So, there’s a lot of discussion about certain Congresspeople voting against raising the debt limit, mostly because they think the government is spending too much. Of course, talk is cheap (and sometimes an end unto itself), and even our current President once voted against it (when it was otherwise safe) to make a point.
So how much of the discussion right now is “serious”? What are the chances that this time, it won’t be raised, regardless of the consequences? And what’s the value of having it (which few/no other country does) at all? Couldn’t either party, with sufficient numbers, basically “blackmail” anything they want with this threat? Is that what’s happening now? If so, who’ll “win”?
The analogy with “Game of chicken” breaks down. In Chicken, both drivers want to survive. In Federal Bankruptcy, many of the players would be delighted to see the Marxist gay-loving Federal Beast fail, and the price of gold soar. One would hope that most Republican Congressmen are sane, intelligent and sincere, but that may be wishful thinking.
In other banana republics, the population would expect the Army to step in and restore sane governance, but many Americans don’t yet understand theirs has become a banana republic.
There will be a shutdown for probably a couple weeks. When the SS checks stop coming, fire and brimstone will rain on Congress and the Repubs will reluctantly back down.
There is a difference between raising the debt ceiling, and passing the budget (two different but interrelated issues), with a temporary measure (Continuing Resolution or CR) or a real final budget for this fiscal year (which ends 30 Sept 2011). Mind you, this is the time of the year Congress should be debating next year’s budget, due to begin 01 Oct 2011.
Raising the debt ceiling means authority for the government to borrow money in order to help finance the budget. There are those who argue it’s just a shell game because Congress can just borrow money anyway. Then again, voting to raise the debt ceiling is more of a psychological issue, and that has critical ramifications. Failing to raise the debt ceiling raises perceptions in those we borrow money that we might not pay it back. If our lenders get scared and refuse to lend us more money, the head trauma can drastically affect the markets and the economy. Perception is reality. If you are trying to borrow money and your lender perceives you to be unstable in paying it back, it makes no difference what the reality is (that you are stable and will pay it back). The lender holds all the cards.
As for the actual budget issues, the federal government has no budget for this FY2011 fiscal year. It has been operating under a CR, which means agencies can only spend at the previous fiscal year levels. A CR is time-limited, and must either be extended or a final budget passed. It’s a political ploy. It’s also sound financing to keep a check on spending when there is no agreement on a final budget.
However, failure to extend the CR, or pass the final budget, by the current deadline when current authorization runs out on 04 March 2011, is just as critical as not raising the debt ceiling. The “official” news we have (as of today) with extending the CR by next Friday:
[ul]
[li]Congress passes an extension of the CR. “Business” as usual.[/li][li]Congress passes a final budget. “Business” as usual.[/li][li]Congress fails to do either. Nonessential civilian government business stops cold.[/li][/ul]
What does that mean if government stops? Nonessential federal employees are furloughed. Fed employees are no longer paid. The work stops. We’re told officially that plans are in the works in case there is no budget, but those “plans” haven’t been shared yet.
However, there is unofficial information coming out and it’s just as credible as the official information. Yeah, we have our own internal whistle blowers who can’t speak on the record and have access to the same inner workings of government. The unofficial word is if government shuts down:
[ul]
[li]Be prepared to be furloughed a minimum of four to six weeks (two-three pay periods). Maybe longer.[/li][li]Be prepared not be receive any back pay once there is a budget passed. This is different than 1995/1996 when federal employees were furloughed for several weeks but eventually were paid for it, even though many didn’t get all their money for up to six months. The mood of Congress and an uninformed public is against this practice this time.[/li][li]Be prepared for Congress to deny federal employees any eligibility for unemployment, even if Congress makes no attempt later for back pay. This is really bad. It makes fed employees scapegoats for a gutless Congress that can’t make decisions. It also means dire straights for those who live paycheck to paycheck.[/li][li]Federal employees on furlough have to pay the full cost of their insurance during the furlough period. If you lapse in payments you lose your insurance, and that could mean no medical coverage until next December under the next open period. It could also mean no life insurance, period. The last open period for life insurance changes was something like 15 years ago. If denied the ability to claim unemployment as well, the financial risk is catastrophic if a fed employee and their family needs medical treatment while furloughed.[/li][/ul]
Now I know there are cynical Dopers out there who may not give a damn. They may think fed employees need to suffer just as much as private employees in this economy. However, there are several issues many people are unaware:
[ul]
[li]Social security and veterans checks will still be processed and go out, at least for March. But that’s because March checks are mailed/direct deposited before the 04 March. However, if the shutdown lasts longer than two weeks, who is going to be around to start next month’s processing?[/li][li]Even with essential services operating, don’t expect the level of assistance to be there. Essential services will be operating as lower than normal, but still operating.[/li][li]If you are of the belief that federal employees are overpaid and underworked, so be it. But you also then should believe that when those overpaid and underworked employees finally go back to work, their attitudes will be even more pissed off. Just the backlog of assistance requests may mean the effects of the shutdown will last far longer.[/li][li]In many areas, especially rural areas, federal employees with their “guaranteed” jobs and “guaranteed” incomes are stabilizing forces in small communities. Remove that stabilization, even for periods of just a few weeks (especially in this economy) has a strong flow on in the community.[/li][li]A government shutdown also means private people who are employed as federal contractors are also out of work. Immediately, as in no pay, either. And here’s where this hidden gem gets really scary. It’s one thing to furlough up to two million civilian employees. It’s quite another when that government shutdown affects up to 20 million federal contractors as well. (The hard part is finding a cite for that number. It’s easy to find that federal contractors are costing taxpayers $500 billion this fiscal year. What many don’t realize that reducing the federal workforce to allegedly reduce spending is pure Hollywood. The work still has to be done, but it’s now done by shadow federal contractors, at higher salary rates.)[/li][/ul]
The current official unemployment rate is 9.8 percent. If you include the under-reported larger U6 numbers, that rate could be almost double the published rate. In other words, roughly 136 million are employed out of 153 million eligible to be employed.
