Debt-Ceiling Breach Would Push Economy Into Freefall, Without a Government Safety Net
The Obama administration will have to decide whether to delay — or possibly suspend — tens of billions of dollars in Social Security checks, food stamps and unemployment benefits if negotiations to raise the federal debt ceiling are not resolved this week, experts say, one of the many difficult choices officials will have to make at a time when the government will essentially be running on fumes.
The government will begin Monday with about $30 billion cash in the bank and a little more room to borrow as a result of extraordinary measures launched in the wake of the debt-ceiling crisis. By Thursday, administration officials say they will exhaust all borrowing authority and have only that cash on hand.
Experts on federal finances say that money might be enough to make payments for a few days, but certainly not for more than two weeks. In any event, they say, President Obama will have to make untested decisions about who and what to pay because daily tax receipts will make up only about 70 cents of every dollar of necessary spending.
Economists roundly agree that no matter which course Obama chooses, a drop in federal spending that large would exert a huge drag on economic growth. And in contrast to what happens during a usual downturn — the safety net expands to help the vulnerable — assistance to seniors and low-income people could be delayed or reduced if Congress doesn’t raise the debt ceiling.
Officials may also have insufficient funds to operate major parts of the government that are open in a shutdown, such as the Federal Aviation Administration or the FBI.
On Sunday evening, senior Treasury Department officials convened to discuss the financial market reaction to the continuing fiscal stalemate. While the stock market jumped late last week amid optimism, bond markets remain deeply nervous about a potential breach of the debt-ceiling deadline on Thursday.
Market reactions could be the first direct way that Americans witness the impact of a breach, but the consequences are likely to be felt in numerous other ways.
According to the Bipartisan Policy Center, which has done the most detailed analysis of federal finances in a debt-ceiling breach, administration officials would have to consider delaying or suspending tens of billions of dollars in critical payments to low-income people and seniors.
Under the most alarming scenario, as soon as Friday, payments to Medicare and Medicaid providers, unemployment benefits, Social Security checks and tax refunds would be postponed for one to four days.
Food stamps due to be distributed Oct. 25 could be held until Oct. 30. The same would happen to payments to defense contractors.
With huge payments due in early November, the situation would become grimmer. Nearly $60 billion in Social Security checks, veterans benefits and pay for active-duty troops is due Nov. 1. Those could be delayed nearly two weeks, according to the Bipartisan Policy Center’s analysis.
Meanwhile they’re bitching about stupid memorials.