Friday, July 29, 2011
Bipartisan Policy Center appears to have the most credible day-to-day analysis of August govt payments (in case of no debt ceiling) and intake available; interest payment due Aug. 15
The past two posts, I have discussed the “denial” among those opposing lifting the debt ceiling (or tying unreasonable strings to it) that the world would face significant economic harm from a US default and credit downgrade. Maybe this would teach people a lesson, provide purification, they may think.
One thing that is needed is credible “numbers” and tables (even the kind that SAS programs generate). The best I have been able to find on the Web so far is the recent paper by the Bipartisan Policy Center, with the most important PDF link here.
The paper, starting on p. 24, provides “daily analysis” of the revenues expected each day, and the outgoes ("committed spending") scheduled. It’s evident that the Treasury quickly falls “several runs” behind (like the Nationals these days, before coming to bat in the bottom of the first inning) and just doesn’t catch up. On paper, even the full Aug. 3 Social Security payments are not met.
The group publishes its conclusions on p 46, warning of economic dislocations and writing that “handling all payments for important and popular programs will quickly become impossible.”
It is important to remember that, even without deficit ceiling extensions, a legal mechanism to use the Social Security IOU’s to borrow just for these payments may well exist (as I noted on my retirement blog yesterday). The August 3 payment is much larger than the August 10 one.
Furthermore, the Policy Center has elsewhere admitted that the Treasury may have about a week’s worth of cash in the till, postponing the “day of reckoning” until about Aug. 7 or so.
Finally, the interest on the debt is not due until Monday, August 15; so a former bank default would not happen before then. But the Treasury would have to “roll over” about $500 billion in principal (that’s more than the supposed $130 billion shortfall), which could be difficult if there is a downgrade or investor resistance. An editorial in the Washington Times July 29 (p B2) says that $90 billion in T-bills and long term securities mature on Aug. 4, but I presume that these are included in the $500 billion rollover total here. The Washington Times (as has various other conservative pubs) warns that it might not be possible to find enough buyers for bonds even when the debt ceiling is raised, to support these huge rollovers (leading to the printing of more money, probably).
It’s also noteworthy that both Piers Morgan and Jeffrey Toobin on CNN last night suggested that Obama could invoke the 14th Amendment, risking impeachment trials (which would fail, just as they did with Clinton), at least in the short term. There seems to be some agreement that courts would not stop Obama from borrowing without approval.
There is also talk of minting two $1 trillion coins.
There exists, then, a practical argument that conservatives might have about two more weeks to play with their demands for a balanced budget amendment (which I actually support, in modified form, allowing flexibility in time or war or crisis).
But this is playing with fire. And members of Congress have shown they don’t have the professionalism and skill to “get things right” that we demand of our real experts (in medicine, space travel, information technology, etc). There is a lot of uncertainty. Maybe the president or Treasury Secretary needs to spell out right now exactly what happens and who will not get paid on what day. But they need to back up their edicts with audited (and I don’t mean by Scientology), verified numbers and legal opinions (not just CNN show host or even blogger speculations), which so far have not been forthcoming. The Bipartisan Policy Center numbers appear to be the best we have.
Here is the link for the BPC report (pdf).