In a little under three days, unless Congress recovers its sanity and passes legislation to raise the debt ceiling, or the President takes charge of the issue himself and issues an Executive Order to raise the debt ceiling, using the 14th Amendment as legal basis, the Treasury Department will not have enough money to pay for everything it has to pay for. How much of a fiscal catastrophe this will be for the country is debatable; it has never happened before. Since the days of President Kennedy, the debt ceiling has been raised about 75 times. Up until now, It has always been a routine housekeeping legislative action.
What will happen if no one acts to fix the situation? The US government has about $306.7 billion that it must pay out on or after August 2, 2011. (It can cover payments it makes on Aug 1.) It expects to receive $172.4 billion from August 2 through August 31 from taxes (including FICA taxes.) This is $134.3 billion less income than expenses. Treasury will have to cut its spending by about 43.8% for August. If the impasse continues past August, then the expenses will exceed the income by a larger amount in September, since payments which were covered on August 1st will not be covered on September 1st. Republicans say this isn’t so bad. It would be like an instant (but temporary) balanced budget amendment. No White House or Treasury official has said what would be paid and what would not be paid, but there have been some educated guesses.
The Bipartisan Policy Center has put out their best guess about what would be paid and what would not be paid.
Would Be Paid – $172.7 Billion
Interest On Treasury Securities
Social Security Benefits
Medicare and Medicaid
Defense Vendor Payments
Would Not Be Paid – $134.3 Billion
Military Active Duty Pay
Veterans Affairs Programs
Federal Salaries and Benefits
Food and Nutrition Services for Low Income Individuals
Department of Education
Department of Labor (this would eliminate the CPI report due out in mid-August)
Department of Justice
Department of Energy
Department of Health and Human Services, including Grants
Federal Highway Administration
Federal Transit Administration
Environmental Protection Agency
Small Business Administration
Other Unspecified Spending (pretty much everything else.)
Everyone I have read agrees that the interest on Treasury Securities must be paid. This prevents the government from defaulting to its creditors. Everyone also pretty much agrees that Social Security benefits will be paid, but they may be late. The Treasury Department will not have enough money by August 3 to pay the checks due that day timely. Some commentators think that our troops who are actually engaged in fighting wars will be paid, but if they are, then something else will come off the “will be paid” list.
Something to consider that this deletes $134 billion from our GDP (Gross Domestic Product) which is a little less than 1%. Considering how weak the growth in our economy is, losing 1% is almost enough to start a new recession all by itself.
Another thing to consider is that the credit rating agencies will certainly lower our credit rating from AAA to AA. Opinions vary widely how much this would increase interest rates, anywhere from 3 to 5 basis points (0.03% to 0.05%) up to 100 to 150 basis points (1.0% to 1.5%.) Most commentators I have read think that a 1% increase is likely. This would immediately affect people who have credit cards or adjustable rate mortgages, or who are trying to get a new mortgage. Housing sales would plummet, another causative factor for renewed recession.
As I said, this is a simple routine housekeeping measure that Congress has done dozens of times since the debt ceiling was put into law in 1917. The actual legislation itself is simple. It is 1 sentence long. Here is a copy of a House and Senate Joint Resolution to raise the debt ceiling at the very end of the 109th Congress (which was Republican) in January, 2006.
One Hundred Ninth Congress of the United States of America
AT THE SECOND SESSION
Begun and held at the City of Washington on Tuesday, the third day of January, two thousand and six.
Increasing the statutory limit on the public debt.
Resolved by the Senate and House of Representatives of the United States of America in Congress assembled, That subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $8,965,000,000,000.
Speaker of the House of Representatives.
Vice President of the United States and President of the Senate.
That’s all there is to it. But now we have a President that conservatives viscerally hate. Rush Limbaugh broadcast to his millions of idiot dittoheads on the day after Obama was elected that he hoped that Obama would fail. He seemed to miss the point that if Obama failed, the country could also fail. Remember that the economy was in full collapse mode at that time. At least twice that I know of, Senate Minority Leader Mitch McConnell has said to interviewers that the main goal of the Republican Party was to defeat President Obama. The Republican’s main goal was not and is not to this day doing anything about jobs, shoring up the economy, preserving and protecting the environment, or taking concrete action to help the vast majority of ordinary Americans who are struggling to survive in this corporate controlled nightmare which is our current society.
One of the tricks that the Republicans have discovered is to attach things they want but which are strongly opposed by Democrats and the majority of Americans, such as tax cuts for millionaires and billionaires, cuts to entitlement programs, or their outright elimination, and removing laws which prevent corporations from raping the environment or gouging ordinary Americans to legislation which must be passed. Thus it is with legislation to raise the debt ceiling.
I still believe that something will be done on or before August 1st, to prevent all this from happening. Those of you who read this please join me in calling and/or emailing not only your own Representatives and Senators, but the leaders of both the House and Senate. Also call the President. Tell them all to stop acting like spoiled brats and bullies and fix this entirely self-inflicted crisis, or you will withhold your vote in November, 2012. This fooling around hurts everyone in the country, even the rich.
The Teabaggers are a minority of the minority. They represent the views of probably less than 20% of the population, but, like Lenin, who called his faction “Bolsheviks” (the majority) when it was in fact the minority, they have influence and control far in excess of what their numbers permit. They don’t even represent the people who put them into power. Remember back in 2009, at all the Teabagger rallies and demonstrations, all the people holding signs saying things like “Keep Your Hands Off My Medicare” or “Don’t Touch My Social Security.” They’re no happier about what is happening in Washington than anyone else is. The problem is, their anger has inflicted a bunch of amateur ideologues on the Congress and the rest of the country, like cockroaches or a plague of locusts.