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Rants / Debates (Serious) > Consequences of not having a debt deal

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message 1: by Lobstergirl, el principe (new)

Lobstergirl | 24099 comments Mod
So if this debt deal doesn't happen by August 2, President O will have to make some tough choices. What do you think he should do? He could choose not to issue checks for:

Social Security checks, salaries for members of the military and veterans, unemployment benefits, student loans...

the government would have to cut 44 percent of spending immediately. Through August, the government could afford Social Security, Medicare, Medicaid, defense contracts, unemployment insurance and payments to bondholders.

But then it would have to eliminate all other federal spending, including pay for veterans, members of the armed services and civil servants, as well as funding for Pell grants, special-education programs, the federal courts, law enforcement, national nuclear programs and housing assistance.

On Aug. 3, the Treasury is set to receive about $12 billion in tax revenue — mainly from people paying their taxes late — and is slated to spend $32 billion, including sending out more than 25 million Social Security and disability checks at a cost of $23 billion...

Obama could decide to pay half of the Social Security checks and ignore other bills coming due that day, which include $500 million in federal salaries and $1.4 billion in payments to defense contractors.

Or he could decide not to make any Social Security payments and instead hoard tax revenues to pay investors in U.S. bonds. A failure to pay those investors would severely destabilize the financial system, analysts say.


Aug. 4 could prove even more difficult. The government is slated to spend $10 billion and raise only $4 billion in revenue.

More worrisome for government officials is the $100 billion in Treasury bonds that come due on Aug. 4 and must be paid off. Ordinarily, Treasury would pay off those bonds and issue new bonds.

But if the debt ceiling isn’t increased, Treasury could run into trouble “rolling over” this debt. Ratings agencies are threatening to downgrade U.S. bonds if the debt ceiling isn’t raised. If the bonds are downgraded, many investors — such as retirement funds — can’t buy them.

As a result, there could be far fewer buyers of Treasury bonds and the U.S. government would have to pay much higher interest rates.

Government officials and analysts say a spike in rates would dramatically increase the cost of funding the government and lead to far higher interest rates on mortgages, credit cards and other types of debt.

message 2: by Lobstergirl, el principe (new)

Lobstergirl | 24099 comments Mod
Obviously the first thing that should be cut is Congressional salaries.....those should have been cut off a month ago.

message 3: by Lobstergirl, el principe (new)

Lobstergirl | 24099 comments Mod
Cantor and his allies among conservative Republican freshmen remain less troubled by the prospect of default than by the amount of federal spending.

These guys truly don't get it. Defaulting will increase federal spending. Automatically. No two ways about it.

An actual default — or even the threat of one — might set off a chain reaction that would raise Treasury bond yields by 25 basis points (a quarter of a percentage point) or more, pushing up the cost of debt throughout American financial markets. Moody’s, the bond rating agency, just Wednesday put America’s AAA credit rating on review for potential downgrade, roiling equity and bond markets alike in the aftermath. If an extra 25 basis points becomes the new benchmark, federal interest expenses might increase by $30 billion to $40 billion annually over the ensuing years as $1.5 trillion of new debt is issued each fiscal year, complicating efforts to narrow budget deficits. - Bill Gross, founder of Pimco investments

message 4: by Michael (new)

Michael I'm not worried because Michele Bachmann returned from whatever planet she lives on to say there is nothing to worry about. The president is lying to us and we will not default on 08/02 and I slept good last night. It's odd that Michele Bachmann makes me look to Mitch McConnell for a rational Republican thought.

message 5: by Sarah (new)

Sarah | 13815 comments I really hope Social Security checks go out on time. Those are the people who can't wait. If the check doesn't come they don't pay for electricity or rent or medications or food and then they end up in hospital or on the street.

message 6: by Lobstergirl, el principe (new)

Lobstergirl | 24099 comments Mod
Michael wrote: "I'm not worried because Michele Bachmann returned from whatever planet she lives on to say there is nothing to worry about. The president is lying to us and we will not default on 08/02 and I slept...It's odd that Michele Bachmann makes me look to Mitch McConnell for a rational Republican thought. "

That worries me. It makes me think maybe her sick craziness is just theatrics to make other Republics look good in comparison. Bad cop, good cop.

message 7: by Lobstergirl, el principe (new)

Lobstergirl | 24099 comments Mod
Sarah Pi wrote: "I really hope Social Security checks go out on time. Those are the people who can't wait. If the check doesn't come they don't pay for electricity or rent or medications or food and then they end u..."

