The United States would immediately have its top-notch credit rating slashed to “selective default” if it misses a debt payment on Aug. 4, Standard & Poor’s managing director John Chambers told Reuters.
Chambers, who is also the chairman of S&P’s sovereign ratings committee, told Reuters on Tuesday that U.S. Treasury bills maturing on Aug. 4 would be rated ‘D’ if the government fails to honor them. Unaffected Treasuries would be downgraded as well, but not as sharply, he said.
“If the U.S. government misses a payment, it goes to D,” Chambers said.
“The full consequence of a default — or even the serious prospect of default — by the United States are impossible to predict and awesome to contemplate. Denigration of the full faith and credit of the United States would have substantial effects on the domestic financial markets and on the value of the dollar in exchange markets. The nation can ill afford to allow such a result. The risks, the costs, the disruptions, and the incalculable damage lead me to but one conclusion: the Senate must pass the legislation before the Congress adjourns.”
Social Security benefits could be among the first casualties if President Obama and Congress can’t agree to increase the government’s debt limit on Aug. 2, a new analysis shows.
The Bipartisan Policy Center studied Treasury Department receipts and expenditures for August 2009 and 2010 and determined that the government likely would not have enough revenue to pay the full $23 billion payment to Social Security recipients due on Aug. 3.
On that day, according to the analysis, the government would take in about $12 billion in taxes and other revenue but would owe $32 billion, creating a $20 billion shortfall….
“We should be honest with ourselves what this would be like, and the answer is it would be chaotic,” said Jerome Powell, a former Treasury official in the first Bush administration. “There is no way to avoid really serious pain.”
From the Bipartisan Policy Center, documenting what the federal government could and could not continue to pay for once the debt ceiling is hit and the government is prohibited from borrowing additional funds:
Everything above the red line could theoretically be financed, although in practice that would be very difficult because inflows and outflows are so “lumpy,” BPC analysts conclude. (In addition, this is what a “balanced budget” would look like absent additional revenue. To preserve those things above the red line, every expenditure below the red line would have to end.)
In other words, we could continue to pay off bondholders such as China for a few weeks. They could, theoretically, still get paid. But we couldn’t pay our own soldiers. No government salaries would be paid at all, including for those employees who would supposedly be sending out the checks to China and elsewhere.
It is suicidal madness to even contemplate such a step.
– Jay Bookman