Monday, October 14, 2013

What Are the Effects of Default?

The Washington Post has a really good piece that explains the overall impact of a default.  Here are some of the more important points:

Experts on federal finances say that money might be enough to make payments for a few days, but certainly not for more than two weeks. In any event, they say, President Obama will have to make untested decisions about who and what to pay because daily tax receipts will make up only about 70 cents of every dollar of necessary spending.

Economists roundly agree that no matter which course Obama chooses, a drop in federal spending that large would exert a huge drag on economic growth. And in contrast to what happens during a traditional downturn — the safety net expands to help the vulnerable — assistance to seniors and low-income people could be delayed or reduced if Congress doesn’t raise the debt ceiling.


According to the Bipartisan Policy Center, which has done the most detailed analysis of federal finances in a debt-ceiling breach, administration officials would have to consider delaying or suspending tens of billions of dollars in critical payments to low-income people and seniors.

Under the most alarming scenario, as soon as Friday, payments to Medicare and Medicaid providers, unemployment benefits, Social Security checks and tax refunds would be postponed for one to four days.

Food stamps due to be distributed Oct. 25 could be held until Oct. 30. The same would happen to payments to defense contractors.

With huge payments due in early November, the situation would become grimmer. Nearly $60 billion in Social Security checks, veterans benefits and pay for active-duty troops is due Nov. 1. Those could be delayed nearly two weeks, according to the Bipartisan Policy Center’s analysis.