Are You Preparing For A Worst Case Debt Ceiling Crisis?

In My Humble Opinion
41

I’m a fed. One of my non-primary roles is crisis management, as in crisis management. My role is quite specific, however, the folks I work for and with allow pursuing ideas and threads wherever they may lead. In just one example in my lowly position I ended up talking with one of our agency government accountants based out of that Beltway town far from me.

We ended up discussing federal contractors, those non-government private people who earn their living performing work and services on behalf of the government. I was told in one scenario their contracts would be stopped and/or terminated and all unspent funds probably diverted to essential services. So what happens to those contractors? They’re immediately out of a job. Fine, so they file for unemployment. Yeah, but only if federally funded unemployment is functioning. And that may mean no safety net for them in the immediate term if the unemployment process has been stood down.

The Fed has publicly announced they are preparing for a default. I’m told that probably means maintaining the financial infrastructure of the country. No idea what that means. One scenario may mean as clearinghouse for all checks, they could delay finance transfers. People and companies waiting for checks to clear may end up waiting … meaning their own finances are disrupted. If you live from paycheck to paycheck, the money you require may not be there.

Of course in both of these scenarios we limited discussion to merely business processes and decisions. But what if the decisions are political and real game-playing?

Agencies are told to stand down, especially the ones that could place the most political pressure through ordinary citizens in turn to push their Congress critters to just raise the damn debt ceiling. I suggested that the FAA and TSA be ordered to stand down. Watch how fast business gets on Congress. Shrewd? Yes. Dangerous? Yes. It would make Obama a one-term president, but gets the ceiling raised. Obama falls on his sword, but the country does not. You tell me if that’s a fair price.

Yes, non sequitirs. But remember, there is no precedence for this. No one knows the fallout and what is or is not connected to something else. I find it fascinating that many with little to no knowledge of the inner working of government believe the processes are orderly and defined. Sorry, but many non-crisis processes are disjointed and bizarre. We just don’t know what may happen so we explore the bizarre as well as the orderly.

My OP was just a poll to explore this. Even this late stage in the game we’re not being told anything. When the budget issues earlier this year indicated possible furloughs there was quite a bit of working being done; what will function and what will not, furlough policies to operate, what we should be doing to prepare our professional and personal lives, etc. At the 11th hour Congress agreed and passed the FY2011 budget. This time, with a much greater financial unknown, with far greater government and society ramifications, nothing is coming out. Nothing. My circle says this part is all political. If there is no debt ceiling decisions come Monday, we think the internal preparations will come flooding out of the Beltway town. Everything will be held close to the vest only to prevent “the other side” from making hay with it. Pure politics.

42

I have thought of that domino effect, Duckster, because I am at the bottom of the contractor food chain in some respects.

I do subcontracting engineering work for bigger engineering firms. A good portion of that is DOT work. Our state DOT recieves a lot of their funding from the Federal Highway Administration. So, if the FHWA suddenly freezes funding, then MDOT freezes contracts, and all of a sudden a self-employed contractor such as myself sees their backlog of work simply vanish.

I’ve already gotten a call notifying me of a contract which was supposed to be signed in a couple of weeks, which has been put on the shelf for at least six months.

I am certain that it’s all political charades. That’s what is so infuriating. If you want to go play “chicken”, take your own hot rod to town, don’t be taking mine. Congress is out there playing “chicken” with my livelihood, and that of countless other Americans.

I simply cannot find the words to express my anger and disgust over this. It makes me want to puke.

Ugh.

43

Note that I am definately not recommending that you go and max out your credit cards tomorrow. Just that, if you really were expecting an instant financial crisis, that would be the smartest thing to do.

But we’re not going to have an instant financial crisis, in the sense that you wake up tomorrow and a loaf of bread is suddenly $100, and your credit card doesn’t work and the dead are rising from their graves to walk the earth. Instead, we’ll have an even crappier recession than we’re having now. It’s gonna be harder to find work, harder to borrow money, things will get more expensive, more people will get laid off, government workers will get unpaid furloughs.

The point is, if you lose your job, having paid off your credit card balance early isn’t going to help. If you’ve racked up a lot of debt, paying it off right before you lose your job is stupid. You’re much better off with debt and some liquid assets that you can use to pay for food and gas and your mortgage than on unsecured credit card debt. Fuck your unsecured creditors, they get paid last. Oh, that’s gonna screw up your credit score! Yeah, it sure will. And so? A lot of people are gonna have screwed up credit scores, including the United States Treasury.

44

According to objective economic measures, the recent recession ended in summer 2009, despite the fact that some folks are still having a hard time finding work.

45

Number juggling - we still have high unemployment and stagnant economy. It’s all very nice to juggle statistics, but I can’t help but think there is some political motivation to declare things rosy when they aren’t. Rather like quoting the U3 unemployment number rather than the U6, which I think gives a much better picture of the actual situation.

