http://www.businessinsider.com/can-the-treasury-prioritize-payments-if-the-debt-ceiling-is-breached-2013-10
Theoretically, breaching the debt limit doesn't mean the U.S. needs to default on its debt.
Those who are sympathetic to debt ceiling brinksmanship rightly point out that the U.S. has way more tax revenue coming in each day* than it has to pay each day in interest payments, and so therefore the U.S. does have the financial means to be good on its debt obligations without incurring more debt.
The argument is that after the debt limit is hit the Treasury can "prioritize" payments, meaning that it would guarantee that bondholders get paid, while withholding money from, say, soldiers or Social Security.
Of course, this would obliterate the economy (Goldman estimates that this would erase 4.2% of GDP) but it wouldn't mean a debt default.
But is this actually possible?
Here's the answer: Nobody knows.
Seriously, it is remarkably difficult for anyone outside of Treasury to get any real answer to what is possible with regard to prioritization.
Cardiff Garcia has a must-read post at FT Alphaville just walking through the ABCs of the Treasury payment system. Suffice to say, just the ABCs are very complicated.
Over 80 million payments go out per month, and they're handled by three different systems.
From Credit Suisse:
As we understand it, there are three main systems – the Department of Defense Disbursing Offices, the Bureau of the Fiscal Service (which deals with Treasury security related payments), and the Financial Management Service (which makes all other payments).
The way that they are set up, they can either be set to “on” or “off” – i.e., a system either makes all of its payments or it doesn’t make any at all.
The extent to which the system can be rearranged to honor Treasury payments first, and then disbursing what's left over is unclear, though at a minimum it would be extremely difficult.
But even if there were some technical approach to all this, you'd still have the legality.
Morgan Stanley recently published an FAQ on the debt ceiling, and this was the first question.
In the Event Congress Fails to Raise the Debt Ceiling, Is the Treasury Allowed to Prioritize Its Obligations?
Bottom Line : No, there is no legal basis for the Treasury to prioritize payments. As noted in our previous report, if the debt ceiling is not raised before October 17th, the Treasury will have approximately $30 billion left in the coffers to fulfill its obligations.
Bottom Line : No, there is no legal basis for the Treasury to prioritize payments. As noted in our previous report, if the debt ceiling is not raised before October 17th, the Treasury will have approximately $30 billion left in the coffers to fulfill its obligations.
Given reasonable assumptions for receipts and planned expenditures, the remaining cash could last until November 1st, when large Social Security, Medicare, pension and other benefit payments are scheduled (about $67 billion in total). On November 15th, $31 billion in interest is due to bondholders. There is no legal basis for Treasury officials to fulfill certain obligations at the expense of others, and they therefore have no authority to cancel payments scheduled for November 1st. Further, without illegally stockpiling cash over the first two weeks of November, there will not be enough tax receipts on November 15th alone to prioritize bondholder interest payments over other expenses on that particular day.
That last point, about what happens on Nov. 15 is why we included the asterisk above, when we mentioned that the U.S. has more cash coming in each day than it has interest payments to make. While that is true most days, that's not true every single day.
So you have a technically difficult operation possibly running afoul of the law.
Does that mean it's not going to happen? Not necessarily. One can only surmise that The White House and The Treasury have crafted various escape hatches in the event the debt ceiling isn't raised. And an effort at prioritization would certainly be better than missing a Treasury payment. But this is incredibly murky territory, and almost nobody on the outside has a great grasp of what would happen.
The House GOP position.....
http://www.politico.com/blogs/politico-live/2013/10/boehner-insists-hes-leading-house-gop-it-is-time-for-174374.html?hp=f2
Boehner: 'It is time for us to stand and fight'
House Speaker John Boehner says he wasn't pulled into demanding concessions from Democrats to keep funding the government - he willingly joined with fellow Republicans.
"I and my members decided that the threat of Obamacare and what was happening was so important that it was time for us to take a stand. And we took a stand," the Ohio Republican said Sunday on ABC's "This Week."
That's even though he had offered a clean government funding bill to Senate Majority Leader Harry Reid (D-Nev.) over the summer. "There was a conversation about doing this ... several," Boehner said, but he ultimately decided against it.
"I, working with my members, decided to do this in a unified way," the speaker said -- with demands to defund, delay or otherwise alter the Affordable Care Act.
