In a welcome change of pace from what we saw on the Sunday shows and on his own network last week, guest host Ezra Klein took the Last Word viewers through what we could actually expect to happen if our politicians were irresponsible enough to allow the United States to default on our debt.
Want to make sure your calendar is clear when we hit the debt ceiling? Then don’t schedule anything between Feb. 15 and March 1.
That, according to a new analysis by the Bipartisan Policy Center, is the likely range for debt-ceiling doomsday: The day when the Treasury Department runs out of room to maneuver and we actually begin to default on obligations. Either Congress figures out the debt ceiling before that date or things get very bad, very fast.
Imagine we hit the debt ceiling Feb. 15. The BPC’s analysis suggests that federal spending over the next month will be about $450 billion. Federal revenues will be nearer to $277 billion. That means that the government will have to default on about 40 percent of its obligations.
The choices it will face quickly become stark. It can cover interest on the debt, Social Security, Medicare, Medicaid, defense spending, education, food stamps and other low-income transfers, and a handful of other programs, but doing all that will mean defaulting on everything — really, everything — else. The FBI will shut down. The people responsible for tracking down loose nukes will lose their jobs. The prisons won’t operate. The biomedical researchers won’t be funded. The court system will close its doors. The tax refunds won’t go out. The Federal Aviation Administration will go offline. The parks will close. Food safety inspections will cease.
This is the difference between a debt-ceiling shutdown and a government shutdown. As Shai Akabas, a research at the Bipartisan Policy Center, puts it, “in a government shutdown, the government is shutting down future obligations. With the debt ceiling, They’ve already obligated the money. They owe these people the payments now, and they can’t make them.”
Then, of course, there’s the financial-market chaos. Trillions of dollars in derivatives and other financial products are based on the interest rate that the federal government pays when borrowing. U.S. government debt is, after all, supposed to be the safest investment in the world, and so it’s used to “benchmark” all other sorts of debt. A spike in the Treasury rate would mean a spike in credit card rates and mortgage rates, not to mention all manner of more esoteric financial derivatives. The damage to the economy would be tremendous, and it would occur at every level, from individuals looking for a loan to buy a house to hedge funders trying to play the markets. Read on...
Ezra needs to send his post over to the other hosts on MSNBC like David Gregory and Joe Scarborough so they quit lying to their audiences about the consequences of default and pretending that it would only be a partial government shutdown.