[yummyfajitas]

I'm asking because I'm genuinely curious. As for requiring new issues to pay off existing bond holders, why would that be necessary if spending were reduced or income increased? It seems as if paying off a bond holder with new debt should be more or less deficit neutral.

I.e., if I pay off $500 of my $1500 credit card bill, my credit limit remains fixed at $1500 but my debt is now only $1000. I am free to borrow another $500 if I need to.

Is the problem merely that I need to borrow $500 first, raise my debt to $2000 for one day, and then pay off $500 worth of old debt (bringing me back down to $1500)?

[HSO]

"why would that be necessary if spending were reduced or income increased?"

i think that's exactly where the problem is. the debt payments are due soon and until the republicans turned the federal debt limit into a political issue, it was being presupposed that it would be raised "automatically" by congress. now they've turned it into a bargaining tool (similar to what they did under gingrich in the nineties) and we have "inconsistent time scales", in that budgeting changes take much longer than the time to next due date. basically, the republicans hold up the extension "in return" for concessions by the president on the revenue side (i.e. no tax increases for their plutocratic clientele) and forcing him to regulate the long-term debt problem only on the spending side.

but you know what, i shouldn't be talking through my hat. i'm not american, have only limited understanding of the us budgeting process, and like i've said have turned my eyes off the markets for a while now. so if anyone knows better, please, enlighten us :-)

[yummyfajitas]

What are the inconsistent time scales? Was it somehow impossible to cut spending between January and today? How long does it take to reduce spending?

http://online.wsj.com/article/SB1000142405274870395400457608...

[HSO]

no point in replying to your questions because they obviously are rhetorical. good day, sir.

[kevinrpope]

Having rollover-debt - paying off an existing debt holder with a new issue - is deficit-negative (ie. it makes the deficit worse) because of the interest involved.

The problem is a combination of the new issue capital needs to be in the door so the old debt can be paid off (as you mention in your last sentence here) and that more debt needs to be raised each cycle to pay off the interest from the last cycle.

Also, default will not be avoided by spending cuts or tax increases alone. The debt ceiling MUST be raised so the government can borrow more money to pay the bills (I believe you asked a question related to this later on in this thread). Spending cuts and tax increases will help with future ceiling raises, but are currently relevant only as part of the bargaining to raise the debt ceiling.