Sunday, July 17, 2011

Look at the August numbers: On paper, you could pay most "critical debts" without debt extension; does Tea Party have a point? But it gets VERY dangerous.

This morning, a White House budget director on CNN refused to speculate on who might not get paid in August in the event of default, despite extensive prodding.

It you look back to Thursday’s posting, there is a link to a Washington Post chart on August. There is a bill of about $307 billion and receipts of about $172 billion, and no savings.

It looks like, you could pay bond interest  $29 billion and Social Security payments (that is, legitimate Trust Fund obligations based on FICA receipts, maybe slightly less than the total $49 billion), and have about $90 billion for everything else (of about $210 billion due).  Pay the military and veterans and you still owe about $84 billion. It gets tough, because you fully cannot pay contractors, and may not be able to fully pay federal employees.  You could cut Medicare considerably by very stiff  and immediate means testing.

The bottom line is, the government would be in default to vendors and employees, but not of the full $130 billion shortfall, probably more like $90-100 billion.  (The ratings agencies will still downgrade the government when this happens even if bond interest is paid.)  Much of this (like federal salaries) is owed for work already done, even if you make immediate and permanent draconian budget cuts without a debt limit extension.  Maybe a federal court makes you borrow to pay these obligations, and then you make the cuts, starting in September.

The “Tea Party” crowd (even the “no extension” gang like Bachmann), as much as I hate to admit it, has a point.  It’s possible to spell out extremely draconian and permanent cuts, take your emetic (no, don’t eat your vegetables first), and start over.  But it sounds like throwing a lot of people off the Titanic (those we think don't "deserve" to be there in a crunch) so the remaining people can "live" and start over. 

But, yes, it’s very dangerous. Just think about national security and homeland security, for openers.

But it is possible to “target” beneficiaries of federal spending (and loopholes) based on “deservedness” in a kind of “revolution”, as dangerous as this sounds (look at history  -- the 1930s, for example).

So my point now is this. To get a deal, stop playing chicken.  Spell out the exact cuts that happen if there is never another debt extension (because it does sound thinkable).  Tell the American people who has to make the sacrifices.  Publish it.  Don’t hide anything. Tell the truth.

I think the result afterwards would be a “deal”, and maybe even a bigger one, like the president wants. And you need a big deal soon to keep a sustainable civilization intact.

(Also: listen to Larry Summers on Fareed Zakaria today; here is SFGate story.) 

Note also: The Democrats beat the Republicans, 8-2, at Nationals Park Thursday night. I don't know who was the home team. 

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