“No Downside” to Not Raising the Debt Ceiling, Says Chris Whalen By Peter Gorenstein

Looks like the game of "chicken" is on...

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Geithner is crying wolf according to Chris Whalen, a banking industry analyst and co-founder of Institutional Risk Analytics. Whalen argues Congress should vote against raising the debt ceiling unless they agree to major spending cuts. "Congress has the right to say 'no' and the people of the United States have a right to say 'no' we don't want to issue more debt," he tells Aaron Task in the accompanying clip.

Furthermore, Geithner's assessment is downright wrong, Whalen says. In his professional opinion, not raising the debt ceiling has "no downside" as the government can continue to pay off its debt for months before defaulting. In the meantime, some of its bill might go unpaid, but debt holders won't suffer, at least right away.

Whalen first made his thoughts known about the debt ceiling in a Reuters opinion piece published in April.
"My view is that Congress should vote down any debt ceiling measure unless President Obama agrees to sign the balanced budget amendment. Even if Secretary Geithner has to run the US government on cash, like the good people of Iceland and Ireland today, it will be a good thing for America's political debate to default — at least for a few weeks. Then people will know that the once unthinkable is very possible."

At the time, Whalen's comments were viewed as radical, and some say still are. However, in recent weeks, he seems to be gaining more support from some of Wall Street's heavy hitters. For example, in a recent interview with the Wall Street Journal hedge fund billionaire Stanley Druckenmiller echoed some of Whalen's rhetoric.

"Here are your two options: piece of paper number one—let's just call it a 10-year Treasury. So I own this piece of paper. I get an income stream obviously over 10 years . . . and one of my interest payments is going to be delayed, I don't know, six days, eight days, 15 days, but I know I'm going to get it. There's not a doubt in my mind that it's not going to pay, but it's going to be delayed. But in exchange for that, let's suppose I know I'm going to get massive cuts in entitlements and the government is going to get their house in order so my payments seven, eight, nine, 10 years out are much more assured."


http://finance.yahoo.com/blogs/daily-ticker/no-downside-not-raising-debt-ceiling-says-chris-120559135.html

The delay drops the capital value of his bond, immediately, and probably permanently. The price of capital for the government will rise, also probably permanently.

The wretch knows this, by the way. What he is saying is not a genuine opinion, not even a contraian's musings: it is a deliberate lie, aimed at a secuiring a policy, namdly pauperization of a large swathe of the U.S. populace, he thinks he can make money off of.

Messing around with credit ratings can have unforeseen consequences. The problem is some of these players aren't restricted by things like credit ratings where institutions may be.