Nine Days and Counting (?)

Well, now I have seen an estimate of how the government shutdown affects the debt ceiling.  Goldman-Sachs estimated on September 29 that a few days' shutdown would not make any material difference and "even" a week would not extend the deadline long -- perhaps until October 31.  On October 31, many bills (Social Security, for instance) come due and would almost certainly lead to a breach.  Apparently Goldman-Sachs did not take into account a shutdown lasting more than a week.  Wonkblog says that even if we reached that point, the Treasury Department could probably prioritize bond holder, but only at the cost of shutting down everything else.

First of all, let me second what Kevin Drum says.  If an extended shutdown extends the default date, it would be a mistake for the Treasury to insist that the world will end on October 17 and then, when October 17 rolls around, say we have a reprieve.  That will just encourage the belief that a debt ceiling breach is not that big a deal.  I also do not recommend talking about the most dire and catastrophic possible events if a breach roils the financial system.  Such things will seem remote and unreal to most people.  It is better to emphasize the more concrete and tangible results of a breach, as I so like quoting from Megan McArdle.  Explain the whole slew of bills you have coming due October 31.  Be concrete and specific and focus on popular stuff like Social Security payments, or payments due to contractors.  Explain that up till now, a lot of the government has been on autopilot, and has kept flying because the pilot has been reporting for duty without pay.  Point out the obvious -- that government workers will stay on the job a few weeks without pay, but not forever.  And explain that what we are facing now is something different -- the autopilot will be running out of fuel.  Unless Congress releases the funds we will only be able to cover two-thirds of our bills. That means that all those bills coming due October 31 -- and again remind people what those bills are -- will either be late or short by a third, or a third of them will go unpaid.  That, I think, will scare ordinary people a whole lot more than the prospect of a financial crisis, and will much more effectively ramp up the pressure to do something.

I think someone also ought to point out that Republicans, by threatening to force an overnight spending cut by 1/3, are shirking their own long and hard duty of actually coming up with spending cuts.  Once again, McArdle points out why good, well-controlled spending cuts take a lot of time and effort.  Speaking to the debt ceiling crisis in the summer of 2011, she said:

It would, for example, be eminently possible to have a private air-traffic control system. But we cannot privatize the system by August 3rd. Similarly, I think we could use a Singapore or Chilean style private accounts system to save for retirement, but we cannot arrange for today's Baby Boomers to have started saving in 1972--at least not without some fairly massive government spending on time-travel research.

I also think someone ought to point out what Republicans are saying when they argue that we don't have to worry about a default because there is plenty of money to pay bondholders.  Has anyone pointed out if we prioritize bond holders, who else will get stiffed?  Republicans may be okay with this, but I think most Americans will not.  Furthermore, I also believe that if the Obama Administration actually does prioritize bond holders in a debt ceiling breach, Republicans will be the first to freak out and accuse him of privileging Wall Street over Main Street, despite having spent the last several weeks urging him to do just that.

The most discouraging thing, though, is that this is starting to look as though it has gone well beyond a policy dispute.  It is now politicians' egos on the line.  God help us all!