Let’s imagine that the debt limit passes without any bill, and Obama decides not to simply ignore it and dare Justice Kennedy to stop him. In that case, and assuming that we continue to service the debt, which we will, Obama will have to start ignoring some combination of spending allocations that are written into law.
In practice, ‘mission critical’ stuff will go on, for example funding current wars/military readiness and keeping the doors open at federal prisons (or closed, as the case may be). That will leave a smaller pot for incidental things like military salaries, government agencies and the social safety net. Obama will have almost no choice but to cut funds for Medicare, Medicaid and Social Security. We already know that. Although that sucks*, at places like this we tell ourselves that at least it will focus the public’s attention on the batshit crazy GOP.
For my part I would not even count on that. Look at it this way. For decades now Republicans and their allies have tried to sell the idea that some adverse relationship exists between government programs and Americans’ well being. The logic was usually pretty convoluted, but that won’t be the case here. Every government agency that Obama keeps open will necessarily mean less money to give directly to people entitled to government aid.
Most analyses show that Obama will have to cut Social Security checks if he wants to have any activity at the FCC, the EPA, the NIH and so on. Slimy PR firms like Karl Rove’s Crossroads GPS dream of days like this. President Obama cares more about some endangered beetle than about your mortgage payment. How do you feel about that? The rationale for zeroing out huge chunks of government will suddenly go from nil to life-threateningly urgent for quite a lot of people.
The opportunities look plenty sweet if you are a creative destruction, lemons from lemonade kind of party.
(*) by ‘sucks’ I mean absolutely fucking catastrophic.
Corner Stone
Deep down in places you don’t like to talk about at parties, you want me to cut SS! You need me to cut Medicare!
President Obama will never, ever allow a Constitutional challenge. There is no hypothetical for same.
Trurl
Gosh, cutting SS benefits would just break his mighty heart.
jlowery
Admittedly selfish, but I’m a lot more worried about what happens to interest rates than a bunch of checks going out late. The rate hit will leave a mark, and it won’t go away any time soon.
Yevgraf
I’d cut defense contractors in red states, pensioners in teatard districts, SS and Medicare/Medicaid reimbursement in teatard districts, road and infrastructure funds to teatard districts, etc.
Let them howl.
Brachiator
From the Economist, the price of default.
Very short version: interest payments are due on treasury bonds on August 15 and November 15. Interest costs would rise as the government’s credit rating falls. Longer version:
But I’m sure that the Tea Party People can explain why claims a default would be disastrous is “only a theory.” You know, like evolution.
Southern Beale
Pardon this but if you’re on Twitter Diane Sawyer has started a hashtag “#tellWashington”:
“Q for you. Debt ceiling frustration? In 140 characters what do you want to #TellWashington ?”
It would be nice to flood this Twitter stream with “Tell the GOP to cut the crap” type Tweets, if anyone is so inclined. So far seems to be the majority opinion though there are occasional “Oooh out of control government spending baaaad!” BS and I’m sure the Teanut Keyboard Kommandos will get on their laptops as soon as word spreads. It’s going to be put on tonight’s news, is my understanding.
Jack
Will Congressional paychecks and health insurance premiums be sent out on time?
I mean, that’s part of the Federal budget, right?
John O
Gee, thanks for that wrist-slasher, Southern B.
I still don’t see a plausible scenario wherein the Money Boys don’t get their Congresscritters of both parties in line, but for FSM’s sake, Twitter? 140 characters?
Southern Beale
@Jack:
My understanding is that some creditors will get issued IOUs which hopefully banks will honor, a la when State of California had its issues when Ahnuld was governator.
Southern Beale
It’s for ABC News, Jack-O.
John O
‘Nuff said, I suppose. It’s still depressing.
Pococurante
The scenario you outline is a feature to the crazy contingent.
Personally I’m ready for the bankruptcy. I’m not in bonds at all, it is my FOX news mother who will see the impact, and I fully expect blue chip equities to receive the flight from “safe money” bond investors. My S&P index ETF will benefit nicely and I can put it all to money market once peak wingnut and peak tbond flight peak.
It’s not a nice position. It’s not mature. It’s probably even immoral that I’m at this point.
But I’m ready.
BGinCHI
I’d cut congressional pay.
General Stuck
I think if Obama goes the raise the debt limit on his own constitutional authority, it won’t be done in half measures.
He will consider all previously appropriated spending as lawful, and borrowing as necessary to meet those mandates, just like we do now. I don’t think it is wise, or that Obama will use this thing as a way to play politics on favored programs to embarrass the wingnuts.
