Photo: Bipartisan Policy centre
The United States has already hit its debt ceiling–the legal limit of the amount of money it is allowed to borrow, as established by Congress.Right now, the U.S. Treasury is resorting to “extraordinary measures” to keep paying the country’s bills.
Sometime between February 15th and March 1st, the Bipartisan Policy centre projects, the Treasury’s ability to use these “extraordinary measures” will end.
At that point, we will hit the “X-date.”
On that date, if the debt ceiling has not been raised, the United States will begin to default on payments that it is legally obligated to make, payments that Congress has already promised that we will make.
The Treasury may have some ability to choose which payments to default on, and when to default on them, but the bottom line will be the same: The Treasury will only be able to pay about 60% of the bills that are owed.
In relatively short order, therefore, the United States will stiff about 40% of the people and companies it owes money to.
Importantly, this default is different from the “government shutdowns” that have happened from time to time (in the 1990s, for example). In those cases, Congress had yet to authorise government spending. This time, the spending has been authorised: Congress has already promised to pay these bills. This time, in other words, we will be choosing not to pay people and companies we have already promised to pay.
This has never happened before in the history of the United States.
That some representatives in our government say they are justified in making this happen now is reckless and scary. And the support that this vocal minority is getting suggests that some ordinary Americans don’t understand what will happen if we don’t raise the debt ceiling.
So, it is time for everyone to understand.
This game of chicken that one of our political parties is playing is no joke. To not raise the debt ceiling is to say that it is totally OK to stiff people and companies we owe money to–and, more importantly, to actually stiff them. This is astoundingly reckless and irresponsible behaviour (not to mention illegal). And it will have a devastating impact on our country and economy.
The Bipartisan Policy centre looked at what will actually happen if Congress doesn't raise the debt ceiling...
The Treasury will have to either 1) prioritise some bills, or 2) Delay paying ALL bills until it has received enough new cash to pay them.
The second scenario would involve grouping bills by day, and then paying them when enough new cash has trickled in.
Here's one scenario: Pay interest on debt, tax refunds, Medicare, Social Security, military pay, and unemployment...
If we did that, we would have to default on payments to defence contractors, veterans, federal workers, education programs, food stamps, and more...
On Friday, February 15th, we will collect $9 billion in new cash. And we will have $52 billion in new bills to pay. So, $43 billion of bills will go unpaid.
On Tuesday, February 19th, after the long weekend, we are expected to receive $15 billion in new cash. Meanwhile, we will have $16 billion of new bills to pay. We will add these to the $43 billion of bills we didn't pay the previous Friday.
On Wednesday, February 20th, we'll collect $16 billion in new cash. And we'll have another $30 billion of new bills to pay. By then, three working days after the X Date, we will have cumulatively welshed on $58 billion of bills.
Friday, March 1, will be a particularly ugly day. And, by then, only two weeks after starting to screw people, we'll have reneged on $185 billion of bills.
And in case it isn't clear already, this will be a gigantic mess. The ~40% cut in government spending would hammer the rest of the economy. Americans and American companies depend on that spending. In two weeks, the US economy will shrink by about 10%. In other words, we will instantly be in the middle of a severe recession.
Bond markets get nervous when governments show signs of going insane. The insanity with the debt ceiling in 2011 has cost us $19 billion in extra interest payments so far, according to the BPC.
No one cares about the rating agencies anymore (thank goodness), but there will presumably be downgrades. And, more importantly, global stock markets and economies will collectively experience a heart attack. If the richest country in the world can just suddenly decide to stop paying its bills, imagine what other countries might do.
So, we need to raise the debt ceiling. Period. The sooner the better. And the MORE the better. Adding just another $1.1 trillion will only get us to the end of this year. And then we'll have to go through this whole ridiculous and scary charade again.
Our thanks to the folks at the BPC for detailing what will actually happen if Congress doesn't raise the debt ceiling.
NOW WATCH: Briefing videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.