Fasten your seat belts, folks. The “extraordinary measures” the Treasury Department is using to keep the United States from crashing through its $16.4 trillion debt ceiling could run out as early as Feb. 15. That’s in 38 days. This comes courtesy of the Bipartisan Policy Center (BPC), which released a revised “debt limit analysis” yesterday.
Sen. Pat Toomey (R-Pa.) believes that in the event the limit on the federal government’s borrowing authority is not raised, all the Treasury has to do is “prioritize” payments to bondholders. As I wrote yesterday, that’s so not going to work. “Adopting a policy that payments to investors should take precedence over other U.S. legal obligations would merely be default by another name,” explained the Treasury Department on its Web site, “since the world would recognize it as a failure by the United States to stand behind its commitments.”
Those commitments (read: PAST spending approved by Congress) are what the BPC highlighted in its latest report. And it’s not pretty. According to its estimates, the federal government in February will have $277,107 billion in revenue to pay $451,883 billion in bills. As the charts from BPC show, we’re in for a world of hurt as the Treasury goes through the untenable exercise of picking winners and losers.
If Treasury pays interest to bondholders, Medicare/Medicaid and Social Security benefits, among others, then it would have to forgo payment on a host of things. Pell Grants, veterans benefits and spending by the Justice Department and the Federal Aviation Administration, to name a few.
But keep something in mind. The money flowing into the Treasury doesn’t come in one big lump sum at the beginning of the month. It trickles in with cash flows varying from day to day. And there are bills to be paid every day of the month. For instance, BPC estimates that on Feb. 15, the “X” date when the United States could first hit the debt ceiling, the Treasury could have $9 billion in revenue to pay $52 billion in bills.
Another scenario BPC entertains is that Treasury banks enough money until it has enough cash on hand to pay a full day’s worth of obligations. The only problem with that is the federal government ends up not paying any bills at all for days on end. Under that nightmare scenario, BPC estimates it would take until Feb. 22 for the Treasury to amass the $52 billion that would be due on Feb. 15. Meanwhile, the “prioritization” method would see the nation running a cash deficit of $75 billion by Feb. 22.
The economic uncertainty fostered by either scenario is not what our or the global economy needs right now. No one would escape the wrath of the markets if the debt ceiling isn’t raised. The United States would be hit with higher interest payments. Retirement accounts could take a massive hit. Retirees and those dependent on Medicare and Medicare would be left in the lurch. The nation would get slapped with another downgrade by the bond rating agencies. And the operations of government could grind to a halt.
BPC predicts an “[i]mmediate 39 percent cut in federal spending would affect broader economy.” For some Republicans, this kind of enforced smaller government would be ideal. But there is nothing responsible about not paying for financial commitments approved by Congress. Cutting current and future spending is one thing. Wrecking the global economy by holding the debt ceiling hostage is altogether different.
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