Roger Moore
I’m not sure about this. I still think the Democratic message- we can’t keep the government going because the Republicans won’t raise the debt ceiling- is easier to make than the Republican message about competing priorities and diverting money from one program to another. The only simpler message the Republicans can send is “we can’t afford our government”, but people are going to tie that message directly to their partial SS checks and draw a very different conclusion from the one the Republicans want them to.
@Yevgraf:
If only such a thing were possible. One of the reasons our defense spending is so outrageous is that the contractors are very careful to divide their work up into as many congressional districts as possible. It’s mostly done that way to curry favor with as many Representatives as possible, but it has the additional effect that it makes it impossible to selectively cut off defense acquisition spending to some places and not others.
Punchy
For Joe Regular to notice, it’s got to be in-your-face. And that aspect will be the market dropping 300 pts/day. Stan 6-pack gets that
harlana (meaning, she who holds the popcorn)
Which is exactly why it will never happen. If it just affected us middle class slobs and poor people, it would be a different story. But it affects those tax-cut loving rich folk who actually wield influence in politics and Congress. They simply will not abide that.
Villago Delenda Est
Absolutely. This is an open and public strategy of defense contractors. Sub-contract out to every congressional district they possibly can. DoD does this as well…basing decisions made strictly on targeting areas that may not have a base, to make say a carrier battle group “unkillable” because to do so would eliminate both the military and civilian employment that a carrier battle group’s base represents.
jlowery
@harlana:
I hope you’re right. I think it depends on whether those tax-cut loving rich folk can herd their
catsboobsTea-party congress-critters into the desired corral.John Puma
If you want things to get worse than “absolutely fucking catastrophic,” then, by all means, continue with the “entitlement” meme so consistently and lovingly nurtured into the political lexicon “for decades now” by the radical reich!!!
Dennis SGMM
What? AFAIK, Congress doesn’t appropriate the funds for SS; they are paid out of the SS trust fund.
harlana (meaning, she who holds the popcorn)
omig Al Sharpton! I just spewed my Fresca!
SteveinSC
I’m with the “default is a fraud, the government can keep paying the debt” alternative. If the government pays the debt, it will then have to furlough government workers: Air traffic controllers, the mail service, social security check distribution, border crossings, U.S Customs at the Walmart ports, food inspectors, NASA. The last time this happened it broke the backs of the repukes. Remember?
(Please note, it is federal employees who distribute the checks from the SS trust fund. Furloughed employees don’t distribute checks.)
Brachiator
@harlana:
RE: a lot more worried about what happens to interest rates
A rise in interest rates will hurt some people (businesses) and help others (bond holders). It’s complicated. But the impact on financial markets will not be good for anybody.
Chuck Butcher
The default doesn’t matter loons manage to get “heads I win, tails you lose” out of a debt ceiling failure. No matter what gets paid the economy takes it in the neck so the Pres simply made the wrong (soshulist) choices and tanked it. That’ll work with their 27%ers despite what happens to them as an outcome.
El Cid
I never blithely assume that the public will react to punishment inflicted upon them by the ravenous right wing and the super-rich they usually serve (not this time, though) to blame those causing it and the rationalizations used.
People could get much more hostile and blame gubmit in general or just some generalized ‘cynicism’ meaning only the right wing nut squad gets off their asses and make noise and aggressive social action and vote.
Redwood Rhiadra
@John O
Twitter is built around SMS text messaging – the famous 140 character limit is due to the maximum length of an SMS message.
Linda Featheringill
Declaring debt ceilings unconstitutional and therefore not binding on the executive branch is looking better to me.
I think you could make an argument for the idea that the House has a responsibility to pass legislation that requires money to carry out AND to fund that legislation. They have the constitutional power of taxation and to decide how much is to be spent on stuff before they send bills to the president.
If members of the House don’t like increasing federal debt, they should bring in more money.
What’s the phrase? INAL? Perhaps someone more knowledgeable about constitutional law could chime in.
Origuy
Nearly all SS payments don’t go out on paper checks these days. It’s all done electronically. I suppose someone still has to click OK or whatever.
Linda Featheringill
@Southern Beale: #6
I tweeted. But I didn’t dig into the thread.
OT: Can I complain about the heat? It’s 7:00 here and even hotter and more humid than it’s been all day. Yuck.
dirge
Just fire up the printing presses.
Back when I was in the industry, it always bothered me that people were using risk models that assumed a zero sovereign default risk on US Treasuries. Everyone I asked said, well, if they run out of money, they can just print more, so it’s inflation risk, not default risk. If the financial industry didn’t believe this, the markets would have melted down already.
I still think that’s ridiculous — it assumes that the US government is a rational actor — but it’s worth noting that these guys are prepared to deal with money printing, and if the Goldman Sachs alums running Treasury start asking their friends what to do, that’s what they’ll hear.
