Congress has no choice but to raise the debt ceiling

Things would get ugly in a very short time. The US economy would grind to a halt. Financial markets would be disrupted. The world would think we'd gone mad.

By Charley Blaine Jan 9, 2013 9:19AM
© Steve Allen/Brand X/Getty ImagesThe scramble is on until, say, mid-February, when failure to extend the nation's debt ceiling will result in the government running out of cash.

The government actually hit the debt ceiling on Dec. 31, but the Treasury Department has been in the process of exercising "extraordinary measures," including borrowing upwards of $200 billion, to keep the military and all the non-agencies at work.

Without a deal by Feb. 15, the government may face a shutdown that would force truly difficult decisions. Like whose bills to the government would get paid. Whose salaries would get postponed.

And there is a chance that the United States government would default on its debt, something that's never happened. Though it's come close.

The mid-February deadline isn't etched in stone. It's an estimate, made by the Bipartisan Policy Center, of when the government would literally run out of cash. The think tank calls the date "the X date."

When precisely the X date would occur is still a guess. But we're talking days around Feb. 15. At the very least there would be annoyance. Here's what we mean: The Internal Revenue Service said Tuesday that the drawn-out talks to get a tax deal done is forcing the IRS to delay processing of tax returns until Jan. 31.

The reason, according to USA Today's John Waggoner: "Programming IRS computers and printing forms and instructions were delayed by congressional wrangling over the fiscal cliff -- a combination of tax hikes and spending cuts that briefly became law on Jan. 1."

At worst, once the X date is reached, pandemonium would reign.

It's likely the financial markets would tumble badly. (Right now, however, the markets are assuming stress but not disaster.)

In a working paper, the policy center posits that the government could opt to pay some bills but not others. Or it could wait until it has enough cash to pay a day's bills.

The Bipartisan Policy Center is a think tank founded by former Senators Bob Dole, George Mitchell, Howard Baker and Tom Daschle.

 

So, let's say the government runs into a cash crisis on or about Feb. 15. Over the next month, it will probably take in roughly $270 billion and spend about $450 billion, the policy center says. If the debt ceiling is not raised and the government can't borrow the cash, the Treasury has to decide how bills will get paid. 

If the government decided to pay some bills and not others, the policy center offers this scenario.

If you pay a month's worth of:

  • Interest on Treasury securities -- $38.1 billion
  • Income tax refunds to individuals -- $85.5 billion
  • Medicare/Medicaid -- $72.5 billion
  • Social Security benefits -- $61.1 billion
  • Military pay and retirement -- $13.2 billion
  • Unemployment insurance benefits -- $6.1 billion
That's a total of $276.5 billion.

The government would have to forgo payments to:
  • Defense vendors -- $28.8 billion
  • Veterans benefits -- $4.2 billion
  • Federal salaries and benefits $19.9 billion
  • Department of Education costs (Pell grants, special education payments and the like) -- $16.8 billion
  • Food/nutrition and temporary assistance to needy families -- $10.1 billion
  • Civil Service retirement -- $5 billion
  • Health and human services grants -- $8 billion
  • Supplemental Security Income -- $3.4 billion
  • Other spending -- $79 billion. This would include expenses incurred by the Department of Justice and the FBI; the Department of Energy; the Federal Highway Administration; the Federal Aviation Administration; the Environment Protection Agency and FEMA and the national flood insurance program.

There's another scenario the policy center offered. The government doesn't pay out income tax refunds.

The government pays:

  • Interest on Treasury securities -- $38.1 billion
  • Medicare/Medicaid -- $72.5 billion
  • Social Security benefits -- $61.1 billion
  • Military pay and retirement -- $13.2 billion
  • Veterans benefits -- $4.2 billion
  • Defense vendor payments -- $28.8 billion
  • Federal salaries and benefits -- $19.9 billion
  • Unemployment insurance benefits -- $6.2 billion
  • Civil servce retirement -- $5.0 billion
  • Food and nutrition and temporary assistance to needy families -- $10.1 billion
  • Department of Education (Pell grants, Special Education) -- $16.8 billion

The government forgoes payments on:

  • Income tax refunds to individuals -- $85.5 billion
  • Health and human services grants -- $8 billion
  • Supplemental Security Income -- $3.4 billion
  • Other spending -- $79 billion. Again, these would include expenses incurred by the Department of Justice and the FBI; the Department of Energy; the Federal Highway Administration; the Federal Aviation Administration; the Environment Protection Agency and FEMA and the national flood insurance program.

