The list of priorities as to who gets paid, in the event of a government shutdown on August 1st or 4th, whichever it winds up being, is a matter of conjecture. The President and Geithner will make that decision, perhaps as early as this weekend. The one thing that for certain is that neither party wants the shutdown. We are facing the loss of our AAA rating, a rating we really don’t deserve and will likely lose no matter what at this point.
President Obama will not assure our fighting men and women they will be paid (as they fight in the field) – the President apparently cannot find the $3 billion to pay them. The military should be on the top of the list, but they are not.
Across the board interest rate increases are a deep concern. Greg McBride, senior financial analyst at Bankrate.com, says either a ratings downgrade or debt default might result in higher borrowing rates for consumers and businesses. “More of a concern is that a prolonged default could cause credit markets to freeze altogether, and we will have real problems…It’s impossible to speculate how much rates will go up…There are a lot of variables at play. The downgrade will lead to a more modest increase in rates. However, that increase would be permanent.”
From Reuters: According to Treasury figures, the government will take in $172.4 billion from Aug. 3 to Aug. 31, but is scheduled to pay out $306.7 billion, suggesting a shortfall of over $134 billion.
The different scenarios on who gets paid vary. All agree the debt interest will be paid. Bondholders are on the top of the list.
Social Security and Medicare recipients also high on the list. Social Security advocates don’t agree on what might happen. “(Obama’s statement) was a foolish bluff,” says Eric Kingson, co-director of the Strengthen Social Security coalition. “There’s no excuse for checks not being issued, and the White House’s willingness to use the threat is symptomatic of their lack of regard for the institution. Their willingness to use it as a negotiating chip is unfortunate.”
But Max Richtman, acting chief executive officer of the National Committee to Preserve Social Security and Medicare, worries that the government might decide not to fund the interest on Social Security’s bonds, which would leave the program short of funds.
“We really don’t know — it’s completely uncharted territory. Social Security is cash flow-positive if you count interest on the bonds. But which obligations will the government put at top of list of priorities, and who decides that? Is it paying the interest on those bonds?
Most likely, federal workers in non-essential jobs, private contractors and state and local governments will not be paid.
Will the military be paid? Most hope so. While a group of Congressmen pushed forward a bill this week to mandate the active military servicemen get paid in the case of default, there are no assurances from the WH or the Treasury Department that the military will be paid. So while our servicemen and women are risking their lives fighting for us abroad, they also have to worry that their families will not have money to take care of their basic needs. Read here: Associated Press