If the debt limit isn’t raised by Thursday’s deadline, the cash flow problems of the world’s wealthiest nation could be boiled down to a simple mathematics equation: 10 is greater than 7.
The Treasury Department spends an average of $10 billion a day. It takes in about $7 billion in revenue a day. You don’t need to know calculus to figure out that’s not sustainable for long.
That’s only part of the trouble facing the federal government if it smashes up against its $16.7-trillion borrowing authority before Congress and the White House can work out a deal.
In addition to routine federal spending, the nation has big bills on the way — and major decisions about how to pay them with only $30 billion of cash on hand.
Short-staffed because of the shutdown, Treasury officials would have to figure out how to revise complex computer systems designed to pay bills as they come due. They’d also need to determine whether they have the authority to prioritize those payments.
Fitch Ratings, one of the nation’s three big rating companies, sounded doubtful. On Tuesday, analysts there put the nation’s AAA credit rating on watch for a potential downgrade.
“Although the Treasury would still have limited capacity to make payments after [Thursday], it would be exposed to volatile revenue and expenditure flows,” Fitch said. “The Treasury may be unable to prioritize debt service, and it is unclear whether it even has the legal authority to do so.”
Some congressional Republicans have said Treasury would have enough money to make interest and principal payments due on government bonds, and by doing so could avoid a technical default.
But Treasury Secretary Jacob J. Lew has said prioritizing those payments still would constitute a default because the government would not be paying all its obligations. On top of that, the computer systems that process about 80 million payments a month are designed to pay bills as they are received, he said.
“You cannot go into those systems and easily make them pay some things and not other things,” Lew told lawmakers last week.
“So we’re going to be in a place which is uncharted territory,” he said. “It would not work smoothly. It would be chaos.”
The Treasury’s Financial Management Service bureau is in charge of the nation’s cash flow and paying its non-defense bills. In 2011, the latest statistics available, it paid more than $2.4 trillion in more than 1 billion individual payments to people and businesses.
The Treasury Department has said the debt limit must be raised by Thursday, October 17, 2013, or it will run out of borrowing authority. That would leave it dependent on just cash on hand and incoming revenue from taxes and fees to pay the federal government’s bills. Whether that is enough revenue to fully pay our outstanding debt obligations has yet to be documented. The increased debt ceiling adjustment would provide assurance that the federal government could borrow more to cover the outstanding debt not covered by existing revenue, but also it would provide more room to expand the debt until the next debt ceiling is reached.
The Just Third Way movement advocates policies and structural reforms to our system, which will result in a balance budget and provided economic security and income sources from productive capital ownership and jobs as we build a future economy capable of supporting general affluence for EVERY citizen.
Support the Agenda of The Just Third Way Movement at http://foreconomicjustice.org/?p=5797
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http://www.latimes.com/business/la-fi-shutdown-treasury-debt-limit-20131016,0,3357429.story
