James Pethokoukis

Politics and policy from inside Washington

The issue isn’t default but government shutdown

July 12, 2011

Here’s a great chart from Goldman Sachs that shows how government revenues and obligations will likely match up in August:

As is clearly shown, there is enough cumulative money coming to pay interest, SS, Medicare and defense. Not that there wouldn’t be cash managements issues. That and several other issues are addressed in a Q&A from a GS report last week.  Some excerpts (bold is mine):

Q: What happens on August 3 if the debt limit is not increased?

A:  …  Using August 2010 spending and receipts as a proxy, the Treasury will probably take in $5-$10 bn in revenue on August 3, leaving insufficient revenues to make Social Security payments partly unfunded even if all other spending is deferred. Since the Treasury has carried a minimum cash balance of about $20 bn since 2009, and currently carries a balance of $74 bn, Social Security payments might still be made by drawing down the Treasury’s cash balance.

Q: Are Treasury interest payments at risk?

A: We do not think so. … There are two basic reasons that interest payments should not be called into question: First, if the August 2 deadline is missed, it is very difficult to see the debate dragging to August 15, when interest payments are made, since we doubt there will much congressional appetite for a protracted lapse in borrowing authority.  … Second, the Treasury is likely to prioritize payments. While the sharp fiscal contraction that would result from prioritization would have negative short-term economic consequences and would be difficult to implement, it nevertheless seems likely if necessary.

Q: If other non-interest payments are missed, would that constitute a default?

A: Probably not, at least from the rating agency perspective. The rating agencies have not been entirely clear on this point, but S&P, Moody’s, and Fitch all appear to view a failure to pay other obligations to be different from a default. S&P has already put the US on negative outlook due to longer-term fiscal issues, and the other two rating agencies have indicated they will move to a negative outlook if no agreement is reached by August 2.

 

 

 

 

 

asdffd

Comments

The Repub presidential candidate should have a joint press conference/conference call and state unanimously that if any of them were president, we would not default and Social Security and Veterans benefits would not be affected by this as the CURRENT president is doing

Posted by asyoureadthis | Report as abusive
 

“Second, the Treasury is likely to prioritize payments.”

But Geithner has stated that they believe they do not have the constitutional authority to do this. You don’t think those whose payments were delayed will sue — successfully?

Posted by t_parker16 | Report as abusive
 

If Mr. Geithner needs any help with prioritizing spending, he can call the comptroller of my state, the People’s Republik of Illinois. IL has been so short of money for so long that this prioritizing is just business as usual. Currently, vendors who do business with the state are being paid almost 6 months in arrears.
Oh, did I forget to add that the Dems have controlled the state legislature for years?

Posted by SpearWolf | Report as abusive
 

The elephant in the room, everyone is afraid to point to, is socialist health care but that isn’t the only thing. Recently, it has come to people’s attention that $10 billion dollars is already being used on Obama care that hasn’t even happened yet. $30 billion dollars is being spent re-sanding American beaches. It’s difficult to believe that’s the extent of the problem. The debt ceiling isn’t the issue. Socialist health care and spending are the issues.

Posted by johndodrill | Report as abusive
 

You could leave medicare out of the essential spending, its not like doctors and hospitals aren’t used to delays in receiving payments from medicare.

Posted by agmartin | Report as abusive
 

NewsBusters: August Budget Chart All News Outlets Would Report If They Weren’t Liberal
http://newsbusters.org/blogs/noel-sheppa rd/2011/07/13/august-budget-chart-all-ne ws-outlets-would-report-if-they-werent-l ibe

Posted by StewartIII | Report as abusive
 

So Goldman Sachs says it’s not really such a big deal? Yeh, right. They all ready got theirs.

Posted by Bart2006 | Report as abusive
 

I’ve tried to post a comment but I guess thats not going to happen.

Posted by stevemast | Report as abusive
 

Is the other government spending, things like the FBI, CIA, CDC, FAA, and Homeland security? We ok with all these things going away instantly so we can still issue Social Security, Medicare,and interest on the debt? No air traffic controllers and not FBI agents?

Posted by stevemast | Report as abusive
 

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
  •