You could say the same about unemployment checks, really. And if active military aren't getting their paychecks, do they just stop whatever they're doing in Afghanistan and sit there waiting? Or do they keep on doing what they're doing without being paid?

message 8: by Lobstergirl, el principe (new)

Lobstergirl | 24099 comments Mod
So the plan Mitch McConnell is now pushing would force Obama to raise the debt limit by himself - Congress would vote not to raise, Obama would veto, Obama would have to bear the entire burden of having raised the debt ceiling all by himself and Republicans would bear none of the political costs. This is the "backup plan." Obama has said he will do this if they can't get a deal in place.

Someone on WaPo writes:

This is McConnell's Toothbrush Plan. McConnell knows he has to brush his teeth, but he's promised his constituents that he would never brush his teeth. So instead, he will stand there with his mouth open, and Obama will run the toothbrush over his teeth. This will allow McConnell to hold a press conference that makes it clear he didn't want to brush his teeth, it was never his idea to brush his teeth, and the President is overstepping his role by forcing the teeth to be brushed.

message 9: by Sarah (new)

Sarah | 13815 comments Lobstergirl wrote: "You could say the same about unemployment checks, really. And if active military aren't getting their paychecks, do they just stop whatever they're doing in Afghanistan and sit there waiting? Or do they keep on doing what they're doing without being paid? "

Yeah, I think all of those should go out on time, and the stalling lawmakers can have their paychecks withheld instead. I just picked out SS because those are the people who will be calling me at work to ask for help with their turnoff notices and evictions and I can't help them all as it is.

message 10: by Lobstergirl, el principe (new)

Lobstergirl | 24099 comments Mod
Beyond a default: Catastrophic calculations (Ezra Klein)

How would the consequences of federal debt default be spread throughout society?


message 11: by Michael (new)

Michael What am I missing here? McConnell, Boehner and Cantor all voted to raise the debt limit a bunch of times when Bush was president and the nation's debt skyrocketed. Why was it important to them then and not important to them now?

message 12: by Lobstergirl, el principe (new)

Lobstergirl | 24099 comments Mod
They want to see Obama fail. If he is successful in putting together some enormous deal, it would show leadership. They don't want that to happen.

message 13: by Lobstergirl, el principe (new)

message 14: by Lobstergirl, el principe (new)

Lobstergirl | 24099 comments Mod
Six days later and still no deal. Boehner walked out of talks today.

Are you worried? Are you increasingly worried? Don't care? Not on your radar? I am curious if people are following this as a news story.

message 15: by Lobstergirl, el principe (new)

Lobstergirl | 24099 comments Mod
Ezra Klein:

David Beers, director of Standard Poor’s sovereign debt department ... explained that it wasn’t economic factors that had put America’s credit rating at risk, nor world events. It was credit-rating agency’s increasing fears that our political system was no longer up to the challenges that face it. “What we’re saying now,” said Beers, “is we question whether despite all the discussions and intense negotiations, if they can’t reach this agreement, will they be able to reach it after the election?”

If we convince Standard Poor’s that our political system has failed, they will downgrade our credit within three months. If they do that, interest rates on our debt will spike, perhaps by 50 basis points, perhaps by more. An easy rule of thumb is that if interest rates rise by 50 basis points, we will lose 600,000 jobs in this country.

message 16: by Michael (new)

Michael Yeah, I'm worried, but I liked the president's press conference yesterday afternoon. It was nice to see him angry and tough and that made me feel a little better. I especially liked when he referenced Reagan.

message 17: by Pat (new)

Pat (patb37) I am following the story, annoyed at the arrogance and stupidity coming from the right.

message 18: by Phil (new)

Phil | 11617 comments Following closely. Pissed off that there's more politicking than problem solving taking place.

The debt ceiling is arbitrary and shouldn't be an issue at the moment.

This congress was elected because they promised a laser-like focus on JOBS, JOBS, JOBS.

Hey congress, where are the fucking jobs?

message 19: by Michael (new)

Michael Take your pick: Masturbation makes you go blind, all women want to have sex with other women, men are afraid of committment and Republicans are interested in creating jobs.

