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by
Rick Moran

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October 6, 2013 - 11:47 am

Reuters has an interesting analysis of what a US default might look like based on bank statements from the Treasury Department over the same period last year.

OCT. 17

The Treasury Department exhausts all available tools to stay under the cap on borrowing and can no longer add to the national debt. Treasury expects it would still have about $30 billion cash on hand to cover its bills. Among the many inflows and outflows that day, it takes in $6.75 billion in taxes but pays out $10.9 billion in Social Security retirement checks. By the end of the day, its cushion has eroded to $27.5 billion.

OCT. 18 – OCT. 29

Treasury’s cash reserve quickly dwindles. Washington only takes in about 70 cents for every dollar it spends and is now unable to issue new debt to cover the difference.

The tide turns briefly on October 22, when the government takes in $3.5 billion more than it spends.

But that temporary gain is soon erased. October 24 is an especially rough day: Treasury pays $1.8 billion to defense contractors, $2.2 billion to doctors and hospitals that treat elderly patients through the Medicare program, and $11.1 billion in Social Security, while taking in only $9.6 billion in taxes and other income.

One possible wild card: Treasury could lose the trust of the bond market.

Even though the government cannot add to the national debt at this point, it can legally roll over expiring debt. Investors have the opportunity to cash out about $100 billion worth of U.S. debt every week but choose to reinvest it. If fear of default causes investors to steer clear of new debt offerings, Treasury’s finances could unravel almost overnight.

“It’s very hard to predict,” said Brian Collins, an analyst at the Bipartisan Policy Center, which helped Reuters with this analysis. “It’s the same thing that causes (bank) runs or credit markets to freeze.”

OCT. 30

Default happens. By the end of the day, the government is $7 billion short of what it needs to pay all of its bills.

So who gets stiffed?

Everybody, according to the Obama administration.

Treasury says it doesn’t have the ability to pick and choose who gets paid. The last time the government faced this situation in 2011, they planned to wait until public coffers were full enough to pay a full day’s bills before cutting any checks, according to a Treasury Department watchdog report from 2012.

It only gets worse, according to the Reuters analysis. On October 31, a $6 billion interest payment to bondholders comes due:

A missed payment could shake that foundation. The United States currently pays some of the lowest interest rates in the world due to a strong history of repayment; those borrowing costs would almost certainly rise. Stock markets could tumble and nervous consumers could spend less of their money, further damaging the economy.

For the Treasury Department, this is where the truly tough decisions begin. Does the government pay bondholders in China or troops in Afghanistan? The Obama administration says it doesn’t have the ability to prioritize payments, but analysts are convinced it would at least try.

“Not making an interest payment on time is probably a worse way to default than not making other payments,” Collins said.

After that, tough choices:

In theory, the government could keep bondholders whole indefinitely because tax revenues are more than enough to cover interest payments, and Treasury pays creditors through a separate system than other obligations.

That would mean longer delays for everybody else. U.S. troops could fall behind on their rent payments, and seniors who rely on Social Security may have trouble buying groceries.

It’s hard to see how this scenario — or anything close to it — will come to pass. The signs will be unmistakable and unless total madness grips the capitol, it probably won’t get this bad.

But even if the scenario is partially correct, the economy will take a significant hit — perhaps enough to push us into a deeper recession. Will Congress roll the dice? If they do, snake eyes seems a definite possibility.

Rick Moran is PJ Media's Chicago editor and Blog editor at The American Thinker. He is also host of the"RINO Hour of Power" on Blog Talk Radio. His own blog is Right Wing Nut House.

Comments are closed.

