Tick, tick. August 2nd is the Debt Limit Armageddon. Or Not.

Obama cannot negotiate with the GOP.

I reject that this is a fact. A default means that the US stops paying interest on her debt. That's all a default means.

Posted at 03:08 PM ET, 07/01/2011
What failure to raise the debt ceiling will look like
By Ezra Klein


(Mark Wilson - GETTY IMAGES) Ever wondered how many bills the federal government pays in a month? It’s not 100, or 1,000, or 10,000, or even 200,000. It’s 80 million. Every month. And according to a new analysis by the Bipartisan Policy Center, if the debt ceiling isn’t raised by Aug. 2, the Treasury Department is going to have to figure out which 30 million of those bills should go unpaid.

The BPC’s analysis was led by Jay Powell, who served as undersecretary of the Treasury in George H.W. Bush’s administration. It’s not pretty. Powell and his team estimate that if we don’t raise the debt ceiling, Treasury will only be able to pay 55-60% of the federal government’s bills in August.

The paper lays out a few scenarios for how that might go. In the “Protect Big Programs” scenario, Treasury pays bills related to interest on the debt, Medicare and Medicaid, Social Security, defense suppliers and unemployment insurance. That means it stops paying military salaries, gives up on the FBI and the Centers for Disease Control, cuts all funding for food stamps and education, shuts down air control, tells NASA to head home, freezes the paycheck of every federal employee, and much more. In another, the Treasury Department tries to protect the social safety net, but has to stop supplying the troops, sending out tax refunds, inspecting offshore oil rigs, etc.

This also leads to an extraordinary assertion of executive power. The executive branch carries out the laws enacted by Congress. Asking them to “prioritize” across different spending needs is asking them to selectively decide between different laws that Congress has passed.

Since the Treasury has never had to make these decisions before, no one quite knows how they’ll be made. The BPC estimates a 44 percent drop in federal spending, but can’t precisely estimate where that drop will happen. That means nobody else can, either. So as we get closer to doomsday, companies that contract with the federal government will start hoarding cash to tide them through a period in which they might stop being paid. Seniors and other Americans who rely on federal transfers would be wise to do the same. And then if we do pass the borrowing limit, the economy is going to have to absorb a sudden and sharp drop in federal spending, which will reverberate among businesses that don’t directly work with the government but sell to those who do.

But at least we’re leaving the bond market alone, right? Wrong. According to the BPC’s calculations, the federal government needs to roll over $500 billion of debt in August. If we’re in quasi-default, who will want to purchase that debt? What will they charge us when they do purchase that debt? A 10 percent premium would cost us $50 billion. A one percent premium would cost us $5 billion. And that’s only the direct cost. Because so many other kinds of debt benchmark against the rates the Treasury pays, you’ll see borrowing costs rising throughout the system. Mortgages, corporate borrowing, all of it. It won’t just be the federal government that pays. It’ll be the economy.

By Ezra Klein | 03:08 PM ET, 07/01/2011

Go read some of their blogs. Republican Senators are attacking the House, each other, and the House members are fighting amongst themselves as well

Go read some of their blogs. Republican Senators are attacking the House, each other, and the House members are fighting amongst themselves as well.

Not paying 100% on the government's obligations will impact our economy in many negative ways. That's a fact. If seniors don't get their benefits for any length of time, many will starve, and not be able to pay their necessary bills. Many are hardship cases, and that translates into those stores and supermarkets not getting consumers. Multiply that by tens of thousands, and you can begin to see the impact.

That will only prove their point; that threats work. It must be stopped now.

Ezra Klein describes one way a default could play out. He isn't describing the only scenario it could play out. It is possible to default just on the interest payments, and maybe on the debt that's supposed to roll over, and leave the rest of the federal government alone. At least Klein presents no reason why this is not possible.

But as hawkeye and JPB pointed out, default isn't the only way to escalate. Another way is that Obama ignore the debt ceiling, instruct the treasury to keep paying, and dare the Republicans to make the courts stop him. I agree that this is the best way to go, but doubt that Obama has the guts.

The politics of your recommendation suck.

Cycloptichorn wrote:

The politics of your recommendation suck.

Don't hold back, now. Tell me how you really feel!

It would definitely cause a constitutional crisis heading into next year's election

I don't know what more to say to you, either. Let's agree to disagree.

Quote:

It would definitely cause a constitutional crisis heading into next year's election

So what? The next election will not change much, they never do, and there will be another election after that....I would rather be dealing with a Constitutional crisis than a global economic meltdown crisis, and short of a deal that both reds and blues willingly sign onto them are the options.

Fine with me; we disagree as to what the best action to take would be.