I agree it's arrogant, but I don't think it's stupidity.

message 20: by Jim (new)

Jim | 6485 comments I think it will be extremely stupid and arrogant if they let this happen. There is no need to risk this.

message 21: by Michael (new)

Michael The reason I say it's not stupidity is because of McConnell's comment about the single most important thing they want to achieve is making President Obama a one-term president. If that's really true, then it's criminal.

message 22: by Lobstergirl, el principe (last edited Jul 27, 2011 06:41PM) (new)

Lobstergirl | 24099 comments Mod
A comment following today's NYT piece "Q&A on the Debt Ceiling:"

Boehner showed he does not understand economics when he stated he ran a business that had to balance the budget, so government should too. Businesses do not coin their own money, for one; two, there is a reason there is a public and a private sector--private sector is motivated by profit. Also, businesses do not have a Constitutional obligation to "provide for the General Welfare" in caring for those citizens unable to care for themselves, like the elderly who have no retirement because corporations used unethical legal maneuvering to shake off pensions. Businesses do not have to patrol and defend our borders, and businesses do not sufficiently police and regulate themselves, which the government must do for the people.

This needs to be repeated over and over. So many people don't understand this - they think the government needs to balance its budget and have no debt, the way it's desirable for individual households to. Politicians and the media rarely ever make statements such as this. Some of them don't know enough to be able to make the statement; some probably do and choose to cynically exploit others' ignorance on the subject.

We definitely need remedial instruction on basic economic concepts, especially as they relate to governance and public policy.

message 23: by Pat (new)

Pat (patb37) I vote for LG and BunWat. Unfortunately, these two are far too sensible to run for office.

To me, that seems to be a core problem. What sensible person could possibly put up the the craziness of elections and politics? No wonder the tea party people are so eager to toss their hats in the ring.

message 24: by Félix (new)

Félix (habitseven) Large corporations are held in higher esteem when they have a healthy amount of debt. Being debt-free is not always best. If a company can borrow money for long-term capital expenditure at 2-4%, they are better off doing that than selling more stock or taking the cash out of earnings that cost significantly more to generate from operations (like $.60 to get $1.00 in earnings).

message 25: by Lobstergirl, el principe (new)

Lobstergirl | 24099 comments Mod
Could a U.S. debt downgrade trigger a financial crisis?


It could. It could be worse than the Lehman bankruptcy.

message 26: by Lobstergirl, el principe (new)

Lobstergirl | 24099 comments Mod
Banks preparing in case of goverment shutdown

Financial institutions across the country have begun preparing for a worst-case scenario if Congress fails to raise the nation’s borrowing limit, assembling plans to offer customers emergency loans or waive fees if their federal pay or benefits checks do not arrive on time.

Navy Federal Credit Union, the largest in the country, said this week it would advance pay to direct-deposit members who are active-duty military or civilian employees of the Defense Department. It also said it would expedite approvals for lines of credit, overdraft programs and higher credit card limits.


message 27: by Karen K. (new)

Karen K. Miller (karenkm) | 140 comments People not getting their social security checks should not be an option. I work with disabled elderly people and they rely so much on their checks and are not allowed to have more than $2000 in savings or they could lose their disability. It's not fair that when money is tight, the poorest of the poor are the ones to suffer. I've had to worry about losing my job on and off for the last 22 years. Our program is funded by Medicaid. The people I work with need programs like the one I work at because many of them live in residential programs and need somewhere to go during the day. I just hope it doesn't come to this conclusion.

message 28: by Michele (new)

Michele bookloverforever (lovebooks14) | 1970 comments just heard there is a deal on the table. massive cuts in spending but not to social security or medicae. will believe it when I see it and just where are the cuts coming from then? My suggestion: stop the war in Afghanistan ...we're bleeding money as well as lives there. no revenue increases proposed: that means no loopholes closed and no taxes raised. would raising everyone's taxes 1% and dedicating it to reducing the national debt help? just a thought. Didn't Nixon pass a surtax to pay for Vietnam? Seems to me I recall that. Personally, I think the whole debt thing was manufactured to draw attention from the fact that taxes have been cut since 2000 and we still have a recession. Plenty of jobs in China, Sri Lanka, India..not here.

message 29: by Lobstergirl, el principe (new)

Lobstergirl | 24099 comments Mod
The agreement would raise the $14.3 trillion debt limit in two stages by as much as $2.4 trillion. It represents a victory for Obama, in that it would allow him to avoid another politically grueling and economically damaging debt-limit fight in the heat of the 2012 presidential campaign.

However, Obama failed to secure other top priorities, including fresh measures to revive the flagging recovery and an end to tax breaks for corporations and the wealthy. Obama said he would pursue those priorities later this year, when a new congressional committee would begin the search for a broader debt-reduction plan, under the terms of the deal.

“The ultimate solution to our deficit problem must be balanced,” Obama said Sunday. “That’s why the second part of this agreement is so important.”

