Was on the Maddow Show tonight with guest host Melissa Harris-Perry on what might happen if we breach the debt ceiling and the Treasury has to prioritize payments.
Fortunately, Jay Powell and the folks at the Bipartisan Policy Center have done the legwork. The numbers suggest just what a self-inflicted doomsday scenario this would be.
The Treasury is expected to collect about $170bn in revenues in August against outlays of about $300bn. So they’d have to prioritize.
Assume we avoid default by shaving $30bn off the top for interest payments. The BPC lays out a scenario (see chart) where you pay for Soc Sec, Mcare and Mcaid, defense vendors, and UI benefits. The rest of this list shows who gets stiffed, though of course you could shuffle things around anyway you want.
The point is you can’t get there by not paying out foreign aid for a month.
The other point is that this process would be intensely anti-stimulative. If we really extracted $130bn a month from the economy–about 10% of GDP (annualized)–it would be an enormous negative shock. It would amount to the Recovery Act in reverse, times about 4 (hat tip, TM).
A colleague (hat tip, RS) sends this quote along today, from the poet Rumi. I urge members of Congress to pay heed:
“Sit, be still, and listen, because you’re drunk and we’re at the edge of the roof.”