Tuesday, January 15, 2013

NRD: Obama's default threat bluff

Have you heard the President saying lately that Social Security and veteran benefit payments won't be made unless Congress agrees to raise the debt ceiling again? Probably, if you pay attention to the news even a little bit.
 
Turns out, he's only half lying. 
 
It's true that those payments might not go out if the debt ceiling stays where it is right now (and I hope you at least realize that this exposes the big lie about the existence of the Social Security trust fund...). 
 
What's not true is that there isn't any money to pay most of the bills:
"Out of the $2.8 trillion of annual revenue the White House expects in 2013, only about $360 billion, or $30 billion monthly, will go to paying gross interest on the debt.
That means even if the debt ceiling were reached, the government could still refinance existing debt up to the limit, and would have ample revenue to pay interest out. So, there would be no need to default.
In fact, in addition to paying interest, there would be enough revenue to pay out Social Security ($820 billion), Medicare ($564 billion), defense ($700 billion), and veterans’ benefits ($79.5 billion).
Even after that, if the Administration’s estimate of revenue in 2013 proved correct, there would still be $600 billion left over to spend on other items."
So what's the great need to blow up the national credit card even more? According to the Treasury, it's because no one has told them exactly what to do:
"So, why default? Because the Treasury views that it lacks the statutory authority to prioritize payments, according to a recent Inspector General’s report.
“While Congress enacted these expenditures, it did not prioritize them, nor did it direct the President or the Treasury to pay some expenses and not pay others,” the report states. “As a result, Treasury officials determined that there is no fair or sensible way to pick and choose among the many bills that come due every day. Furthermore, because Congress has never provided guidance to the contrary, Treasury’s systems are designed to make each payment in the order it comes due.”
I think I'm going to try this one of these days. I'm going to call up my creditors and say, "well, I don't have a spending plan that establishes a hierarchy of priority for paying my bills, and my cash flow came up $1 short this month, so instead of paying anything, I'm not going to pay any of you. Give me more credit."

Think they'll go for it?

The solution here is simple. Congress needs to pass a law prioritizing the items that are in the budgets it passes, which the Treasury can then follow. That would also force Congress to actually think about what the Federal government should and should not spend our money on. This "all or nothing" approach is shockingly moronic and it is leading us deeper and deeper into debt.

Of course, if they did that, then politicians couldn't run around threatening grandma. Can't have that.

Click here for the full NRD article.

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