Some people will panic about inflation — strong dollar obsessives, gold-bug conspiracy theorists, China and the wealthy types too slow on the uptake to see it coming.
For most of the rest of us, with debts denominated in dollars, it’s mostly upside, less frictional costs.
dirge
@Brachiator: #24
It doesn’t actually help bond holders. Sure, the next bond I buy will yield a higher interest rate, but all the bonds I’m holding now will have lost value.
karen marie
John O:
I hadn’t thought about the health care aspect of this. Forget members of Congress, they can afford to pay for a bridge policy, but everyone who has government provided health coverage is going to be shit out of luck?
Stefan
A rise in interest rates will hurt some people (businesses) and help others (bond holders).
A rise in rates actually hurts bond holders, because the value of a bond is inversely related to its yield. As rates go up, bond prices go down. One reason for the bull market in bonds the last generation has been the gradual lowering of interest rates over that time, but if rates go up, the party’s over.
And, since large concentrations of bonds are held by (a) the wealthy and/or (b) the elderly, this will not endear the GOP to two key constitutencies.
Steaming Pile
I would declare the Federal Government to be defunct. Out of business. Basta. No more Congress. No more executive branch. Take whatever’s left in the bank, bring the troops home, and muster them out. Have the 50 governors start over with a new Constitution, and see how well they work together.
joeshabadoo
The problem is that it is nearly impossible to get people to think that democrats want to spend less money.
Years of the “tax and spend liberal” meme will undercut their efforts to pin these things on democrats. The fiscal attitudes of both parties have been exaggerated so much by Republicans and Fox that I think everyone’s gut reaction to money cuts will be to blame Republicans.
They can run a million ads but its an uphill battle since they will be fighting against years of their own conditioning.
The Other Bob
Dennis @21
I was thinking the same about SS. It has a permanent appropriation…I think. BUT – Don’t we owe some of our debt TO the trust fund? Do we make debt payments to the fund?
Ecks
Yeah, the R’s will try and spin it, but everyone “knows” that the R’s see gubmint as a big ol’ waste of time. Show people the footage of tanks grinding to halts, old people waiting on their checks, road construction stalling, air traffic controllers not showing up every day to work… All of a sudden this idea that we can live without big gummint breathing down our necks is going to be awfully hard to maintain. The R’s can stick to it and look like jackasses (“ain’t this great that you can’t fly anywhere and and grandma’s eating catfood! This is America’s return to glory that we’re workin’ for!”), or they can face up to reality and alter their tune – but let’s be real, the teatard portion of them ain’t never going to do that. It is just too… religiously… committed to the idea.
Even David Brooks in his recent exasperation with the teatards isn’t saying that their ideas are wrong. His columns explicitly endorse the near total gutting of the social safety nets. He just thinks the teabillies are stupid for not seizing the opportunity to achieve this end now while it’s available. The intellectual rot runs deep and needs a lot to burn it out.
I think it’s almost Obama’s smartest play right now. It’ll hurt. It’ll suck. It’ll cause enormous damage. But it’s one of the only things on the horizon that stands a chance of blowing up the right wing cultural advances of the last two decades by publicly showing them up as the catastrophic frauds that they are.
chopper
@34:
yeah, bond holders would get boned, but i’m willing to bet everything else would melt down as well. i guess the gold hoarders would be the only people holding anything of value.
my 401(k) is now heavy on bonds, but if i’m afraid of a default, what else do i do? put that money in stocks? yeah, right. my only real option would be to cash the fucker in and buy a truck full of cigarettes.
chopper
@37:
yeah, the trust fund is basically a handful of high-value treasuries. when the trust fund was created it was legally required to put all of its money into a specific form of bonds. reagan loved the idea because it was free money he could blow on giant laser space frisbees and shit that some poor shlub a generation later would have to pay off and he’d be long dead by then.
part of the government’s yearly interest payments will go to the trust fund as it cashes those bonds in to cover any imbalance in payouts vs input now that the boomers are retiring. i guess if obama cut payouts SS could hold on to those bonds instead of cashing them in and SS isn’t in any crisis in a default. or raise SS taxes so current payments are able to cover payouts for at least a few more years before it all gets ironed out. maybe by then half the old fossils would die off in the ensuing depression anyways.
either way, you know who the big winner is? Purina.
Ecks
@chopper: As a bond holder you’re only boned if you try to sell the bonds. If you hold them until they mature you still get the full face value.
dirge
@Ecks: #41
“If you hold them until they mature you still get the full face value”
Well, you’re not quite as sure of that as you were when you bought them. In fact, you definitely wouldn’t have paid what you did if you’d thought there was any risk of default.
So you’ve now discovered they’re worth less than you paid. Still boned.