What Treasury triage might look like

Good piece here by Jane Sasseen of Yahoo News, about what might happen on Aug. 3, if Congress doesn’t raise the debt ceiling. Without being able to borrow any more money, the government would have a shortfall of $135 billion for the rest of August. That is, the government’s legally obligated payments would still be $307 billion and its expected revenues from all sources would be only $172 billion. Altogether, the “federal government makes payments to some 80 million individuals, companies and entities every month.” Who would get stiffed?

There’s no official order of triage, but it’s widely agreed that Treasury bondholders would get paid first. They’re owed hundreds of billions, but most of that comes from selling new bonds. Only the interest ($29 billion for August) comes out the budget, so the government can be counted on to cover it, rather than do any more damage to its credit rating and future interest rates than it already has.

What seems most likely, according to an expert quoted in the article, is a partial government shutdown, as in 1995:

‘”A de facto shutdown of the government is the real threat, not default, ” says Greg Valliere, chief political strategist for the Potomac Research Group.’

Bad time to work for the federal government. Humorist Andy Borowitz had it right: Let’s save money by paying Congressmen per accomplishment.

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One Response to “What Treasury triage might look like”

  1. Uh oh, the 14th amendment might not help here « Blogging Through the Wreckage Says:

    […] Blogging Through the Wreckage An econ professor tries to get a grip on the economic and financial crisis « What Treasury triage might look like […]

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