And that's potentially just the first month of the crisis. No matter how you look at it, it's not a pretty picture.

The consequences, the policy center says, effectively mean an immediate 39% cut in federal spending. It means handling all payments for important and popular programs, including national defense, Medicare, Medicaid and Social Security, becomes impossible.


The economic disruption is huge and accompanied by wild uncertainty.

"Everything else is informed speculation," as Derek Thompson wrote on the Atlantic.com on Tuesday, "but you don't need a creative mind to guess that a stock market that loathes surprises would positively freak at the first-ever default of the United States government."

 

In an earlier version of the post, the scenarios above were described as occuring in the course of a day's government spending. The post should have said the scenarios were set up using a month's spending. The post now includes what the government would expect to receive and spend if the debt ceiling were simply lifted.

 

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324Comments
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Charley Blaine, when some of us middle class Americans have problems, like job hours cut, loss of pay, etc. do we have the ability to raise our credit card limits? Are we able to tell our utility company to extend some credit? No.

We common people HAVE to pay our bills or we lose things. Maybe this country needs to lose things OR cut down its spending.

Let's start with bogus SSI/ Disabilty payments to 20 year olds who are capable to work, they just choose to get an attorney, go to court and not work.

Implement a fair tax type code, and use the then unemployed IRS agents to investigate fraudulent claims.

Where in your article does it mention that maybe leaving the cieling where it is may be a good thing in the long run? Harry Reid, why have you not submitted a budget for the past 3 years?

To all you who think I'm jumping on Libs, I'm not. This is all common sense stuff here.

Jan 9, 2013 10:53AM
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don't worry - the band of idiots will simply kick the can down the road rather than make the hard choices they were HIRED to do
Jan 9, 2013 10:56AM
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how do we reign in the stupid amount of debt if we keep allowing it to go higher

 

America will again be downgraded becuse we are not reducing spending

Jan 9, 2013 11:48AM
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If we don`t face our SPENDING PROBLEM now ,  when will we? The longer we put it off, the worst it will become.
Jan 9, 2013 11:49AM
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shut down sounds good to me, about time the government had to face the real world...
Jan 9, 2013 11:20AM
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Maybe this will get the Senate and the Lazy president to come up with a balanced budget?   Maybe this will force them to stop their fiscally irresponsible SPENDING and BORROWING?

The lazy, arrogant, corrupt imbecile Obama believes you can Borrow and Spend your way out of Debt.   He also believes you can create economic growth by Taxing and Printing!  The man is totally clueless.  

We should not RAISE his credit card limit.  This will force the government to live within it's means.

Better to take the bitter pill now, than put it off, and make things FAR  WORSE!
Jan 9, 2013 12:39PM
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The Voter only has to look at themselves for our mess.  You get what you voted for - A president that has no intention of cutting spending,  A senate Speaker that refuses to live by a budget - or even debate one,  a minority speaker of the house who insists on pushing for more taxes, voters who rate congress in single digits and then votes them back in office, a president that campaigns on increaseing revenues by $800B and then demands $1.6T etc.  You got what you voted for - there was no hidden agenda - This is what socializm is all about

Jan 9, 2013 12:38PM
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Article Quote: Without a deal by Feb. 15, the government may face a shutdown that would force truly difficult decisions."

 

OK, Let's Roll!!!!

Jan 9, 2013 1:42PM
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We need to bankrupt our country, do away with the federal government, give rights back to the states and people and fire every fricken politicion in DC. Debt limit??? How about quit spending like a drunkin sailer and giving money to Egypt, Syria and every other country that hates us.

OBama is an idiot!!!!

Jan 9, 2013 12:07PM
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Lower the credit rating of the US??

We don't deserve the credit rating we are currently getting. We're deadbeats!

So lower it - to better reflect reality.

 

 

 

Jan 9, 2013 1:25PM
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We should not raise the debt limit. There is too much money anyway that is wasted by our government. Don't spend on all of Obama's agenda.  If the debt limit is held where it is now the government will be forced to cut spending. This is our only hope. Obama wants to raise taxes and spend more money. The man must be stopped!
Jan 9, 2013 1:56PM
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That's what Ronnie Regan said, our greatest president in modern times.

His crap,  had a higher understanding of business , economics and society than Dear Leader could ever imagine.

He took over for a lefty stooge (Carter)

with gas at an all time high

Mortgage rates at 16%

The prime rate at 21%

 

AND FIXED IT ALL.

What has Obuma done ?

