The debt ceiling debate lingers on. (See my blog post on January 9th 2011.)

 The political train wreck is less than one month away and counting….For the first time in its history the U.S. might have to default on its debt.  Or does it?

There has been some discussion recently about the possibility of the President having the Constitutional right to by-pass Congress and fix the crises.  Some people believe President Obama could declare the debt ceiling unconstitutional by invoking section four of the 14th Amendment:

          “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”

If the Aug. 2 deadline passes without an agreement, then President Obama could conclude—statutory debt ceiling or not — that he is constitutionally required to order the Treasury to continue paying its bills.

Whether or not this is a correct interpretation of the U.S. Constitution is a matter for the Supreme Court to decide.  We can only hope we never get to that point and a bi-partisan agreement can be reached for the country’s sake and well as its markets.

The Greek Debt Crises….

The markets are assuming a happy ending to the Greek debt crises.  The Dow Jones Industrial average is up nearly 150 points today or an increase of 1.25%.

Greece needed a loan from the EU to pay off its sovereign debt maturing sometime in August.  The Greek Parliament passed legislation to approve a $142 billion bailout from the European Union.  Greece will need 6.6 billion to roughly cover its August deadline.

Greece’s debts are quite massive.  For the past few years the nation has been involved in one of the most complex sovereign debt problems as it is tied to a major multi-national currency with many parties involved and no unified European view.

As Greece meets it debt obligations for the month of August there will be even more pressure on the EU nation to pay its bills in the future.  Unfortunately, the math does not add up when you consider the amount of debt it has to pay back verses how much the country can produce in terms of GDP.  The bailout is only a temporary reprieve.

The rules of Econ 101 state that every debt is either repaid fully or it ends up in default. Greece will never be able to fully repay its debt.  “When” is the only uncertainty now surrounding the next Greek crises.