Boehner had expected that the Obamacare fight would come during the next vote to raise the debt ceiling, “but, you know, working with my members, they decided, let's do it now," he said. "And the fact is, this fight was going to come, one way or another. We’re in the fight. We don't want to shut the government down. We’ve passed bills to pay the troops. We passed bills to make sure the federal employees know that they're going to be paid throughout this.”
"You've never seen a more dedicated group of people who are thoroughly concerned about the future of our country," he said of House Republicans. "It is time for us to stand and fight."
http://www.politico.com/blogs/politico-live/2013/10/boehner-not-enough-votes-in-house-to-pass-clean-cr-174372.html
Boehner: Not enough votes in House to pass 'clean' CR
House Speaker John Boehner says there wouldn't be enough votes to pass a "clean" continuing resolution in his chamber, though various counts have put the number of Republicans who'd be willing to join with Democrats at more than 20.
"There are not the votes in the House to pass a clean CR," the Ohio Republican said Sunday on ABC's "This Week."
Pressed on the vote estimates, including the 195 voting House Democrats who've said they would support the clean bill, Boehner insisted that negotiations are necessary.
"The American people expect in Washington when we have a crisis like this, that the leaders will sit down and have a conversation," he said. "I told my members the other day -- there may be a back room somewhere, but there's nobody in it."
Boehner said that statements from President Barack Obama and Senate Majority Leader Harry Reid (D-Nev.) insisting that they won't negotiate under threat of a government shutdown or default on U.S. debt would mean yielding on his own positions. "So it's my way or the highway. Complete surrender and then we'll talk to you," he said.
The White House position....
The White House position....
http://www.politico.com/blogs/politico-live/2013/10/lew-no-option-for-obama-if-debt-ceiling-is-hit-174370.html?hp=l1
Lew: 'No option' for Obama if debt ceiling is hit
President Barack Obama will have "no option" to take on his own if Congress fails to raise the debt ceiling, Treasury Secretary Jack Lew said Sunday, repeating the administration's long-held view.
"There is no option that prevents us from being in default if we don't have enough cash to pay our bills," Lew said on CNN's "State of the Union."
Pressed on whether Obama would try to use the 14th Amendment or other authorities to raise the debt ceiling, Lew suggested that the congressional route is the only option.
"The White House has spoken quite clearly to this," he said. "The president does not have the authority to take action in that kind of a way. The president consulted with his lawyers, and that's the conclusion that he's reached."
"You know, there is a desire here for there to be some kind of a magic solution," he said. "There is an easy solution ... A majority in Congress would do the right thing if given a chance to vote to open the government. A majority in Congress would do the right thing if given a chance to let us pay our bills. Congress needs to work, they need to do their job, but the majority needs to be given a chance."
http://www.politico.com/blogs/politico-live/2013/10/lew-obama-open-to-reasonable-discussion-174373.html?hp=l1_b1
Lew says Obama open to 'reasonable discussion'
Treasury Secretary Jack Lew continued on Sunday to shift the blame on Republicans in Congress for threatening to default the U.S. debt in a heated exchange with Fox News Sunday host Chris Wallace, who repeatedly questioned him on why the president was “digging his feet into the ground.”
"Congress needs to make it possible for us to pay our bills," Lew said. "I'm saying the president wants to negotiate. He wants to negotiate in good faith."
"Congress needs to do its job, and we then need to negotiate. The president has taken many steps over the last several years to show his willingness to negotiate. He's done it with Democrats saying he's too eager to negotiate. Now, Republicans have not come forward and made comparable movement."
"We're open to negotiation," Lew said. "The president has been, is, and will always be open to reasonable discussion."
Although other issues have been attached to budget debates in the past, Lew said a party had never threatened to default before 2011.
"You know, Chris, I lived through the budget debates of the 1980s, the 1990s, the early 2000s," Lew said. "I know that there were many occasions when the debt limit was tacked on to other things. I actually remember when the debt limit was used as a deadline, an action-forcing event."
"It was different in 2011. In 2011, you had 50 to 100 members of the House who said, 'if we don't get our way, we would rather see the default of the United States,' and that was different. It was different. “
Lew also said said that House Speaker John Boehner (R-Ohio) should take action, even without having majority support for it within his party.
"I know John Boehner. We have a good relationship. I've talked to John Boehner. I know he doesn't want to default. He also didn't want to shut the government down," Lew said. "And here we are with a government shutdown. There's a majority in Congress that would vote to do the right thing, and the majority needs to be given the chance to work its will."
