Terry’s Columns Debt Ceiling & Shutdown

Debt Ceiling & Shutdown

By Terry Savage on September 24, 2021

Mark Twain said it best over 150 years ago: “No man’s money is safe while Congress is in session!” Or something like that, reportedly. So, it’s not news that the legislature makes changes that impact ordinary people in unexpected ways.
What’s relatively new is the acrimony that seems to prevent Congress from coming to compromises. And inaction creates its own set of problems.

Let’s take the two headline topics of the day: the Debt Ceiling and the Budget. Although they both arise at the same time, they are not necessarily conjoined.

The Debt Ceiling
Increasing the debt ceiling – already over $28 trillion dollars – is done to pay for <> government spending, not for future spending proposed by either party. If the debt ceiling is not raised, a default on U.S. government IOUs – Treasury bills, notes, and bonds – becomes a real possibility. The likely timing for reaching the debt ceiling is around October 20th, according to the Treasury secretary.

A U.S. debt default would call into question the global use of the dollar as the world’s currency of trade. And it could precipitate a widespread financial crisis. The modern United States has never defaulted on its obligations to repay maturing IOUs, and pay interest on existing ones.

The world doesn’t use the Argentine peso as a currency of trade because it is so unreliable. And we don’t use gold, because it is impractical. But a default on dollar obligations could be the launching pad for a new global digital currency – as far-fetched as that might seem today.

Need for a Budget
Failure to pass a budget is a bit different. The deadline to do so is September 30th. By law since the early 1980s, the government cannot continue to function without budget appropriations – except for those agencies charged with the security of the country . Since that time there have been more than a few government shutdowns, mostly brief.

The longest shutdown was the 34-day closure that started on December 22, 2018, under the Trump administration. The second longest was 21 days, starting on December 14 1994, under the Clinton presidency. In all, there have been 21 shutdowns since 1976, most of them a brief period of a day or two.

During a government shutdown, employees are sent home, with very few exceptions. To say this is disruptive is an understatement. When employees don’t get paid, they can’t pay rent, mortgages and food. Federal courts are shut down, although federal prisons remain staffed. “Non-essential” military are furloughed. And that’s just the start of the list. Only during a shutdown do we realize how extensive is the reach of the government payroll –and how extensive the need for federal government securities.
The shocker in the2018 shutdown was the realization that many government employees with “secure” jobs were living on the brink financially, with no savings, so that the loss of even one paycheck was catastrophic for their families.

Impact on Social Security
The one thing guaranteed to get American’s attention is the possibility that Social Security benefits might not be paid on time because of either of these events. After all, 36% of Social Security recipients depend on that monthly payment for 90% of their living expenses. And 2/3 of beneficiaries get more than half of their income from Social Security.

Whether benefits will be impacted under either a debt ceiling crisis and/or a budget impasse, is not clear. Social Security legally has its own “trust fund” – despite the fact that the money in that fund is considered part of the overall combined federal budget. So it doesn’t require a spending authorization. In the event of a shutdown, money from payroll “contributions” would continue to flow into that trust fund.

But Social Security is a government “agency” – and its employees could be among those furloughed in a shutdown. While most Social Security payments are automatic, and should not be disrupted either for lack of employees or lack of funds, there could still be confusion and delays.

There’s a general sense that our responsible leaders of both parties will come to agreement in time to avert dire consequences. But given recent experience, that is not such a sure bet. And that’s The Savage Truth!



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