A government shutdown could very well take another 20 million people out of the working workforce in just one bad weekend.
Now play with the numbers.
My gut view is 70/30 there will be a government shutdown. At this stage, bring it on. Too many Americans are blind to the consequences of a government shutdown. We will pay dearly for that ignorance. This isn’t 1995. It’s 2011. In 1995 the economy wasn’t on the skids. It is now. Add in the political bullshit freezing government, a shitty economy and a general population that’s polarized on just about every issue, and you have the ingredients of The Perfect Storm.
If I’m wrong in this opinion, I’ll gladly wear the Fool’s Hat. I can take the ridicule as other Dopers desire to play the ego game. As much as I like the SDMB, it has no real measurable consequences on my life. But if I’m correct in this view, even a little bit,…
This. Can someone help out with a cite that contractors balloned under Bush? Smoke and mirrors, "we reduced the number of federal employees by making them contractors and paying at least the same if not more total cost. Kinda like making all the Iraq war off balance sheet spending.
Big Picture - In order to fund government operations, Congress must pass a budget. If the proposed budget is more than the projected revenue, the remainder must be borrowed. In order to borrow money Congress must publicly authorize itself to go into debt to borrow the money to partially fund that fiscal year’s budget. Since Congress does not give itself blanket authority to do this, Congress must periodically reauthorize itself to borrow even more money. This is called raising the debt ceiling.
Small Picture - Congress is supposed to pass an annual budget prior to the beginning of the fiscal year (01 October to 30 September). If the government does not pass an annual budget before the beginning of the fiscal year, it all to often passes a temporary budget, known as a Continuing Resolution or CR. A CR grants agencies to spend money for a limited time period, based upon their previous year’s budget allocation. This gives time for Congress to get its act together to pass a final budget for that fiscal year, or play games and pass another CR.
If Congress cannot agree on a final budget by the deadline when funds run out, or another CR, federal agencies cannot, by law, continue operations and must shut down.
If the government must shut down because there is no budget (CR or final) the flow on effect spread all across America into the private sector. If Congress does not raise the debt ceiling, the US Government defaults on its obligation and the world economy suffers a significant financial earthquake. What is often subject to debate is if the failure to raise the debt ceiling is a local South California type earthquake (significant to those in the immediate area, and beyond), or a world earthquake that causes catastrophic damage to the entire planet’s economy (think Yellowstone Supervolcano eruption).
I see. I was asking because the shutdown was what many of the responses were about, and I was wondering if it was relevant to my question, or topic drift.
(I should add that there are relatively few responses to the questions I actually asked in my OP. I appreciate some of the perspectives – even if a couple were a little more for snark than actual answering – but I’d love a “finger in the wind” perspective. Like I said, it IS the entire world financial structure at stake, after all.)
I believe a failure to raise the debt ceiling doesn’t necessarily lead to default. The government can still spend whatever income it has coming in to keep up on the interest payments needed to prevent that. Of course, that money has to come from somewhere else in the budget, so you end up with a situation similar to a government shutdown. I believe the President (through the Department of the Treasury) has the authority to make the final call about how to prioritize the obligations the US has to pay out. Obviously, he’s going to want to threaten the funding of whoever’s likeliest to be able to get Congress to act.
Bumping for an interesting quote from this Time article that could say a lot about our chances of defaulting and plunging the world economy into a nightmare from which it may never fully recover:
Another bump/update: in light the consistent passing of stopgap budgets lately, I’m starting to reconsider the odds that the Republicans in general actually have the political will to vote against the debt ceiling raise (which I’m sure they realize have even worse consequences than a “mere” government shutdown). Given that, even if they do compromise this time and lose face with the Tea Party section of their base, would it actually increase their will to do it with the debt ceiling? I’m starting to not be so sure…
…and maybe I was premature again. Now I’m REALLY confused as to whether what’s happening makes it more or less likely that the debt limit will be raised. Any thoughts given current events?
(Bumping instead of new thread because I think it’s appropriate for something like this that’s still ongoing.)
Sorry for the additional post, but I wanted to ask a question of the point below and muse that maybe the budget fight affecting the debt ceiling issue will depend on who “wins.” Or will it make recalcitrant Republicans think twice no matter who wins?
Even so, would it getting this “close” still cause the global financial chaos so often mentioned?