46

Broomstick, a recession is when the economy is contracting. When it stops contracting and starts growing again, the recession is over. That’s what a recession is. Note that it doesn’t have to recover to where it was before the recession, it just has to stop contracting. That doesn’t mean employment bounces back, because employment is a lagging indicator, when companies get more business they first try to make their current employees work harder rather than hire more employees. They only hire more as a last resort, which happens well after the recession is over.

So if our current recession is over, we could have another recession right on top of it, that’s the double-dip recession. To ordinary people it would look just like one super-long recession.

47

How is our current economy growing? Seriously?

The problem with relying on just one or two or three “objective indicators” is that you can then try to tweak things to make those numbers look better, and to hell with anything else. Yes, by certain strict definitions the recession is over but there’s still a hell of a lot wrong with the current situation. Fine, you don’t want to call it a recession, but the problem is the term “fucked up” is often frowned upon in polite society.

48

OK, now I’m worried. I had assumed up until last night that this pissing match was nothing more than a charade intended for both sides to save face. That Boehner had to delay the vote on his plan, however, speaks volumes about who’s really in charge and it ain’t him. I say now there’s a good chance of the Tea Party steering us into a ditch.

Not that passing his plan would have done match good anyway, as it would have been DOA as soon as it hit the Senate. But at least it would have shown there was an adult in control willing to take this situation seriously.

49

Absolutely. It’s not just this debt ceiling dust-up, which is just shameful, but also the looming problems in Europe. I swept all stock fund money in our TSP accounts into the “G” fund, which is guaranteed, liquidated individual stock holdings to cash, created an FDIC-insured cash account with Fidelity and swept mutual fund money into it, and put my wife’s tax-deferred funds into money market shares (which is not going to completely escape any major meltdown).

The jerk-offs in WDC are playing Russian roulette, but the gun is pointed at OUR heads. There is absolutely no reason for the debt ceiling to be held hostage to pet spending cuts and taxes. That sort of house-cleaning should have been done long ago as a matter of business, rather than using it as political grandstanding. Now they’ve gotten themselves irrevocably snarled up in their underwear and the jaws of life ain’t gonna get them out of it. So what we’ll end up with is a bad plan created by morons that will probably send the markets into a tailspin.

If this all turns out to be smoke and no fire, I can easily reverse what I’ve done. But I’m taking no chances.

50

Can someone explain to me how my debit card won’t work, I won’t be able to get gas, and there won’t be food on the shelves, please?

I’m not quite grokking the connection. Or maybe I’m just not intellectually capable of making the leap from “US Treasury’s credit rating tanks, markets suffer” to “Apocalyptic post-Katrina type global devastation with no food, water, or money.”

Surely, you don’t expect all that to happen by Aug. 3, right?

This is why I had trouble with Y2K. So far, in my experience, life doesn’t just magically change from A to Z in 0.00002 seconds.

Further, I would prepare for a worst case debt ceiling crisis, but I’m in the midst of my own. It’s been all I can do to keep up with the payments I’ve got; I don’t know how people are supposed to have six months’ of cash stashed away. What good will it do if there’s no food in the stores and no gas at the pumps? (And how, exactly, is that going to happen again?)

ETA: I have no clue how we should prepare, if at all. For all the nonsense I keep hearing from the talking heads, there’s an awful lot of gloom-and-doom predictions and speculation, but nobody really ever says, “Okay. You good and scared now? Here’s how you can protect yourself.” Hell, even when there’s a hurricane coming, I get a checklist from the Red Cross so I know what the hell to do. So what the hell are we supposed to do to prepare? Jugs of water in the house? How will my water get cut off?

51

Awesome. So that’s about the most reasonable thing I’ve heard/read so far. How does one prepare for that, exactly, as the OP queries?

52

From your perspective, it’s probable a negligible immediate impact. There is no apocalyptic scenario unless you have large savings holdings and the market crashes. The long term effects on interest rates would make it more difficult and more expensive to borrow money. Your debit card will still work, the gas pumps will still pump, food will still be on the shelves. If both the Euro and US economies crash, we could be looking at a full fledged depression, of course, but I don’t think that will happen. At least I hope not.

53

This is how I felt when I read Duckster’s OP.

Nothing against Duckster, mind you. I admit to just being unable to understand this stuff at all. I simply cannot make the connections. I guess if it gets bad, I’ll have no choice but to deal with it as best as possible in an ad hoc manner.

54

Are you me (except the groundhog lives under the gazebo)?

Y’know, if there was a zombie catatrophic financial alien pandemic apocalypse, I’d probably be just fine just living on my little rural retreat and communing with the woodchuck.