Have the House Dems misread both House Rules on Discharge Petitions and moderate / non Tea Party aligned House GOP members intentions ?
http://www.politico.com/story/2013/10/house-democrats-government-shutdown-vote-97879.html?hp=l5
Democrats' procedural vote plan faces hurdle
House Democrats appear to have misread House rules in their zeal to force a vote to end the government shutdown.
On Friday, Reps. George Miller (D-Calif.) and Chris Van Hollen (D-Md.) announced the latest in a series of ploys to get breakaway House Republicans to join them in voting for a “clean” continuing resolution to fund federal operations.
The trick: take a procedural shortcut to expedite consideration of a “discharge” petition that allows a majority of House members to bring up a bill over the will of the Speaker of the House. Under their plan, they said, they could get a vote — provided enough Republicans joined them — as early as Oct. 14.
Under House rules, discharge petitions with 218 or more signatures — a majority of the House — may be considered only on the second and fourth Mondays of each month. The 14th is the second Monday.
But, according to a close reading of House rules, the Democrats may have missed a second clause in the rule for discharge petitions that adds another seven days to the clock.
Under Rule XV, it takes a minimum of seven legislative days for a discharge petition to ripen before signatures can be collected. Once that happens, there is an additional seven-day window before the House can vote. The 14-day waiting period means that Democrats would miss the opportunity on the 14th and would have their first chance on the 28th.
It’s probably all moot since the group of House Republicans who have said they would vote for a clean CR if it was brought to the floor have not yet shown any interest in jamming House Speaker John Boehner by joining Democrats in parliamentary warfare.
In an interview, Miller said he wasn’t aware of any problems with his petition that would delay a potential vote until late in October.
“Somebody said that the other day, but we worked it out with the parliamentarian and Rules Committee,” Miller said. “If there’s a mistake made, there’s a mistake made. We’ll have to see.”
Miller added that if it a vote on a clear CR is delayed until late in October, Republicans “will be begging to vote on it. That won’t be the problem.”
Peter King won't sign discharge petition
Rep. Peter King says he'll not sign a discharge petition House Democrats are trying on use to bring a “clean” continuing spending resolution to the floor.
Asked why he wouldn’t sign the petition, the New York Republican simply said: “It’s not going to go anywhere.”
Democrats need 18 Republicans to sign the petition to use the procedural maneuver to bring their bill to the floor.
King also expressed his support for Speaker John Boehner (R-Ohio), calling him “an outstanding speaker.”
“He’s doing the best he can in a difficult situation,” King said.
King instead criticized President Barack Obama and conservative members of his party such as Sen. Ted Cruz (R-Texas). “The president of the United States has an obligation to get involved,” he said.
Republicans should have never used the continuing resolution as a way to defund Obamacare, he said. "This was a strategy doomed to failure," he explained. "If we want to defund something, we should repeal it."
Hill fighting sends shutdown into second week
The government shutdown will lurch into a second week after another fruitless day on Capitol Hill.
A rare Saturday session was dominated by now-familiar shutdown messaging from Democrats and Republicans in the House and Senate, with each side trying blame the other for keeping the government shuttered. Even House-passed legislation that would pay federal workers prompted an angry reaction from Senate Majority Leader Harry Reid.
More than a dozen lawmakers will appear on the Sunday shows to keep making their rhetorical case about which side is being unreasonable in the congressional stalemate.
House GOP leaders will do something Sunday they haven’t done in a couple weeks — send their members home. The Senate will also take a day-long breather from the partisan rancor of the Capitol.
Boehner and his top lieutenants wrestled with whether they should let members leave town, fearing that if they did, they’d lose control of them and party unity would crumble. The Senate too did not want to take a day off during a shutdown while the House was in session, fearing poor optics.
But rank-and-file lawmakers are exhausted from a two-week, high-tension fight and leadership decided to send them home for at least a day. Neither chamber is expected to vote until Monday, all but guaranteeing a shutdown of at least a week. The government closed up last Tuesday at midnight.
For the fifth straight day on Saturday, House leaders urged the Senate to pick up their piecemeal bills funding pieces of government. Meanwhile a parade of mostly Democratic senators took to the floor for hours, calling on House Speaker John Boehner (R-Ohio) to pass a six-week government funding bill that doesn’t touch Obamacare.
