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.

 

 

 

 

 

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9 comments

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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

[...] Obama claimed that Social Security checks  are “not guaranteed,” yet research from Goldman Sachs calls this into question. Using August 2010 spending and receipts as a proxy, the Treasury will [...]

[...] but government shutdown Jul.12, 2011 in Rss It would be ugly, but not nearly as bad a default. James Pethokoukis Tags: default, government, isn’t, issue, [...]

[...] James Pethokoukis’s new graph for a response to this. There should be plenty of revenue in August to cover entitlement checks and [...]

[...] not reach an agreement on reducing the deficit in the coming weeks. Discussion: Michelle Malkin, James Pethokoukis, Crooks and Liars, NO QUARTER, The Other McCain, Alan Colmes’ Liberaland, Washington Wire, [...]

[...] that if we default on our debt it won’t matter. There will be enough to pay the basics;  Medicare, Social Security, interest on the debt, and defense. In other words, [...]

[...] of funds would not the the issue, from James Pethokoukis, Reuters: Here’s a great chart from Goldman Sachs that shows how government revenues and obligations will [...]

[...] Jim Pethokoukis notes a Goldman Sachs report showing there will be plenty of money flowing into the treasury in August for the government to pay its debt obligations, pay social security obligations, pay military obligations, and avoid default. But Obama won’t let facts stand in the way of starving senior citizens to score political points against the GOP. [...]

“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

[...] JAMES PETHOKOUKIS: The Issue Isn’t Default, But Government Shutdown. [...]

[...] The problem here is that while you and I recognize the rhetoric for what it is, there are many, many Americans who are listening and taking this to heart.  I have to admit I’m a bit flummoxed as to why the Republicans haven’t called him out on his numbers.  There’s money in the Treasury to pay social security, military service people, etc.  Refer to a recent graph and Q&A from Goldman Sachs as featured in James Pethokoukis recent column, “The Issue isn’t Default, but Government Shutdown“. [...]

[...] it is weael-mouthed. The checks will, of course, certainly go out. But he cannot 'guarantee' that. James Pethokoukis | Analysis & Opinion | Reuters.com __________________ [...]

[...] Jim Pethokoukis notes a Goldman Sachs report showing there will be plenty of money flowing into the treasury in August for the government to pay its debt obligations, pay social security obligations, pay military obligations, and avoid default. But Obama won’t let facts stand in the way of starving senior citizens to score political points against the GOP. [...]

[...] The problem here is that while you and I recognize the rhetoric for what it is, there are many, many Americans who are listening and taking this to heart.  There’s money in the Treasury to pay social security, military service people, etc.  Refer to a recent graph and Q&A from Goldman Sachs as featured in James Pethokoukis recent column, “The Issue isn’t Default, but Government Shutdown“. [...]

[...] Obama is so hot not to pay social security checks even though there will be enough money on hand to pay those checks, and all other essentials including payments due on the national debt, then let [...]

[...] ADDS: Just to throw some graphic wood on this fire, James Pethokoukis put together a handy little chart to demonstrate what a huge lie Obama is telling, and the Dems and [...]

[...] Pethokoukis [...]

[...] for CNN’s questionable claims, Reuters columnist James Pethokoukis notes that the federal treasury could continue paying “essential” defense, Medicare, Social security, and interest on its current debt at [...]

[...] can’t promise that Social Security checks will go out in August if we don’t reach a deal See James Pethokoukis’s new graph for a response to this. There should be plenty of revenue in August to cover entitlement checks and [...]

[...] further, it appears that even if the Debt Ceiling is not raised, there is plenty of money available to honor all those stupid Social Security payments, which we foolishly promised to waste on old, [...]

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

[...] The Obama White House seems perfectly willing to take negotiations right up to — and past – the Aug. 2 deadline because it thinks it can win the political fight. And certainly many GOP leaders agree, including [...]

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

[...] Jim Pethokoukis notes a Goldman Sachs report showing there will be plenty of money flowing into the treasury in August for the government to pay its debt obligations, pay social security obligations, pay military obligations, and avoid default. But Obama won’t let facts stand in the way of starving senior citizens to score political points against the GOP. [...]

[...] Jim Pethokoukis notes a Goldman Sachs report showing there will be plenty of money flowing into the treasury in August for the government to pay its debt obligations, pay social security obligations, pay military obligations, and avoid default. But Obama won’t let facts stand in the way of starving senior citizens to score political points against the GOP. [...]

[...] be suspended without a debt deal. That is necessary neither in the short term nor in the long run. Jim Pethokoukis passes on a Goldman Sachs analysis that shows that the feds will have enough money to fund Social [...]

[...] and would not be a necessity brought about by lack of funds. James Pethokoukis at Reuters has the numerical proof. Barack Obama is the person willing to throw seniors under the bus to accomplish his political [...]

[...] several other issues are addressed in a Q&A from a GS report last week. gs1.jpg more… James Pethokoukis | Analysis & Opinion | Reuters.com Liberalism is a mental disorder Reply With [...]

[...] (To be a compleat completist, another commenter, LarryD, posted much of this same information in a comment to the previous post; and MikeR himself found a similar story here.) [...]

[...] more, Reuters’ James Pethokoukis earlier this week posted a chart demonstrating that projected tax receipts through the month of August would be enough to [...]

[...] social security checks will be issued unless a deal is reached — though there’s more than enough money to pay seniors (and soldiers and interest payments) even without a deal.We simply can’t have [...]

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

[...] consider the debt ceiling and appropriation debate currently raging in DC. If you click on this link, you will see a chart showing that, for August 2011, the sum [...]

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

[...] are only at risk to the extent that Obama himself makes an executive decision to withhold them. The money is there. How he thinks he get away with fear-mongering like this even after Obama showed his cards last week [...]

[...] And, here’s a chart from Goldman Sachs that clearly shows there’s enough cumulative money coming to pay inte…  [...]

[...] it can still pay many of its bills on a month-to-month basis. A Goldman Sachs chart printed in this column by James Pethokoukis shows how much the government is slated to bring in and spend for the month of [...]