First we know that the 17% government shutdown is entirely the making of the Democrats refusing to delay the parts of Obamacare by one year that they have not already delayed by one year.
Second is the so called debt ceiling default. The Occupier of the Oval Office says we must pay our obligations. In fact, that is written in the constitution, not a partisan issue, see below. What he really is saying with his analogies is that the credit committee of your bank MUST raise your credit limit because of the spending decisions you have already made. We all know it doesn't work that way in the real world. You pay fees and penalties when you go past your credit limit, and they profit from your irresponsibility.
In a previous post, we learned from G M / CBO that it would take the equivalent of 11% cuts of all non-interest spending for 25 years to get debt down to where it was at the start of the Obama administration. Assuming OMB and POTUS read CBO, wouldn't you think there would be some talk right now about where to cut now that the tax rate increases are all in place, assuming some level of fiscal responsibility is the goal. They aren't and it isn't.
Does a serious leader really not have a contingency plan?
Meanwhile over at the Republican majority House we have potential co-conspirators, well intended with questionable backbones, negotiating with themselves over what involvement they would like in this generational theft crime in progress. They know they get blamed for shutdowns, and they know they will be blamed for the default - by those self-appointed to assess blame across mainstream print and airwaves. Somewhere down deep they also know right from wrong.
Is default what happens next if there was no hike in the debt ceiling? No. Not if the President carries out his constitutional responsibilities.
The federal government spends $16.7 billion a day and takes in about $14 billion a day in cash receipts, implying an average daily borrowing requirement of about $2.7 billion. Quite simply, without a credit limit increase, the US government would have to get by on current revenues, like everyone else at the end of their credit line. Revenues would have to drop by 90% before we would be unable to pay the interest on current debt.
Leaving the debt ceiling in place is just a forced spending cut. A rather abrupt one that one might think would force big spenders into negotiations.
Another point well covered on these pages is that we don't immediately borrow to cover what we print or issue in currency anyway. The amount of currency and debt we actually issue to enable the spenders is determined by the Keynesians in charge over at the Fed. Speaking of enablers, see today's new appointment. Also see the talk of quantitative tapering versus not tapering in recent discussions. These are not congressional issues in the eyes of these appointees.
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http://www.powerlineblog.com/archives/2013/10/the-federal-government-cant-and-wont-default-on-its-debt-obligations.phpThe Federal Government Can’t, and Won’t, Default on Its Debt Obligations
One remarkable aspect of the shutdown/debt limit battle is the irresponsibility (on the part of the Obama administration) and incompetence (on the part of the news media) concerning the claim that the federal government will default on its debt obligations if Congress fails to raise the debt limit. President Obama and his minions have clearly suggested that default is a real possibility:
“As reckless as a government shutdown is … an economic shutdown that results from default would be dramatically worse,” Obama said on Thursday. Clearly targeting Republicans, he said a default would be “the height of irresponsibility.”
Then, on the same day, Obama’s Treasury Department released a brutal statement that said a default would prove catastrophic, causing credit markets to freeze and leading to “a financial crisis and recession that could echo the events of 2008 or worse.”
Within the last few hours, Obama repeated that Congress must “remove the threat of default and vote to raise the debt ceiling.”
But there is no threat of default. Constitutionally, the federal government must pay its debts. The Fourteenth Amendment, Section 4, states:
The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.
I believe this provision is universally understood to mean that the federal government must pay its debt obligations, both principal and interest, even if that means prioritizing debt service over other government spending. So the question is, if Congress does not raise the current debt ceiling, will the federal government run out of money needed to pay its existing debts? The answer is clearly No. A reader supplies the math:
On average the federal government’s daily expenditures are about $16.7 billion; receipts are about $14 billion, implying an average daily borrowing requirement of about $2.7 billion. So the planned flow of revenues is now about $650 billion less than the planned flow of expenses…about $2.7 billion a [business] day, $650 billion annually.
So the “default” scenarios are bogus. Interest on the $16 trillion in debt is covered by a factor of about 10x by revenues! That puts the federal government deep into AAA land. Revenues would have to fall by a staggering 90% to jeopardize interest payments.
And, of course, retiring principal by “rolling over” maturing debt can never require an increase in the debt ceiling, since there is no net increase in the nation’s debt, even if the money used to repay the original principal is borrowed.
So what will actually happen if Congress doesn’t increase the debt ceiling by approximately October 17? The government’s debt obligations will be paid, but reductions in other spending will start to become necessary. In effect, leaving the debt ceiling as is would function as a spending cut. This is why the Democrats hate the idea so much. They know there is zero chance of default, but they are horrified at the prospect that voters and taxpayers may find out that there is a relatively simple way to bring about spending reductions that would create, in effect, a balanced budget. Hence the hysteria.
To be fair, some Republicans, including John Boehner, have also made public statements that support the plausibility of the default threat. Don’t ask me why. Others, like Rand Paul on yesterday’s Meet the Press, have tried to set the record straight:
NBC: Very quickly before I let you go. As you well know, there is a debt ceiling vote on the horizon. Will Republicans let this country go into default?
SEN. PAUL: I think it’s irresponsible of the president and his men to even talk about default. There is no reason for us to default. We bring in $250 billion in taxes every month, our interest payment is $20 billion. Tell me why we would ever default. We have legislation called the full faith and credit act and it tells the president, you must pay the interest on the debt. So this is a game. This is kind of like closing the World War II memorial. They all get out on TV and they say, we’re going to default. They’re the ones scaring the marketplace. We should never default.
The NBC reporter, Savannah Guthrie, apparently knew all along that talk about default is nonsense, because she immediately came back with this:
NBC: Let’s say you pay the interest on the debt and you don’t have a technical default. Wouldn’t there be dramatic consequences on the economy, anyway, the spirit of it?
There is only one kind of default: the “technical” kind. Cutting spending is not some other, “non-technical” type of default. And as for the impact on the economy, many economists believe that getting government spending under control is the best thing we can do to boost economic growth.
So next time you hear hysterical talk about default on the news, remember that those who raise the default specter either have no idea what they are talking about, or are trying to fool the uninformed.