Beg for more money to give to even more deadbeats.

 

Revolting

 

Jan 9, 2013 1:36PM
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LOL How pathetic , these Obama backed media stooges are.

Let's see, we are almost completely underwater in debt - the solution ?

Borrow MORE !!

 

To simplify for thelefty , cretins.

You borrowed $300,000 for your home. It's now worth $150,000. The solution ?

BORROW ANOTHER $100,000 !!

 

MSN (Mostly State News_

 

NBC (News by Commies)

 

Should be lined up and shot as traitors.

 

 

Jan 9, 2013 1:50PM
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Government is the problem not the solution.
Jan 9, 2013 12:47PM
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Too damn bad. Obo needs to seriously cut or else. We can't let him keep spending.
Jan 9, 2013 11:10AM
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Something wrong with the math in this article.  I quote:

"If you pay a day's worth of: 
Interest on Treasury securities -- $38.1 billion
Income tax refunds to individuals -- $85.5 billion
Medicare/Medicaid -- $72.5 billion
Social Security benefits -- $61.1 billion
Unemployment insurance benefits -- $6.1 billion
That's a total of $276.5 billion."
 
Well, multiply that by 365 days per year and you then get a annual budget of about $101 trillion, compared to last fiscal year's Federal budget of $3.6 trillion.  It looks like the author said "day" when he should have said "month".  Sloppy.
 
Jan 9, 2013 11:58AM
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This sky is going to fall down. let it fall. Unfortunately we do not seems to suffer from these things. For once, just once, I hope sky falls down. It will be a call on American people that you cannot spend endlessly what you do not have, you cannot fight wars because your wife's grandma is worried about rat on a farm in a country most people even do not know where it is.

Jan 9, 2013 12:07PM
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Three related problems are coming up that should be handled in order: the debt ceiling, the sequester, and the continuing resolution.  
The continuing resolution isn't a problem if the government does not have any money to spend; so as long as it comes up last, it isn't a problem.
The sequester is the cuts that were supposed to happen due to  the last debt ceiling increase. Until some resolution on that is achieved, don't give them a penny more than 40% of $220 billion to prevent a credit downgrade.    
The debt ceiling is a problem for two reasons, the effect on the economy and the credit rating of the country.  The CBO says we borrow 40% of what we spend, and the interest on the national debt was $220 billion last year.  Pass a debt ceiling increase that is equal to 40% of the $220 billion, send the money to the treasury to be used to pay the part of the interest the government can't pay. That would take the credit downgrade fear off the table.
Simpson-Bowles and the Rivlin group both said that we need cuts at about 3 times the increases in revenue.  We just had a tax increase that was much greater than the cuts associated with the deal when we "avoided" the fiscal cliff.  That won't do us any good long term. We have had recessions in the past and will have them again, and weak or not the economy and the country will survive the next recession.  If the government does not have the money, it can't spend it.  The ultra-liberals can agree to age increases for Social Security and Medicare and a different way to figure cost of living increases.  They keep telling us that neither SS nor Medicare need fixing now, so lets see them pay those bills without borrowing more money.  If they can't, then we clearly need to fix them.  Think drop a couple of government agencies like the Dept of Education and the EPA for starters, and do a drastic rethink of SSI eligibility.  If we need more jobs, slap an E-Verify requirement on every job in the country.  That would open up a couple million jobs.  Admittedly not high paying jobs, but that is where the bulk of our unemployment is, the low end.  Unemployment now pushes 2 years, but was set up for 6 months.  Run it back to 6 months.  Yes, doing that would push us into a recession, but in the long run it might push congress into dealing with adjustments to the long term problems that we face and keep avoiding by crying about everyone not getting everything they want.  At some point if the families of the takers had to support them instead of the government,  we would have a lot fewer takers and a lot more people willing to work.   
The cuts not yet put in place from the last debt ceiling increase (the sequester) and the current debt ceiling request could be combined into one overarching solution if the government wants to get serious.  Chain CPI and age eligibility phase ins would not hit too hard right now, and the recession would not be that severe.  In the long run, I think that would be the best thing to do.  If the ultra-liberals won't go along with it, as long as the House gives the Treasury the 40% of the interest on the debt, the ultra-liberals can take the hit for screwing things up even more.
Jan 9, 2013 2:01PM
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The debt ceiling should not be raised until the senate submits a budget. Tax payers deserve nothing less than a full accounting as to where the money will be spent!!

The Senate has not submitted a budget in over 3 years.

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