It still has to pass....they've agreed to it, but it hasn't been voted on. Assuming it passes, I'm relieved we're not going to default on our debt, which would be catastrophic, and relieved the government will go on paying its bills as required. I'm depressed that all the hits are going to the middle class and the poor....as usual. Par for the course, as the rich say on the golf course. Will we actually see some revenue increases later in the year? I have no idea....I won't hold my breath.

message 30: by Lobstergirl, el principe (new)

Lobstergirl | 24099 comments Mod
Democrats will lose now. But they can win later. (Ezra Klein)


And by later he means much later - Dec. 31, 2012, when the Bush tax cuts expire.

message 31: by Félix (new)

Félix (habitseven) A completely manufactured crisis at that.

message 32: by Lobstergirl, el principe (new)

Lobstergirl | 24099 comments Mod
I am utterly unable to click on any of these headlines at the WaPo....waaaaaay too depressing. I'm afraid I might slash my wrists or something.

What the debt deal means for . . .

* The unemployed: No insurance, no stimulus
* Federal workers: Possible job, benefits cuts
* Health care: Changes to Medicare & Medicaid
* The states: Federal money, credit ratings at risk

message 33: by Michele (new)

Michele bookloverforever (lovebooks14) | 1970 comments but standard & poor is happy...not ecstatic, but happy. may still lose AAA rating to just AA. I wonder how many of those right wingers really live within their means or carry large credit card debts? Reagan himself said debt didn't matter. to avoid civil unrest we must concentrate on jobs here in the US. good jobs. we must grow the middle class. dems were outmaneuvered by tea party. sigh. and if the gang of 6 could not agree what makes everyone think a gang of 12 will fare any better at agreeing to future cuts? This is a circus to draw our attention away from the fact that the republican love affair with tax cuts for the wealthy DO NOT PRODUCE JOBS.

message 34: by Sarah (new)

Sarah | 13815 comments Wonderful to see Gabby Giffords show up to vote.

I just wish it hadn't come down to this. The raising of the debt ceiling should have been automatic. They should never have let it get tied to the budget.

message 35: by Phil (new)

Phil | 11617 comments Many of the congressional freshman (and those on the bandwagon) have been saying in interviews that the message from the 2010 election was to "rein in out of control government spending."

That's not how I remember it.

Didn't the republican party campaign primarily on "jobs, jobs, jobs?"

Boner said their priority would be a jobs bill. Anyone seen one?

So, Mr. Speaker and freshman members of the house...


message 36: by Félix (new)

Félix (habitseven) Down the drain with spending cuts.

The REAL plan was to dynamite the recovery. The economists pretty much all have said that spending cuts will do that. That's the real plan. Start another recession so Obama will lose to Rick Perry and we can start the Bush cycle all over again.

message 37: by Michele (new)

Michele bookloverforever (lovebooks14) | 1970 comments We allowed the S&P to set the political agenda instead of our own citizens. We allowed the GOP/tearrorists to distract us from their failure to produce jobs with this whole debtacle circus! amazing.

message 38: by Félix (new)

Félix (habitseven) Truth, Michele.

message 39: by Lobstergirl, el principe (new)

Lobstergirl | 24099 comments Mod
So it turns out the consequences of not getting a deal promptly, having it drag on for months, culminating in the downgrade of U.S. longterm debt by S&P, is what blogger emptywheel calls "the $100 billion teabagger tax."

Last week, when analysts were contemplating a debt downgrade, they put a price tag on it: $100 billion.

A better way of thinking of it is how much every American will have to pay. That $100 billion among 310 million Americans works out to be $322 for every man, woman, and child to pay for the TeaBaggers' little temper tantrum.

To put that in perspective, that’s more than the 2008 Bush tax rebate gave to taxpayers (rebate checks started at $300/person).

So the TeaBaggers are now taking away whatever benefit we got from Bush’s last tax cut.

message 40: by Michele (new)

Michele bookloverforever (lovebooks14) | 1970 comments .01% of the US population owns over 80% of the available wealth. that does not leave the 99.9% of the rest of us with much money to buy things. No demand = no jobs. no jobs= no taxes coming into the government coffers and with the taxes on the super rich so low (compared to the 72-90% of the '50s and '60s) coupled with all the tax breaks/shelters available to the super rich means we do not have enough income. Further 82% of that debt was incurred during Reagan,Bush Sr.,&GW Bush. Reagan stated the debt did not matter..remember the military spending that drove the USSR into near bankruptcy and caused the USSR to fall apart? Well, the bill is now due and the poor, elderly and disabled get to pay the bill.

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