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
Jan 9, 2013 3:07PM
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They're going to refuse to pay income tax refunds????  I hope they do!! Maybe this will be the fuse they need to light!!!  If we don't pay our bills, we are looked upon as deadbeats and no-goods.  But, guvymint can talk about not paying theirs??? They need to be shown who is boss.  Maybe that is why they have FEMA camps already staffed. If we refuse to pay our income tax, we go to jail.  If they refuse to pay thier debts to us, they just say they don't have the money!!!!!  They may need to staff all the FEMA camps!!!
Jan 9, 2013 3:07PM
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Cut spending! Close overseas bases and stop the wars.   Shut down unconstitutional agency's.

I see no real cuts in spending.          No foreign aid!

Jan 9, 2013 3:07PM
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America is already broke and most likely beyond fixing. Who the hell are we kidding by kicking the can down the road and making future decisions even more painful? Get rid of the government waste, cut all congress salaries in half, give O about $25 a year, take away his unrestricted tax-payer funded frequent flyer program, tell public employee unions to go to hell and say sorry to the inflated government pension plans.

 

That might give us a glimmer of hope. Then, maybe we can get down to the serious business of balancing and reducing the national debt.

Jan 9, 2013 3:07PM
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Medicaid/Medicare reform. reform reform reform. Stop the free medical gravy train. It is one of the biggest drains on our resources. We have to fix the fraud and we have to get these people to pay for their trips to the Er's. Get them into a system wereby they see a Doctor, not the Er which grossly inflates the costs of service. Un-employment, while a small % should be scaled back to 6months with no extenders. Allow SSI to again begin showing surplus' by leaving the money in trust and stop borrowing off it. Institute Health coverage changes to make the federal employees pay portions of there health premiums, like the rest of the country has been doing for decades. We need to have Washington Politicians on similar footing as the rest of the country so they know the pains we are going thru while watching them effectively sit on their asses and do nothing. There is no incentive in Washington to get our country back on the right path. We need to swallow a hard pill to make the future better. How long have we been listening to the BS about making things better for our children while we watch things get worse by the day for our children.
Jan 9, 2013 3:07PM
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Let the whole thing crumble !   When interest rates go up the whole mess comes apart anyway so let it be now.   The only ones that benefit from the D.C. sideshow are the participants in it.   Time for their rerun episodes to run out.   Like Happy Days,  all of D.C. has "jumped the shark."   Few care anymore. 

Jan 9, 2013 3:07PM
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According to this article the government spends $61.1 billion a day on SS. With roughly 300 million people in the Us, that means that each and every American recieves over $2200.00 a month.Would the writer of this  please send my family of 3 the difference from what I receive on disability to make up the balance of $6600.00. Stop inflating your #s on SS and look at your own salaries and that of politicians, including the perks and retirement payments!
Jan 9, 2013 3:05PM
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Everyone is overlooking something:  Congress has NO AUTHORITY to NOT increase the debt limit. It has no authority to put the USA in default.  Reference the US Constitution, 14th Amendment, Section 4 -- "The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned."
Jan 9, 2013 3:01PM
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Of course Congress must raise the debt ceiling, and it should.  But not without AT LEAST commensurate cuts in future spending, ideally at least two dollars of long term spending for each dollar of additional short term debt the President wants to spend in lieu of actually proposing a budget and making actual choices as each of his predecessors have done.
Jan 9, 2013 3:00PM
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I don't know about anyone else but I pay taxes in so many ways and the our government still has no money. Makes me sick.....Where did all the money go?  No negotiation out of thw white house? Typical whiny liberal rambling. The government needs to buck up and stop he spending and stopo the borrowing.......I wouldn't miss the government if it shut down anyway.......
Jan 9, 2013 2:57PM
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When "O" Took Office, A Child BORN on 01/20/2009 Owed About $20,000 of National Debt... SHARE Today Is Over $50,000... IF Cost of Gov NOT CUT, Share Will Exceed $75,000 or More When "O" Leaves Office..... GREAT GIFT to the Unborn Children of America... SHUT Gov DOWN...
Jan 9, 2013 2:57PM
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CUT congresses pay if they want to cut spending. Due to there LOUSY job performance they don't deserve a paycheck anyway!! Yeah I mean both sides of the aisle. Apparently they can't work together!! Its always about there PRIDE ahead of there nation!!
Jan 9, 2013 2:56PM
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So tired of hearing we have to get into more debt or else....This country has a SPENDING problem. If you kid was spending and spending and in huge debt, you would tell them to STOP spending...why are we any different?
Jan 9, 2013 2:56PM
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This congress and president has made me ashamed to be called "American."  If I were in another country, I don't think I would claim to be American if I could avoid it.  And, it didn't just start with this congress and this president. I do think Obama is a step up from the bushes and clintons.  But, congress is getting dumber, it seems.  They tell teachers how to teach but it seems none of them can do simple addition and subtraction.  I HOPE the credit score for America goes to ZERO.  I would not be surprised if we don't have an all out revolution in America soon.  I think that is why the FEMA camps are already staffed in some areas.  I hope this government FAILS, Falls, and is replaced by one that is sensible.  To be patriotic without question is to be idiotic.  I am patriotic but don't want to be idiotic.
Jan 9, 2013 2:54PM
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I really hate it when they quote SSI & Medicare numbers since they forget to account for what is paid INTO those programs each year from the Working citizens.

