I don’t know about you but the politicians are starting to scare me with their inability to make progress in the federal debt limit discussions. Worse, is the apparent eagerness of some to actually take the government to default to make a political point.
I know a lot of conservatives say missing the August 2 deadline isn’t a big deal but I think it is.
The 2011 deficit is projected to be $1.6 trillion, or about $133 billion a month.
Said another way, the 2011 federal budget is $3.8 trillion. But federal revenues are only about $2.2 trillion—a gap of $1.6 trillion.
That means that 40 cents of every dollar the U.S. government spends in 2011 has to be borrowed!
We have hit the $14 trillion cap on federal borrowing. If it isn’t raised by about August 2, the federal government can’t borrow anymore and it will have only 60% of the money it needs to continue to function.
Most of the press reports have put the failure to be able to borrow more in the context of not being able to redeem the debt coming due and spooking the financial markets. That is a big deal.
But another big deal here is that the Treasury would have only 60% of the money it needs to pay the bills. This isn’t simply a matter of paying higher interest to rollover old debt--the feds couldn't issue the new debt they would need for the current month's deficit. Without raising the debt limit, the government would not be able to borrow the money it needs to fund the monthly budget shortfall of about $133 billion—40 cents of every dollar it needs to spend in 2011.
The good news is that the 60 cents on the dollar the federal government would have from its revenue stream could pay for things like Social Security benefits and keep funding the troops in the field.
But, who wouldn’t get paid because the federal government would have to immediately cut the budget by 40%? Might the government suspend payments to hospitals and doctors and to Medicare Advantage insurers?
In an instant, federal spending would decrease by 40%--leaving lots of bills unpaid. In turn, those who didn’t get paid couldn’t pay their bills. This would cascade through the economy like an economic tsunami in short order. Can you imagine the impact on a hospital that gets half of its revenue from Medicare and Medicaid if its government payments were frozen? Or, the impact on a health plan that is heavily invested in the Medicare Advantage business? A health plan could become technically insolvent and under state control in a matter of a few weeks.
There are lots of people in Washington that seem to be either eager to make a political point at the real risk of precipitating an incredible financial crisis or they are playing a very cynical game of chicken.
People wouldn't be so foolish to let this get to such a place? Hey, the Dodgers declared bankruptcy today!
4 comments:
Unfortunately, what got us to this point was the unwillingness to live within our means. Without meaningful spending cuts and a tax strategy that actually raises federal revenue, not just tax rates, an increase in the debt ceiling just creates an even larger problem.
I agree that a shut-down is not preferable. However, compromise means shared pain. Cut spending and raise revenue. When will our political leaders actually start to lead?
We must raise the debt ceiling & continue to function. We also shouldn't make large policy decisions with a gun to our heads, using the debt ceiling deadline as a way of pushing policy changes that would be sweeping - i.e., fundamentally changing medicare. What I do not understand is why the GOP won't entertain revenue raising plans such as closing tax loopholes that only benefit big oil & large corporate entities. When I hear that large companies didn't pay taxes last year & I did, there's something wrong with that. I'm all for cuts, but the rich are being protected now more than ever. The latest Supreme court decision allowing drug companies more latitute & less accountability spoke volumes to me on who they protect and it's certainly not the people.
Frankly Mr. Laszewski I have lost respect for you with this generalizing demonizing statement -"I know a lot of conservatives say missing the August 2 deadline isn’t a big deal but I think it is.
We have passed the timeline before and it was new big deal. Being an alarmist is beneath you intellect. Default can be deferred for months is necessary by priortizing debt payments. That being said, conservatives like me feel we should no longer hide from reality whowever we got here--most out of lack of competency and compassion of the American people. Progressive restrictive and arrogant Policies must be reversed, a proper market for business must be encouraged, a sound multisource energy policy must be developed and implemented and a halt to further indebtedness must be achieved. All is doable if facts re: our imminent fiscal crisis is appreciated and dealt with by historical commen sense solutions. We have built safety net entitlements up to full fledge robust programs that dis-incentivizes work and accountability. Our wishful thinking for a perfect world must be set aside as well face our fiscal problems created by ourselves.
The debt deadline is artificial and you of all people know it. Let's stop the spending, protect our seniors and do the unthinkable and reform true entitlements to previous (which worked just fine) levels. We have reached as a people beyond our ability to deliver and our legislators (both state and Fed.) have allowed income and pension creep well beyond the people's fiscal environment and must be changed to align with the private sector gradually. A little bit of reality and pragmatism would go a long way. Stop the sterotyping and name calling and work towards a common solution
Good grief Robert, stop drinking so much of whatever they are serving back there inside the beltway and get the big picture.
I agree with Forster. Spending well beyond the means of available revenue is the path to bankruptcy. As critical are the vast number of anti-growth policies that will perpetually cramp future growths in revenue -- I suggest you pay more attention to that.
I'm personally thrilled that the power shift has created the environment for a change in the debate to a more mature discussion.
If you'd like to feel a better, I suggest you read Gerry Seib's column today in the Wall Street Journal. All is not lost!
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