House lawmakers of both parties at least agreed on one thing during the unusual weekend work session, passing a bill, 407-0, to give furloughed federal workers back pay once the shutdown is over. That legislation is also endorsed by the White House.
After House passage, Reid (D-Nev.) ripped the the House GOP for offering a “paid vacation” for federal workers while also refusing to reopen the government. The Senate may yet take up the House bill, but the upper chamber did not do so on Sunday. Senators from Maryland and Virginia — states with high numbers of federal workers — have introduced a bill in the Senate to do the same.
“Great news House passed our bill to guarantee back pay for fed workers. Ready to pass in Senate,” Sen. Tim Kaine (D-Va.) said on Twitter.
More than 800,000 federal workers have been furloughed due to the shutdown that began Tuesday.
Another non-binding resolution from the House, considered under a parliamentary procedure requiring a two-thirds majority to pass, will allow military chaplains to continue to provide religious services during the shutdown. All House lawmakers except Rep. Bill Enyart (D-Ill.) voted in favor of the legislation.
House Minority Leader Nancy Pelosi (D-Calif.) and House Minority Whip Steny Hoyer (D-Md.) tried to track down Enyart or his aides to see why he voted against the resolution, according to leadership aides, but the vote ended and he was still registered as a “no” vote. Enyart explained in a statement that he would not vote “for any more feel-good bills until we can vote on a clean continuing resolution that reopens the government.”
Later Saturday morning, House leadership in both parties held dueling press conferences on the government shutdown, ramping up the blame game but leaving Congress no closer to a resolution.
”I think that there is a majority of senators who support these bills to ease the pain on the American people while we continue to wait for the president to join us in these discussions to work out these differences,” House Majority Leader Eric Cantor (R-Va.) told reporters.
Meanwhile, House Democratic leadership released a letter signed by 195 House Democratic representatives and five non-voting delegates, urging Republican leaders to allow a vote on a so-called “clean” funding resolution to fund the government. Only Democratic Reps. John Barrow of Georgia, Jim Cooper of Tennessee, Ron Kind of Wisconsin, Jim Matheson of Utah and Mike McIntyre of North Carolina did not sign the letter.
The most significant action in the Senate on Saturday was an impassioned speech by Reid to open the Senate, mostly notable for its length of nearly 30 minutes rather than its substance. Reid urged House Speaker John Boehner (R-Ohio) for the umpteenth time to take up the Senate’s “clean” spending bill that would reopen the government and lambasting the House’s piecemeal bills.
“No matter how many bites the Republicans take at the apple, there is only one bill that makes sure everything is met: The Senate bill to reopen the government,” Reid said. “We’ve been waiting a week, but the speaker could end this government shutdown before they go home for Sunday.”
In his weekly radio address, Obama read aloud letters written by residents from Alabama to North Dakota who can’t access vital government services. Obama called on Congress to pass a clean funding bill to re-open the government, and he indicated once again that he will not give in to Republican demands to dismantle or tweak his signature health care law.
“Take that vote. Stop this farce. End this shutdown now,” Obama said. “The American people don’t get to demand ransom in exchange for doing their job. Neither does Congress. They don’t get to hold our democracy or our economy hostage over a settled law.”
Democrats and Republicans remain far apart from an agreement to fund federal operations. House Republicans are now focused on piecemeal bills to fund different parts of the government, such as the National Institutes of Health and the Federal Emergency Management Agency.
Congressional Democrats and the White House are insisting on a bill that funds the entire government without any changes to Obamacare.
As the Oct. 17 deadline for boosting the nation’s debt limit fast approaches - and the possibility of a debt default begins to loom larger for U.S. and global financial markets - the partisan struggles over government funding and the national debt have begun to merge.
Boehner and the House GOP leadership, with input from Budget Committee Chairman Paul Ryan (R-Wis.), are beginning to coalesce around a scaled-down version of the “grand bargain” package floated over the last few years.
In return for passing a government-funding bill and debt-limit boost through next year, Republicans will seek changes to entitlement reform and lay out the framework for a tax-reform package. Proposals such as means testing for Medicare recipients, or enactment of “chained CPI” - a revised formula for calculating federal benefit payments - would be included in the package as well. Republicans would seek to repeal the medical device tax or abolish the Independent Payment Advisory Board - created under the Affordable Care Act - or make other changes to Obama’s signature health-care program.
