WSJ Timiraos: Outlines debt limit impasse playbook

The WSJs Timiraos, in an article outlines the "loathsome" playbook in the event of a Debt-ceiling standoff. The expectations are that we don't get to that point but you never know.

Potential actions from the Fed The Fed "The Fed" is a short-hand that refers to the Federal Reserve or Federal Reserve System, the central banking system of the United States. Traders often discuss the actions of the Fed, primarily interest rate decisions, as they significantly impact all financial markets.The Fed shouldn't be confused or substituted with the term "the Feds" and doing so tells everyone you're a total noob. The term "the Feds" refers to US Federal law enforcement, including such agencies as the FBI (Federal Bureau of "The Fed" is a short-hand that refers to the Federal Reserve or Federal Reserve System, the central banking system of the United States. Traders often discuss the actions of the Fed, primarily interest rate decisions, as they significantly impact all financial markets.The Fed shouldn't be confused or substituted with the term "the Feds" and doing so tells everyone you're a total noob. The term "the Feds" refers to US Federal law enforcement, including such agencies as the FBI (Federal Bureau of Read this Term include

• Buying Treasurys shunned by investors due to delayed payment risk or allowing banks to pledge defaulted securities as collateral for loans from the central bank Central bank A central bank is a financial institution that manages a country's monetary policy, and that often also includes issuing and/or monitoring the currency and regulating the money supply. Central banks also typically act as a lender of last resort to banks in times of financial crisis, and may also supervise and regulate banks and other financial institutions. Examples of central banks include the Federal Reserve in the United States, the European Central Bank, and the Bank of Japan.The chief task A central bank is a financial institution that manages a country's monetary policy, and that often also includes issuing and/or monitoring the currency and regulating the money supply. Central banks also typically act as a lender of last resort to banks in times of financial crisis, and may also supervise and regulate banks and other financial institutions. Examples of central banks include the Federal Reserve in the United States, the European Central Bank, and the Bank of Japan.The chief task Read this Term.
• In 2011 the Fed plan involved managing government payments to prioritize principal and interest on government debt, allowing banks to count defaulted Treasurys toward their required capital buffers, and not penalizing banks facing a drop in capital ratios due to unusual cash demands.

Although some contingency strategies exist, the Fed's ability to remove defaulted securities from the market is limited given the size of the Treasury market.

Once again, it is probably not the odds on favorite for a debt ceiling plan not passing, but, if an agreement is delayed and it forces a shutdown (it is likely to be temporary), it is best to know what can be done. Regardless, however, the rating agencies would likely downgrade US debt, that could force rates higher (at least in the short term) and likely lead to increased risk in other markets including stocks.