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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295Comments
Jan 9, 2013 3:23PM
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I see they can save 19.9 billion on salleries.
Jan 9, 2013 3:23PM
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Just another attempt by the Liberal Progressive's in this country to try and create a panic over something that is abhorrently false. Is there any reality and common sense left in Washington D.C. at all. No one should be elected to political office unless they have lived off an earned wage at a real job or had to raise their own food prior to running for office. I can't wait for all of this to hit bite the liberal, progressive people who support Obama and the Democrats in the butt, which it is going to do in the not too distant future. It won't affect common sense conservative's because they have taken steps through out their lives to survive the catastrophe when it hits. The next four years is going to be very entertaining for those of us who can survive the insanity!!!!!!!!!!!!!!!!!
Jan 9, 2013 3:21PM
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It's almost amusing that with all the posts the fact remains a majority of the country voted knowing and embracing the direction of this administration. You have to assume the programs relating to the economy being implemented are meeting the majority's approval. That said despite the logic of the argument this administration is enabled and will execute what they choose. Since you have no impact in the outcome wouldn't it be better to simply abstain and allow the programs to stand or fall on their merits as opposed to fighting for meaningless mini concessions and then bearing the blame when the program fails as it will most certainly on it's own?  Wanting the system to fail and knowing the system will fail are completely different issues. 
Jan 9, 2013 3:20PM
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Perhaps I have my history wrong but I believe the USA defaulted on it's debt during the War Of 1812?  The British blockaded USA's ports and shipping lanes causing the economy to grind to a halt.  Correct me if I'm wrong.
Jan 9, 2013 3:19PM
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The questionable wars in Iraq and Afganistan have wound down. Yet last year Washington spent a record 3.8 Trillion dollars. What are we spending this money on. We really don't know since Senate Democrats have refused to pass a budget for four years.
Jan 9, 2013 3:17PM
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Of course the debt ceiling must be raised. The Republicans arguement is spending needs to be reduced and this is the only way to get the Obama Administrations attention. However,I feel not paying Federal employees and Dept. of Education costs isn't really a bad thing.
Jan 9, 2013 3:16PM
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If people like you would read more than msn articles...you would know where the money goes. You would also know which of your senators and representatives voted for which measures. But that would be too difficult on a broad scale, right? ...and would be precisely the type of action that would demand accountability of our congress (preventing situations like this in the first place.)

 

We can blame Congress all we want. We are the enablers...we pay taxes, we allow them to set double standards for themselves and hurry laws through loosely with pork add-ons, trample on our rights...and our response? Oh, not with our votes...surely, the populous is all red or blue defensively and routinely...let's just respond by flaming on an MSN thread. There is a reason there are articles like this every 6 months...look in the mirror. Wake up America...quit basing your beliefs on things you've not researched, nor voted by.

Jan 9, 2013 3:15PM
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How about the "lousy" U.S. gov't just spend within its means.

Jan 9, 2013 3:15PM
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Check your history Obama is not the first president to raise the debt limit. the great Ronald Reagan (republican God) raised the debt ceiling 199.5 % while in office so don't act like this is the first time this has happened. Next time vote for real change say Ron Paul, Gary Johnson etc.
Jan 9, 2013 3:14PM
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The crises over nominations, over debt ceilings, over Behghazi are the best excuses for doing nothing that a do-nothing Congress has ever had. Kick-the-can is the only game that avoids endgame and that also keeps the Joy of Doing Nothing going.

 

Kick the can. Unitil one Monday, that fateful bond auction is thrown and nobody comes.

 

No more can to kick.

Jan 9, 2013 3:14PM
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Recall congress and recall Obmama, enough is enough. Obama has made promises that he never intended to keep, he is trying to ruin this country.  Say no to this rediculous idea of raising the debt limit, how stupid has congress become to even think of alowing this to happen?  Maybe it is time to stop paying our taxes and then see what happens to this country and th paychecks of congress and the president.  This is si STUPID!

Jan 9, 2013 3:13PM
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The debt ceiling has to be raised because emperor Obama won't control spending.
Jan 9, 2013 3:13PM
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The only way congress should raise the debt ceiling is if there are major cuts in the entitlements. What our white house does not understand or he Democrats is you have out spent the money you are bringing in. Look at Greece that is where we will be in four more years with the spending of Obama.
Jan 9, 2013 3:13PM
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hmm...an increse in the debt level.  are you serious? Th Senate hasn't passed a budget since 2009.  IMO we should insist on a budget before any increase in the debt level.     
Jan 9, 2013 3:11PM
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NO,NO,NO,NO,NO to raising the debt limit.  16 trillion dollars and rising is enough, it is time to cut spending.  If this congress can't get it done then move out of the way and let someone new do it.  Myabe it is time to do what happened in Egypt and Spain, it is time to revolt and take this country back.
Jan 9, 2013 3:10PM
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Here goes.: Remove half of the 47 million receiving food stamps, remove half of those on SSI, allow veterans benefits for those with direct combat injuries/PTSD only (not from smoking related/alcohol use) trim the post office to three days a week delivery and transportation of same. Go to flat tax and reduce IRS 60%. Boom done. Economic analysis to follow...
Jan 9, 2013 3:09PM
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He missed something. STOP giving money to other countries until we get our house in order!
Jan 9, 2013 3:08PM
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How's this obama thing working out for you?
Jan 9, 2013 3:08PM
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It's hopeless!  The first thing our idiot president did when he got into office is slip a multi-billion dallar health care boondoggle through in the dead of night against the wishes of 3/5ths of of the American people.  So what did we do?  Rewarded him with another 4 years!  We're going down the toilet..., and it's our own damned fault.  
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!!!
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