The White House and Democratic congressional leaders, though, are already signaling they’re not interested in any such deal. They want Republicans to agree to “clean” government and debt limit bills first, and then talks over a broader fiscal and budget package can take place.
Bottom line view from Bank of America......
A Depressed Bank Of America Predicts "Agreement Is Almost Impossible As Long As Obamacare Is On The Table"
Bank of America's latest forecast on the resolution, or lack thereof, of the government shutdown, which now seems virtually certain to last at least one week into Monday night, when the House and Senate return to work, is hardly encouraging. The bank's base case now calls for "either a two-week shutdown or for multiple shutdowns." Additional, BofA has now cut its Q3 GDP forecast from 2.0% to 1.7% and from 2.5% to 2.0% for 4Q. It gets worse: "Much worse outcomes are possible. In our view, agreement is almost impossible as long as the Affordable Care Act is on the table." Finally, and what ties it all together, is that as a result of the lack of "government data", BAC now expects the Fed to delay tapering to their January meeting, or later. Which may well have been the much needed alibi all along to delayed tapering until 2014.
From Bank of America
The shutdown of the government has created a double dose of uncertainty. It comes at a time when the economy may be about to shift from second gear into third gear, triggering the beginning of a Fed exit. The longer the shutdown and the longer the games of brinkmanship, the longer the delay in that growth pick up. At the same time, the shutdown means almost no official data releases. In the face of this uncertainty, the Fed’s motto is: when in doubt, do nothing.
Our base case is now for either a two-week shutdown or for multiple shutdowns. We have cut our forecast for GDP growth from 2.0% to 1.7% for 3Q and from 2.5% to 2.0% for 4Q. We also expect the Fed to delay tapering to their January meeting, or later.
Much worse outcomes are possible. In our view, agreement is almost impossible as long as the Affordable Care Act is on the table. The President is very unlikely to agree to cuts in his proudest legislative achievement. Moreover, in our view, he is in a strong negotiating position vis-Ã -vis House Republicans. He does not have to run for office again, while they are all up for reelection next fall. Surveys show Americans strongly disapprove of the shutdown and put more blame on Republicans than Democrats. Surveys also show that Americans think it is not worth shutting the government down as a means to end the ACA. On the other hand, most Republicans strongly oppose the ACA and many support shutdowns as a means to an end. Ultimately we expect Republicans to drop the effort to weaken the ACA, but this could take a while.
It is very hard to measure the impact of the shutdown on the economy, although every economist has to come up with numbers. Most of the press reports seem very much on the low side, in our view. The direct impact is easy to calculate. The Clinton-Gingrich shutdown directly reduced GDP by about 0.3% in 4Q 1995 and a two-week shutdown today would have a similar impact. However, we think these narrow estimates are wishful thinking. There will likely be numerous spillover effects and, even if the shutdowns are brief, multiple brinkmanship moments will take a toll on confidence. We hear a lot of talk about buying on dips, but getting the timing right could be very tough.
Hey Fred,
ReplyDeleteGood Doug Noland piece, I had missed that this busy weekend. Nice to see that you had someone to keep you straight on the number burning men in the US.
I can't say I'm surprised about Greece, I fully expect that truism I heard somewhere "the last official act of any government is to loot the country" will be playing out all over the planet.
Hey Kev - glad you had a productive weekend ! Someone offering constructive criticism is someone reading what was posted ! Greece is desperate - trying to avoid to pretend they don't need their next bailout by looting assets of struggling businesses ; the sad part is you know those social and benefits payments will be cut AFTER the looting occurs ( and yet Greeks still support Samaras ) , then the next focus will be bail -in of deposits by Greeks who are either naive enough to keep money in the Greek Banks or from businesses that need accounts to function !
ReplyDeleteI'm hoping the other commenter keeps reading and commenting.
ReplyDeleteGreece is in a hopeless situation, they need to go "Iceland" before all of their productive assets are transferred away. Sad that they still support Samaras, I guess that's denial.
Greece will remain " hopeless " as long as they choose to stay in the Eurozone and keep the Euro. Some view the recent attack on the Golden Dawn Party as an attack on New Democracy's political opponent rising strength ( using the pretext of a tragic murder of a popular political rapper - which was not sanctioned / aided or abetted by Golden Dawn . ) Don't get me wrong , Golden Dawn is an odious group , however , one can make an argument the move / political purge of their political leaders has been very politically convenient for PM Samaras.
ReplyDelete