So... The Government is Shut Down...

So... Who thinks we're heading towards default?

House can't put together a bill that the other Republicans can agree on. Personally, I think it'll be resolved if not by tomorrow then by Wednesday. But man, it looks like more and more Repubs are trying to cut off their nose to spite their face.

But does the default happen? Ye? Nay? They're cutting it awfully close...

From what I read there is really no reason for us to defult on anything even if congress cannot pass a bill. To carry the debt is about 10% of our annual/monthly revenue so they will just have to pay those bills above other things. Sad news is the other things are probably Federal Employees.

I just sent in my personal tax returns both state & federal (filed an extension) and I wonder if my refund will be delayed. I don't really care if its delayed just curious.

So... Who thinks we're heading towards default?

House can't put together a bill that the other Republicans can agree on. Personally, I think it'll be resolved if not by tomorrow then by Wednesday. But man, it looks like more and more Repubs are trying to cut off their nose to spite their face.

But does the default happen? Ye? Nay? They're cutting it awfully close...

It would be insane to default. Only the nuttiest, most ideologically-crazy politicians would allow this to happen.

So, yes, I am afraid that we will default.

Here is a good read.




The Facts
The debt ceiling is set at $16.699 trillion, for both publicly traded bonds and intergovernmental obligations such as Social Security, and the United States actually hit it back in the middle of May. But the Treasury has juggled money around in an effort to keep from going over the debt limit. But by most estimates, sometime between Oct. 17 and Nov. 1, the game of financial musical chairs must end and Treasury would no longer be able to pay all bills that are due.

Paul’s aides said his figures were averages, and we won’t quibble with the numbers, except to note that in some months (such as when annual and quarterly taxes are due), there is a revenue gusher; in other months, tax collections are relatively slim.

According to the Bipartisan Policy Center, between Oct. 18 and Nov. 15, the government would have estimated receipts of $222 billion and owe $35 billion in interest on Treasury securities. So a monthly average does not really tell the whole story.

Moreover, let’s not forget that, even with the improvement in the economy, the United States is still running a substantial deficit — some $600 billion in the fiscal year that ended Sept. 30. That means that revenues are generally far short of expenses, month by month.

Paul’s main point is Treasury should be able to prioritize its payments, an aide said. In other words, it would choose to pay just the interest on the bonds held by Wall Street and foreign investors (such as the Chinese and Japanese governments) while stiffing other creditors. For instance, IRS refunds could be delayed or federal salaries withheld.

All told, in this period, some $100 billion in bills in the month after Oct. 15 would need to be delayed. An especially difficult day would be Nov. 1, when $58 billion in Social Security payments, disability benefits, Medicare payments, military salaries and retiree pay is due.

We will leave aside the question of whether any politician would want to tell Americans that Chinese bondholders get higher priority than their Social Security checks. Is this even possible?

(Update: We should have used an example other than Social Security checks. Because of the interaction with the trust funds, there would be no savings, as economist Dean Baker points out.)

Paul’s aides pointed to a 1985 General Accounting Office report that the “Treasury is free to liquidate obligations in any order it finds will best serve the interests of the United States.” But both the Treasury Department and the Congressional Research Service say that there is tremendous legal uncertainty about whether some payments could be honored while others ignored if the nation goes above the borrowing limit.

This is a bit of an academic dispute. The sheer volume of transactions — as many as 5 million a day — would make it difficult to pick and choose. Moreover, Treasury says its systems are designed to make payments in the order in which they are due.

After the 2011 showdown, Treasury concluded that “the least harmful option available to the country at the time, of these very bad options,” was a delayed payment regime. In other words, Treasury would only pay all of the bills for a particular day once it had collected enough cash for every outstanding claim due that day.

So, in theory, Monday’s payments would be held until, say, Wednesday. Then, Tuesday’s payments would be held until enough money was collected for that day’s payments, which could be Thursday or Friday. So the government could start the following week already three days behind in payments — and continue to fall ever farther back.

But if this even were possible, would it be advisable? Steve Bell, who worked on Wall Street and was a former staff director of the Senate Budget Committee under Sen. Pete V. Domenici (R-N.M.), says the financial markets likely would judge any delay in payments related to the debt ceiling as an effective default and would punish U.S. Treasuries accordingly by demanding higher interest rates on U.S. securities.

During the 2011 debt ceiling confrontation, elevated interest rates cost taxpayers $1.3 billion, according to the GAO. Over 10 years, Bell says, the impact of that relatively minor blip totals nearly $19 billion. In other words, if Wall Street decided that a delay in some payments meant the same thing as an actual default, traders could demand the same kind of rates as if the government had defaulted — at a substantial cost to U.S. taxpayers.

Wall Street executives, quoted in The Wall Street Journal this week, in fact warned against attempting to make some payments ahead of others, saying it would “drive up borrowing costs and cause market disruptions.”

“Senator Paul is not advocating merely paying the interest on the debt,” the aide said. “These are all hypothetical situations in terms of the U.S. not fulfilling all obligations. The point is that there is no reason to default on the debt.”

“Markets would be unhappy if the government didn’t pay any bills but it would be much, much worse if they didn’t pay interest on the government debt,” Feldstein said in an e-mail. “I imagine that the government is not writing checks to some suppliers, etc. now but the markets are not upset because they know it will come later. So from a ‘fact checking’ point of view, the fact is that the government can avoid defaulting on the debt payments.”

The Pinocchio Test
On a theoretical level, it might be possible to just pay interest on the national debt, while

Even Pat Robertson thinks that the GOP has gone too far:
TV preacher Robertson sees GOP as too extreme | MSNBC (http://www.msnbc.com/msnbc/tv-preacher-robertson-sees-gop-too-extreme)

What a sad day it is when Robertson is more reasonable than some House members.

i think that the GOP is realizing that to default would make Obama one of the most powerful presidents in our life time

Obama Can Use 'Emergency Powers' To Mitigate Default Pain, Historian Says (http://politix.topix.com/homepage/8332-obama-can-use-emergency-powers-to-mitigate-default-pain-historian-says)

Well I do agree with Obama on this. Nothing like a man taking a real stance on an issue.

"O" the Debt Ceiling - YouTube

Well a deal has been reached.

Senators seek budget deal, House GOP effort flops (http://news.msn.com/us/senator-bipartisan-debt-deal-has-been-reached)

Well I do agree with Obama on this. Nothing like a man taking a real stance on an issue.

"O" the Debt Ceiling - YouTube (http://www.youtube.com/watch?v=8mZ39Zet97Q)



I'm sure if Obama would sign the bill if he feels this way.

Even Pat Robertson thinks that the GOP has gone too far:
TV preacher Robertson sees GOP as too extreme | MSNBC (http://www.msnbc.com/msnbc/tv-preacher-robertson-sees-gop-too-extreme)

What a sad day it is when Robertson is more reasonable than some House members.

Scary since Robertson is a complete wacko.

Ted Cruz’s Hometown Newspaper Regrets Endorsement - ABC News (http://abcnews.go.com/blogs/politics/2013/10/ted-cruzs-hometown-newspaper-regrets-endorsement/)

Bye Ted Cruz, you failed and loss a ton of support. You probably found a home on the Palin speaking circuit for nuts.