Tax refunds - Only pay them out every other year. Give a credit on this year's return towards your following year's filing, then pay out. Better yet, adopt a flat tax and do away with the IRS. 

Defence Contractors - Sequestration! Yes we have cool "toys" but do you really need a sledgehammer to crack a walnut? We've seen the "Wanted" posters with a bounty but what has been the cost in the end?

 

 

Jan 9, 2013 2:51PM
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I am ready for the OR ELSE regrdless of consequences. That MAY be the only way all the freeloaders face the reality of nothing is free. To continue to borrow to fund the numerous vote buying programs disguised as helping people and stimulaing the economy apparently will not stop until lenders refuse to loan a bankrupt, and corrupt I might add, government. Being out of money hasnt  worked so only running out of lenders will work, then the politicians and freeloaders will have to live on what funds are available, just like most of us.
Jan 9, 2013 2:49PM
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Mr Deisel is saying a mouthfull--the promblem is our leaders do not consider themselves to be average people---did the average joe go to Hawaii with his family ?  Is the average Joe going to get a life retirement after working 8 years? does the average joe not pay SS? etc etc etc etc etc etc
Jan 9, 2013 2:47PM
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The world would think we've gone mad?  They're dumbashes if they don't think it already. I know it won't happen but I sincerely HOPE this govymint can't borrow another dime!!!  I HOPE the gubymint will run out of borrowed money.  They are already out of our money.  People, if this is the case, we are doomed anyway!  We have to reach the end of the rope.  We need a massive revolution. Not that I want to see it, but it is likely to happen anyway.  When we have a cogress (not capitalized intentionally) that can't do simple math, they need to be FORCED out and SENT home!  We need someone who can add and subtract in congress.  Here comes another movie, FISCAL CLIFF 2013, starring Obummer and Beaner again.  Please put some cowboy style fightin in it!!! We've heard "gubymint shutdown" so many times. It won't happen this time either.  SS and medicare will be cut, the young and restless will get their checks.
Jan 9, 2013 2:47PM
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 I think the math is off a little bit. Maybe those are the monthly numbers. Someone should get their math straight
Jan 9, 2013 2:47PM
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We raised the limit a 18 months ago because we "had to". But then we did nothing to prevent us from having to raise it again. Are we going to do something now ? or just continue to raise it with no plan to ever even slow down the growth. The article shows that we are paying $ 38 Billion a DAY in interest

I realize that you can't balance the budget in one year. We do need a plan to reduce the size of the deficit by cutting spending over say a 10 year period.

Jan 9, 2013 2:44PM
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One of the problems we face is our decision makers do not live in the real world--we are in debt up to our necks and the royal family  still takes a vacation to Hawaii--the house and senate are still being paid and still have the best retirement plan in the world---if you and I are in debt we can't go on vacation and we are taking what little money we have saved out of our retirement plan---we need term limits, so that our leaders can make some hard decisions without thinking about re-election--we need a law that if the budget is not balanced the house,senate, and president do not get paid and all benefits stop--as it stands now if we do not raise the debt ceiling  it will not effect our leaders--it will only effect the average Joes that are reading this blog
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