US Default Analysis: [B][B] ->[B][I]

1. From an n-Categorical analytical perspective, a US failure to raise the debt ceiling means that the US would move immediately from the Bailout->Bailout morphism to a near perfect Bailout ->Innovation morphism. This means that the invariance of default which mediates all decisions in the financial markets will have a chance to move from the 3rd to the 4th phase of the Great Cycles of Default.

2. Recall the Great Cycles of Default have the following permutations in a rotational symmetry:

(1) [I][I]
(2) [I][B]
(3) [B][B]
(4) [B][I]

Where:

[I] means the virtuous circulation of financial innovation where individuals are identified and accorded the full set of Hohfeldian idempotents.

[B] means government bailouts prevail and are ambient.

The binary operation or morphism between any two brackets is the Default Invariance.

For illustration purposes, the period 1986 to 2008 was mainly (1) where financial innovation prevailed through default since most defaults could in turn be mediated by bankruptcy.
From the 2008 period, we entered a period where the morphism of default is wedged between bailouts. With the morphism of default we have GSEs (Fannie Mae and Freddie Mac) that are in perpetual government sponsored limbo and globally dispersed catastrophic volatility where AAA sovereigns transform into international pariah status--e.g. PIIGS, then US States, and then, none other than the US Federal government.

However, since the US government debt represents the ultimate station ("the Golgotha") of default transmission in the [B][B] phase and if the US does default then that event would represent the beginning of the 4th period where the default invariance is a morphism from [B] to [I].

3. The Fed will need to prioritise its cash inflow of $170 Billion. It could pay the $29bn on interest payments and still have $140 bn.

"Geithner could pay: the interest on the debt, all Social Security obligations, all Medicare and Medicaid obligations, all Defense contractor bills, all Veterans payments, and all active duty troops; and still have almost $7 billion left over for other items." Quoted by http://washingtonexaminer.com/blogs/beltway-confidential/2011/07/morning-examiner-lack-default-risk-beginning-dawn-left#ixzz1RtLFmFN, which in turn came from The BipartisN Policy Center at http://www.bipartisanpolicy.org/sites/default/files/Debt%20Ceiling%20Analysis%20FINAL_0.pdf