The utter madness of not raising the debt ceiling
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
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842 comments Add your comment
Peter
June 30th, 2011
4:39 pm
Hey Dave R.
“In all sincerity, I can’t tell whether Obama is unintelligent or simply in over his head.”
Kinda like Bush ?
AmVet
June 30th, 2011
4:40 pm
Kinda like Bush ?
He was both.
Dusty
June 30th, 2011
4:42 pm
REAL SCOOTER,
I hear Ya! But I wish you would stop humming and whistling and go to moaning. Bookman’s gone into “torture”, as if we haven’t had enough already. That boy never learns!
buck@gon
June 30th, 2011
4:43 pm
AmVet @ 4:35,
I expected such a non-answer, but why go and act that way? If one is a liberal, when one can’t argue against Reagan, Buckley, Limbaugh, Will, Steyn, Bachman, Rubio or Perry, one generally resorts to giggling with the audience (John Stewart, Stephen Colbert, Bill Maher) or using mean, unsubstantiated BS to demagogue (Obama, Frank, Pelosi, Reid, Shumer).
I beg you; for your own sake. Let go of your jealousy; don’t give in to hate. (That leads to the dark side!)
If you can’t let go of it, please please please don’t vote in the next election!
Scott
June 30th, 2011
4:43 pm
Joe mama, a consumption tax like you described would basically just saddle the middle class and above for this country’s tax burden. There would basically be no change from the status today.
Adam
June 30th, 2011
4:44 pm
If the dems think that not raising the debt ceiling is dangerous, offer some spending cuts.
Uh, they have. They continue to do so. THAT is why “one side is holding hostage.” Get it now?
Joe Mama
June 30th, 2011
4:46 pm
Peter — What if consumption taxes were simply built into utility rates?
AmVet
June 30th, 2011
4:49 pm
buck, what do you expect?
You countermanded not one single fact I posted. You never even referenced any of them.
You just show up and blather on like some parrot about wealth envy and generally puke up paragraphs of meaningless and unrelated drivel.
Debate the facts I posted or as WC said, “Go away son, you bother me.”
However, I’m sure others here suffer fools gladly…
Joe Mama
June 30th, 2011
4:49 pm
Scott — “Joe mama, a consumption tax like you described would basically just saddle the middle class and above for this country’s tax burden. There would basically be no change from the status today.”
Well, I think it would depend on how deeply and how broadly the tax was implemented. If necessities as I outlined above were exempted, that would lighten the burden on the middle and lower classes. Perhaps you have some ideas for ways that such a tax could be implemented that would ease up on the lower and middle classes?
Scott
June 30th, 2011
4:52 pm
Joe mama….For my reasons I listed to Peter, I am against a consumption tax. I used to be all for it until I read about those points somewhere which made me think that it would be a bad idea and hard to manage. therefore, I am for a flat tax across the board. Everybody pays the same % of income. No tax breaks. No need to file. It gets taken right out of your payroll tax. I would also give the option to people top get out of the Social Security Ponzi Scheme. I would give up my rights right now to all money i have put in that in exchange for never having to contribute to that again. I think many people would do the same thing. Now, you would lose my revenue coming into it, but you also take away a future entitlement.
John Galt
June 30th, 2011
5:01 pm
1) Establish a reasonable personal exemption so that the poor are not taxed out of their ability to eat and live;
2) Estimate the revenues necessary to sustain the government;
3) Determine the total income of the taxpayers after personal exemptions;
4) #2 divided by #3 is the resultant flat income tax.
If the people of america were seeing their rates tied to government spending, they might put a bit more pressure on the pols to eliminate waste.
The problem is that rules and regulations must still be established for allowable business expenses- you can’t tax businesses on GROSS income, the costs of making money must be deducted; therefore, special interests will still be at work in DC. Alas, we must still deal with those “private corporate jets”.
Joe Mama
June 30th, 2011
5:02 pm
Scott — “Joe mama….For my reasons I listed to Peter, I am against a consumption tax. I used to be all for it until I read about those points somewhere which made me think that it would be a bad idea and hard to manage. therefore, I am for a flat tax across the board.”
Are you for the Fair Tax? Isn’t that a flat consumption tax?
“Everybody pays the same % of income. No tax breaks. No need to file. It gets taken right out of your payroll tax.”
I have a number of big issues with the Fair Tax or anything resembling it.
“I would also give the option to people top get out of the Social Security Ponzi Scheme.”
Really? When you double your money immediately?
I’d like to see the cap on FICA taxes lifted, the retirement age gradually increased to 70, a modest increase in payroll taxes (but not until we get the economy on better footing) and some means-testing combined with reduced benefits for wealthy retirees. Social Security is insurance, not a retirement program — and if you have a secure retirement, you don’t need the insurance payoff. It’s just like having homeowners’ insurance — you don’t get your money back if your house doesn’t burn down. In short, I think there are a number of small adjustments we can make — having everyone share the pain — to make SS solvent for a long time to come. And I think we should do it.
“I would give up my rights right now to all money i have put in that in exchange for never having to contribute to that again. I think many people would do the same thing. Now, you would lose my revenue coming into it, but you also take away a future entitlement.”