Top Rated Comments   
This speculation all runs from the premise that the government can't cut spending, and that premise is completely false. The federal government takes in more than enough money to service our outrageous debt. If they can't borrow anymore it just means we have to make some choices about how to live within an actual budget. Those choices might be painful but they are LONG overdue.
1 year ago
1 year ago Link To Comment
Defaulting on debt payments would cripple the big-government boys' ability to borrow and spend. The Dems would not allow Obama to default. Not gonna happen.
1 year ago
1 year ago Link To Comment
"Treasury says it doesn’t have the ability to pick and choose who gets paid. The last time the government faced this situation in 2011, they planned to wait until public coffers were full enough to pay a full day’s bills before cutting any checks, according to a Treasury Department watchdog report from 2012."

That's a bald faced-lie. Treasury does have the ability to choose which payments it can make. And, if they don't have this power (unlikely) then Congress has already written a bill that will give them this power.

Also, did Congress's taxing power suddenly stop? The government is projected to collect over $3 trillion in revenue for this coming fiscal year. That amounts to about $250 billion a month. They have the money to make payments on interest, which is only about $25 billion. The only way we default is if the Obama Administration chooses to do so. Obama just wants to raise the debt ceiling because he wants to continue to binge spend.
1 year ago
1 year ago Link To Comment
All Comments   (9)
All Comments   (9)
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The choice is stiffing Americans or simply ending moronic welfare/bribery programs that foreigners thrive on. I wonder what route His Riled Heinousness Obama will take.
1 year ago
1 year ago Link To Comment
A hundred billion per week.

No problemo, Bernanke can hit his 0 key faster than that.
1 year ago
1 year ago Link To Comment
or, horror of horrors, HRH Barack I compromises.
1 year ago
1 year ago Link To Comment
This speculation all runs from the premise that the government can't cut spending, and that premise is completely false. The federal government takes in more than enough money to service our outrageous debt. If they can't borrow anymore it just means we have to make some choices about how to live within an actual budget. Those choices might be painful but they are LONG overdue.
1 year ago
1 year ago Link To Comment
The biggest problem we have here is that we have to make tough choices and every one will feel some kind of pain, likely serious pain. Either we cut a lot of people off cold turkey or we severely curtail what we are paying everyone at every turn. Or we make a lot of calculated cuts to what our federal government does and tell the states that they will have to pick up the slack.

The problem is that the states are nearly all as bad off if not worse off than the feds, and so are many municipalities.

We've spent too long promising too much to too many, and too many people bought the lies rather than doing for themselves. Now, everyone's goose is going to be cooked. I belong to the lost generation who is likely going to be sacrificed wholesale to fix this mess if my son is going to have any kind of future. Gee, thanks, folks.
1 year ago
1 year ago Link To Comment
"Gee, thanks, folks."

You're welcome.

Enjoying the computer?
1 year ago
1 year ago Link To Comment
Defaulting on debt payments would cripple the big-government boys' ability to borrow and spend. The Dems would not allow Obama to default. Not gonna happen.
1 year ago
1 year ago Link To Comment
Agree with that Marc. No matter who's fault it is for a default it'll be all on Obama as head of the country and the last thing he wants is anything that tarnishes his résumé. He's saying he won't compromise - so when he suddenly folds on a few of the republican's demands as the debt ceiling approaches he'll look to all the world like the bipartisan wonder he's always claimed to be - and never was.

Can a Nobel Prize in economics be next?


1 year ago
1 year ago Link To Comment
"Treasury says it doesn’t have the ability to pick and choose who gets paid. The last time the government faced this situation in 2011, they planned to wait until public coffers were full enough to pay a full day’s bills before cutting any checks, according to a Treasury Department watchdog report from 2012."

That's a bald faced-lie. Treasury does have the ability to choose which payments it can make. And, if they don't have this power (unlikely) then Congress has already written a bill that will give them this power.

Also, did Congress's taxing power suddenly stop? The government is projected to collect over $3 trillion in revenue for this coming fiscal year. That amounts to about $250 billion a month. They have the money to make payments on interest, which is only about $25 billion. The only way we default is if the Obama Administration chooses to do so. Obama just wants to raise the debt ceiling because he wants to continue to binge spend.
1 year ago
1 year ago Link To Comment
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