Sigh…I am getting just a wee bit tired of so-called experts say that not raising the US Federal Debt Ceiling will be disaster: we will default on Treasury paper and lose our AAA bond rating; there will be chaos and collapse of the world-wide banking system; the earth will open up and swallow the US whole into a gigantic, gaping, fiery maw.
Oh, puleez, gimme a break.
The US Federal gov’t receives bazillions of dollars each and every day, and pays out just as much every day. Uncle Sam has 2 types of payments: repayment of debt and payment on accounts payable. If the debt ceiling is not raised and we ‘run out of money’, the accounts payable will be cut back, but all people trying to redeem Treasury paper will receive 100% of their dough: there will be no default.
Permit me to illustrate. Take out $1.00 in coins and place it on the table. Take 30¢ into one pile (the house mortgage payment), and 70¢ in another (food, clothing, vacation, entertainment); no, I do not know the exact numbers: this is only an example. Now, mom walks in and says: sorry, honey, Dad’s work hours have been cut back, and next week you will have 5¢ less. OK, question: are you going to default on your debt payment and risk your house, or are going to take the nickel out of the accounts payable stack and eat cereal for dinner for a while?
So, what happens if Uncle Sam cuts back on accts payable? Those receiving agricultural subsidies, foreign subsidies, free food stamps, federal employee pension and health payments, and federal contractors will have to wait a wee while before beginning to receive regular payments again. I would be willing to bet that there will be no major consequences, besides the usual wailing and gnashing of teeth by people getting free money from Uncle Sam, until after the 2012 elections.
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