banks, they take mortgage-backed securities. When they ship cash to Uncle Sam, they get Treasury bonds. If the government hits the debt ceiling, the Treasury won't be able to issue any more bonds."
Here's the link to Klein's column and then to the Palmer article:
http://www.washingtonpost.com/blogs/ezra-klein/post/wonkbook-theres-a-chance-it-could-not-happen/2011/04/15/AFtfauoE_blog.html
http://www.slate.com/id/2292072?wpisrc=nl_wonk
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