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Politico...
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could ‘sink the whole boat’
By Josh Gerstein & Ben White
7/18/11
The
warnings are apocalyptic.
“Armageddon,” President Barack Obama intones. “Catastrophic,” Treasury
Secretary Timothy Geithner insists. “Calamitous,” Federal Reserve
Chairman Ben
Bernanke admonishes.
But
suppose — just suppose — the
unthinkable happens: Despite all the talk of deals — small, medium or
large —
and of clever ways to pass the political buck, Congress and Obama can’t
agree
on legislation to raise the $14.3 trillion debt ceiling before the U.S.
government’s credit line runs out around Aug. 2.
A
few prominent Republicans, such as
Minnesota Republican Rep. Michele Bachmann, a presidential candidate,
say
nothing much would happen and blast the administration for its “scare
tactics.”
But
financial experts say hitting the
debt ceiling or coming really close to it would destabilize the markets
and the
economy. Just how dire the consequences would be is difficult to
predict, but
many Americans could feel the impact almost immediately.
Stock
markets are almost certain to
drop sharply. Some analysts say interest rates for Treasury bills and
private
borrowing would rise abruptly. Others say the flight to safety might
actually
make investors dump stocks and buy Treasury securities in the short
term.
The
first major hurdle comes on Aug.
3, when the U.S. government is scheduled to pay $23 billion in benefits
to
Social Security recipients. Only $12 billion in revenue is expected
that day,
leaving the Treasury $11 billion short — and $20 billion in the red
when other
scheduled payments for that day are taken into account.
Obama
said in an interview with CBS
News last week that he couldn’t guarantee Social Security payments will
go out,
a statement that could send retirees and disability recipients into a
panic.
“I’d
say it’s at risk,” said Jay
Powell, a former senior Treasury Department official now with the
Bipartisan
Policy Center. “The president’s statement is correct on its face. He
said he
can’t guarantee those payments will be made. Even if you pay nothing
other than
interest, you can’t guarantee it.”
Read
the rest of the story at Politico
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