Monday, October 14, 2013

With no debt ceiling increase, Treasury can make payments until Nov. 1; Could FDIC be a problem? Would Congress jump if even one payment is delayed?

The Washington Post is all gloom and doom Columbus Day morning, maintaining that the McConnell and Reid are stalled in negotiations because they don’t get along personally. Zachary Goldfarb and Jim Tankersley have a particularly gray story about how the federal safety net could shred quickly (“Debt-ceiling breach would push economy into free fall, without a government safety net”, here

I’m surprised they doesn’t go into the idea of very quick means testing to restore Social Security only to people who absolutely “need” it.  I covered that Oct. 7 on my retirement blog.

CNN’s coverage is gloomy (here) but other newspapers around the country seem to be ignoring the crisis, putting on back pages.  It’s a big deal in Washington and New York, CNN, the WSJ and Fox, but not so much elsewhere.
  
Since the Treasury would have about 30 billion in cash on Oct 17, the immediate risk is the rather large Treasury rollover on that day, if there has been no debt agreement by then. From Oct. 18 to 31, it appears that the Treasury owes “only” $23 billion, including small Social Security Trust Fund and investor bond interest payments.  There’s a huge market basket of $60 billion on November 1.
Treasury’s website suggests that since the start of the new fiscal year (Oct. 1), the Treasury has taken in typically about $10 billion per business day, with a lot of variability.  Look here.  It looks like Treasury took in 2.5 trillion last fiscal year.   It’s hard to estimate, but the Treasury would be likely to have taken in about $50 billion more by Nov. 1.  It may help a little that extended tax returns are due Oct. 15, so there might be a little extra push from rich people of the “Revenge” (Nolan Ross) type.
  
If the rollovers work, we would probably get into real trouble about Nov. 1 or shortly thereafter.  Social Security starts sending most of its benefit checks the second Wednesday, so there is a little time (Nov. 13).
   
On the other hand, if the government makes its debt payments and finally misses on Social Security (indirectly, through the Trust Fund), Veterans, Military, or Federal Employees, there will be an outcry that would seem to force both sides to settle immediately.  One missed payment, what does really happen in Congress?  What do Tea Party members say?  They want to end all entitlements now?  Wat does Boehner say? 

One grim possibility is that the FDIC does not get a repayment.  Should a major bank fail, depositors could lose money even though it is supposed to be insured.  Some hardliners on the Right have said that they oppose deposit insurance.

Again, I think that the President does have the authority to pay bond holders directly (with extra borrowing or printed money) without permission from Congress.  The president does not have the authority to pay entitlements.  So the only guarantee on them is the enormous political outcry.  This would be a tsunami.

The Tea Party hardliners do try leverage contradictory arguments.  They want to use the threat of a debt debacle to "leverage" policy changes, yet they turn around saying default won't happen anyway, that the debt ceiling is no big deal.  The difference between new appropriation and paying bills already owed gets glossed over with intentional intellectual sloppiness.   
    
One other thing to remember.   National security is at risk.  What more opportune time for a terrorist to try some sort of unconventional WMD attack, or a cyber attack?  This, as Ben Stein said, is all nuts.
   
 Again, why can’t Boehner do a “discharge petition” because a clean bill on the debt should pass?
   
Democrats should settle now, thought, and not put the nation in jeopardy of all this.  Don’t ask for deals on the sequester now. Pay the bills first.  

There was a platitude common during the dire talk about the 1975 New York City financial crisis. It was "They would never let that happen/"  But, there is no "they".  It's we.  



Update: Later today.

CNN is reporting major progress in the Senate.  Possibly a debt deal until Feb. 15 (sounds like a good day for a layoff().  There would be a deadline of Dec. 13 for a budget deal. 

Gay Patriot (a site with libertarian views on everything, generally) has its own analysis of why default would not happen, here.  Some other posts there are worth a look, too. 

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