I think that SS is a wise contribution, and I think that a lot of people who got their retirement savings slammed in the last few years would agree with me. My wife and I both have 401ks, we’ve got a Roth, we’ve got an equities account AND I have a pension program at work. We may well not need SS, but I want it there IN CASE something happens in the next 20 years, before I retire.
Doggone/GA
June 30th, 2011
5:03 pm
“That sounds quite interesting! Is there a name for the study or the people who did it so I can look it up?”
I wish I could remember. I might have heard it on NPR, but as I said it was quite a while ago – maybe 10 years or more. Try searching for “study election rank candidates” and see how far you get. But that’s just a guess.
John Galt
June 30th, 2011
5:04 pm
Adam-
I don’t know you well enough to call you a liar, but you are telling a lie.
The whole standstill is that the dems won’t offer spending cuts and the GOP won’t agree to tax increases.
Is this too difficult for you?
Jay
June 30th, 2011
5:07 pm
That is incorrect, John Galt. By Eric Cantor’s own public admission, the Democrats have agreed to some $2 trillion in cuts through the Biden negotiations.
Now, either Cantor is lying, or you need to retract. Your choice.
Joe Mama
June 30th, 2011
5:08 pm
John Galt — “I don’t know you well enough to call you a liar, but you are telling a lie. The whole standstill is that the dems won’t offer spending cuts and the GOP won’t agree to tax increases.”
No. That’s not true. It has been pointed out many times on this blog (including by Jay himself) that the Democrats have so far agreed to $2T in spending cuts and have agreed to work on more. IIRC, Congressman Cantor has even said so publicly.
getalife
June 30th, 2011
5:15 pm
Four more years in 12.
Deal with it.
Sasha
June 30th, 2011
5:17 pm
It’s been brought up already, but considering that Obama knew his symbolic (and admittedly political) vote as a senator would have no economic consequence, there is no comparison to the current kooks in Congress who have the ability to pull the trigger and are very well aware of the outcome.
John Galt
June 30th, 2011
5:21 pm
I have not read Cantor’s admissions- if I read it elsewhere I will recant and apologize; sorry Jay, you are not a credible source IMO.
This does beg the question- TWO TRILLION- over how long? How much is out of defense and how much is out of entitlements?
Jay, since you have chosen to chip in, why haven’t you written about Obama’s “I’m not fearmongering” (the GOP will eliminate scholarships and Social Security won’t be paid while we pay interest to the Chinese) and “love these Alcoa workers making aluminum airplane wings” (gotta get those “private corporate jets”- oops, I’m late to get on AirForce One for a fundraising event).
Not a single ounce of staesman in that man- all fear-mongering, hypocricy, pandering and confusion. If I didn’t consider him dangerous I MIGHT feel sorry for him.
Mr Right
June 30th, 2011
5:23 pm
getalife
June 30th, 2011
5:15 pm
Four more years in 12.
Deal with it.
It will take a lot of dealing!
Peter
June 30th, 2011
5:24 pm
Hey Joe Mama ….. The retirement age 70 ?
That is too late in my opinion…… Also the more you earn the more the flat tax should be….but hey another opinion.
John Galt
June 30th, 2011
5:25 pm
I do retract my 5:04, but still presume that the cuts are over a LONG time and are dubious.
Jay, can you guide me to your last retraction?
Jay
June 30th, 2011
5:26 pm
Will Fox News suffice as a source, John Galt?
http://www.foxnews.com/opinion/2011/06/28/eric-cantor-sets-trap-for-john-boehner/
getalife
June 30th, 2011
5:26 pm
“It will take a lot of dealing!”
You can do it.
Think country first.
Not party first.
John Galt
June 30th, 2011
5:29 pm
Jay-
I did my own research before I recanted, though all cuts are not equal.
And about your most recent retraction?
oldguy
June 30th, 2011
5:36 pm
Ah,
Back again!!
As a member of the evil rich(i.e. someone who has enough income to have to pay some income taxes) it was my responsibility to go out at least once a day and rob from the poor (i.e. anyone who does not make enough to pay income taxes)! My civic duty is now done; the poor will starve on the streets while waiting for non-existent health care.
It feels great to have accomplished something today……NOW…..
Joe Mama
June 30th, 2011
5:39 pm
Peter — “Hey Joe Mama ….. The retirement age 70 ? “That is too late in my opinion……”
Yeah, there have been a lot of demographic studies that show that people are living a *lot* longer now than they were when SS came into being. So one of the solutions to the SS funding problem is raising the retirement age (for full SS benefits) to 70. You can retire earlier for a lower benefit, or retire later for a larger benefit. My dad’s still working and in his mid-70s.
I don’t think that SS was meant to sustain a huge mass of people for 20+ years in retirement, but it seems to have turned into that.
“Also the more you earn the more the flat tax should be….but hey another opinion.”
So a *progressive* consumption tax? Am I understanding your idea? If that’s what you’re suggesting, please elaborate on your idea. I am intrigued.
Of course, if I’m reading you wrong, please correct me.
oldguy
June 30th, 2011
5:52 pm
“Also the more you earn the more the flat tax should be….but hey another opinion.”
