Posted by: captainfalcon | July 26, 2011

Debt Ceiling Partial Roundup and Bleg

Two items about different aspects of the debt ceiling negotiations that I thought were interesting:

1. Ken Anderson’s post at Volokh. (MQ: “I call Washington all f**ked up and mean, because no rational person would seriously entertain default.  You call Washington all f**ked up and mean, because no rational person would agree to these kinds of deficits.  We think — in the current twitter-talk of a pox on both their DC houses — Washington is a mess because we can’t find a compromise.  The truth is, however, we don’t actually think there is much room to compromise and, given that our principles on this represent a fairly sizable difference in world view, that’s probably right.  The structural problem of Washington is that everyone has a hold-up; “let’s vote and majority policy wins” doesn’t work because we’ve allowed a consensus system informally to take hold, rather than a majoritarian one (albeit one revisable at least in part by a future majority).”)

2. Michael Dorf’s article, reposted at Justia, explaining the (now apparently defunct) McConnell Plan.

If anybody’s come across any good articles detailing (i) in what sense, and on what obligations, the United States would default if the ceiling were not raised, and (ii) what factors would go into the credit agencies’ decisions to downgrade the debt, he should pass it along.

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Responses

  1. From what I’ve read, it sounds like Treasury just gets to pick what bills to pay first… but if the debt ceiling isn’t raised, the Treasury’s going to start being able to keep up with only half of the bills. That could mean paying up the interest on debt first, and simply not paying things like Social Security, state aid, and Pell grants… or it could mean actually defaulting on the debt in order to pay other bills.

    Several credit agencies have said that they would consider not paying for any of the US’s approved commitments – Social Security checks, Pell grants, fees to vendors and government contractors, you name it – as a sign of “severe financial distress” which would cause them to downgrade the US’s credit rating, even if the US did continue paying bondholders.

  2. I have not read much that is very recommendable on the subject but CSPAN radio seems to suggest MM is basically correct. I think we have $2.2 trillion in revenues and $3.7 in bills to pay, with Treasury given the perogative to choose what gets paid first (and thus at all). There will certainly be a government shutdown, but the effects could be far more wide ranging than that, especially if it drags on for more than a day or two. We should not forget that the Treasury has already been spending excess revenues to pay all bills for the past couple months, so suggestions that one encounters that we have the funds to cover all “important” obligations might be misinformed.

    As for credit agencies, the sense I have gotten is that the agencies want to make sure that the US does not reneg on any commitments it has made (ie raises the debt ceiling sufficiently to cover outlays already approved in the current budget and does the same for future budgets) and presents a plausible program to get our deficits (note, not necessarily the federal debt) under control in the near future.


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