by wj
At the moment, there is some (OK, substantial, and rising) doubt as to whether Congress will get its act together and raise the Federal debt ceiling by the end of the month. The obvious question would be: So what?
Skip over, for the moment, the obvious impact on the "full faith and credit" of the United States. Look instead at who would and would not get paid. Or, if you prefer, who could and could not get paid.
The Federal government has gotten by, since sometime last spring, basically on accounting tricks. For example, money in accounts for funding Federal pensions, nominally in Federal bonds, has been pulled out to fund on-going expenses. But when those tricks run out, what happens?
Basically, the government can only spend each day what they take in that day. The current estimate is that we hit that point between November 3 and November 5. (Note that, if the earlier date is correct, the impact of November 10 below would be a week earlier.)
There are a bunch of big bills which come due at various moments. There are also a variety of payments due every day: Medicare and Medicaid ($3 billion), payments to military vendors ($1 billion), etc. You can try to prioritize, and short some or all of them.
But here are the biggies that can't be finessed:
-- November 10: $14 billion in Social Security benefits. Income: $6 billion
-- November 16: $30 billion in interest on Treasury securities (plus $3 billion in salaries for military personnel). Income $27 billion.
The list goes on and on.
The big kicker, politically, is November 10. If Social Security benefits don't get paid on time (and they cannot be, if the debt ceiling isn't raised) there is no real question but that there will be political hell to pay. And does anybody think that the Republican's refusal to act can be successfully blamed on the Democrats? I mean, no doubt they will try, and try hard. But, as we saw last time the government got shut down, that doesn't seem likely to work out as they expect/hope.
The political fallout for actions, and inactions, in Washington generally seems to be smaller and less long-lasting than those who live inside the beltway expect. But if the Social Security checks don't come in on time across the country? Somehow I suspect that won't be forgotten, or forgiven, any time soon.
That said, the bigger impact (if things get that far) will be November 16. Because Treasuries are not just obligations used by lots of individuals and things like pension funds. They are also, due to their supposed absolute security, the basis for much of the global financial system. And thus for the economies of most countries are at risk -- including the economy of the United States.
Mere missed Social Security payments can be made up later. People will suffer, sure, and be furious as a result. And you can argue over which party would get the blame. But the harm to the overall economy will be transitory. A crash the global economy, on the other hand, which missed payments on November 16 would cause? It would make the Great Depression seem like just a temporary ripple.
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