Then its a progressive income tax…..just what we have…..Duh
oldguy
June 30th, 2011
5:55 pm
“That is incorrect, John Galt. By Eric Cantor’s own public admission, the Democrats have agreed to some $2 trillion in cuts through the Biden negotiations.”
Jay, thats over what, a hundred years??!!??
TruthBe
June 30th, 2011
6:00 pm
Anybody but obama in 2012.
Joe Mama
June 30th, 2011
7:12 pm
How much you selling those bumper stickers for, TruthBe?
buck@gon
June 30th, 2011
10:52 pm
Adam449
Countermanded?
Oooh, how about impeached? Better word.
I wasn’t addressing facts, you cdunce. I was poking what you wrote,if you want to know
jaypat
June 30th, 2011
10:58 pm
Trying to explain macroeconomics to the hoi polloi is like trying to explain fire to a fish.
buck@gon
June 30th, 2011
11:20 pm
Well said amvet. I do suffer you gladly. You also seem to suffer obama gladly. So, whatever’facts’ you bluster on about then,i agree for thag part.
buck@gon
June 30th, 2011
11:21 pm
Trying to understand jay b’s ignorance too.
Bill 'MAD AS H*LL' Orvis White
July 1st, 2011
7:16 am
Stop the spending. Stop the spending. Stop the spending! NOW! Tea Party Patriots like me and millions of others need to get off of our duffs and stage some type of rally in Washington before the August 2 vote, NOW! WHERE IS EVERYONE FOR THE LORD’S SAKE? WE THE PEOPLE need to go to these July 4 gatherings this weekend and Monday with shirts displaying a PROTEST date to Block the Debt Ceiling Raise! Get those Tea Party hats on and LET’S GO!!!!!. IF HUSSEIN OBAMA AND HIS THUGS IN HIS CABINET AND CONGRESS STRONG-ARM THE RIGHTFUL REPUBLICANS, CONSERVATIVE DEMOCRATS AND EVEN SOCIALIST-DEMOCRTS INTO RAISING THE CEILING, THEN WE THE PEOPLE NEED TO FIRE EACH AND EVERY MEMBER OF CONGRESS WHO VOTED ALONG WITH THIS GUTLESS SOCIALISTIC “PRESIDENT!”
C’MON PEOPLE, WAKE UP AND SMELL THE JAVA! GET YER HEADS OUT OF THE SAND AND LET THIS BIG BLOATED GOV’T KNOW THAT WE’RE NOT GOING TO TAKE IT ANY LONGER.
WE NEED TO LEARN THE HARD WAY, BUT CUTTING ENTITLEMENT SPENDING YESTERDAY. IF THAT MEANS PAINFUL CUTS TO SOCIALIST INSECURITY, MEDISCARE AND MEDIRAID, THEN SO BE IT! GOVERNMENT SPENDING IS THE ROOT OF ALL EVIL THAT HAS LED US TO THE MESS THAT WE ARE IN, PURE AND SIMPLE!!!!!!
GOOD NIGHT AND AMEN,
BILL
Adam
July 1st, 2011
9:24 am
Joe Mama: Yeah, there have been a lot of demographic studies that show that people are living a *lot* longer now than they were when SS came into being.
Those statistics are for people who are well off. The lower-middle to lower classes are at a lower threshold for life expectancy on average.
Adam
July 1st, 2011
11:08 am
Fox News or Rush must be touting the talking point that Democrats ONLY want tax increases and have not agreed to any cuts. Must be, because it’s not true AND it still seems to be believed.
deegee
July 1st, 2011
12:59 pm
HAHAHAHAHAHA! I caught the last part of a Maria Bartiromo – Alan Greenspan interview yesterday. Maria asked Alan about raising taxes. Alan said that there are a lot of tax expenditures like corporate subsidies, tax loopholes, etc. that should be closed. He mentioned that not only are they costly, they run counter to free market principles. GULP! So then Maria asked Alan about his support for the Bush tax cuts in the early part of the 2000’s. Alan said that he supported them because we had a budget surplus. He went on to say that he would never support a tax cut if you have to borrow money to pay for them. BIG GULP! “And now back to the studio”, says Maria (let them eat cake) Bartiromo.
Sensible Discussion
July 1st, 2011
6:27 pm
The Republicans have forgotten how to negotiate! They would like to push the country to the brink in order to score political points. While they’re playing with fire, the country, and ultimately the world could dive into a new recession if we default on our debt. No government or opposition would ever have dreamed about doing such a thing in the past.
http://www.politicsdisgust.com
DBCOOPER
July 1st, 2011
6:47 pm
The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. … Increasing America’s debt weakens us domestically and internationally. Leadership means that ‘the buck stops here. Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.
Senator BH Obama
Nuff said! The rest is all BS and mostly what comes out of Bookmans mouth.
New Tea Party Tactic: Deny Reality « The Sound of EmCeeKhan
July 6th, 2011
9:42 am
[...] will not result in the US defaulting. Although all the evidence and every economist tells us otherwise. Just more proof that the Tea Party is full of crackpots and ignorant fools. The White House [...]