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Hey everybody, watch this!
Author: TriSec    Date: 07/23/2011 10:28:28

Good Morning!

Well, if it's an early Saturday blog, that can only mean one thing; I'm off to donate platelets! I missed my last appointment after Woodbadge, being deathly ill and all, so here's the makeup. If you've never donated before, why not give it a try? Especially on a weekend like this; you'll get to recline in air-conditioned splendor, watch a movie, and be tended by friendly Red Cross staff. Did I mention the air conditioning?


Ah, but now to the news at hand. You've probably heard that the latest round of debt negotiations has broken down. Time is now starting to run out, and in fact bad things are already starting to happen.


WASHINGTON -- A dispute over $16.5 million in airline subsidies to Ely and a dozen other rural communities led to a partial shutdown at midnight of the Federal Aviation Administration, putting 4,000 people temporarily out of work and suspending the collection of federal airline ticket taxes.

Lawmakers were unable to resolve a partisan impasse over an extension of the agency's operating authority. Fingers pointed in both Republican and Democratic directions over who was to blame.

Obama administration officials have said the shutdown will not will not affect air safety. Air traffic controllers will remain on the job. But airlines will lose the authority to collect about $200 million a week in ticket taxes that go into a trust fund that pays for FAA programs.

Officials said the impact in Nevada would be minimal. The partial shutdown would furlough just one FAA employee, an engineer based in Las Vegas, according to the agency.

Beyond that, improvement grants that are made available to individual airports based on size would be put out of reach until the FAA is fully operational again. For Nevada airports, that amounted to $3.55 million, according to agency figures.

The manager of the airport in Ely said there were no projects under way there that would be affected by the grant freeze. The situation at other airports in Nevada could not be determined on Friday.


But you know what? In the bigger picture, that's small potatoes. We've all heard about what will likely happen if the US can't resolve the issue and is forced to default in just 10 days. It's worth enumerating again, just so we're aware of what's at stake.


Q: Would we really default on our Treasury bonds?

A: Almost definitely not. There would be plenty of money to pay interest to investors, thereby avoiding a technical default.

Q: Who wouldn't get paid then?

A: It could be anybody, under a "prioritization" scenario that Treasury has been unwilling to discuss because officials insist it simply must be avoided.

Q: What would happen to Social Security recipients?

A: More than half of the nation's beneficiaries are due to receive their monthly payment on Aug. 3, and three smaller payments are due later in the month. President Obama has said he could not promise they would get paid - though politically speaking, it's likely that they would.

Q: Couldn't we pay for all the essential things and just cut the waste?

A: Not unless you believe 41 percent of the federal budget is a waste. In August, for instance, the government will take in $172 billion but will owe $307 billion. That's $135 billion that could not be paid. Assuming that $29 billion in interest on Treasury securities is paid, you're left with about half the money needed.

Q: So what would be the priorities?

A: It's anybody's guess. If Treasury paid for Social Security, Medicare, Medicaid, unemployment insurance and defense contractors in August, it would be out of money. That would leave out the military and veterans' programs, other safety-net benefits and virtually every government agency and employee.

Q: Would there be broader economic effects?

A: Almost certainly. The most likely is a rise in interest rates, prompted by a decline in the number of bidders for new Treasury bonds. That would raise the costs of home mortgages, student loans, credit cards and auto loans. It also would increase the federal deficit by raising interest rates on the debt.

Q: What about personal investments?

A: If the economy goes into a swoon, the stock market will feel the effects, and your 401(k) and other accounts could take a beating.

"It's going to be negative," says David Walker, former U.S. comptroller general. "The question is, we just don't know how much."

Q: How about jobs?

A: Again, it depends on how deep the economic impact, but certainly the unemployment rate could increase because of the federal dollars that are missing and the jolt to financial markets.

Q: What would happen to the government's triple-A bond ratings?

A: All three major ratings agencies have sent warnings, but it's unclear whether they would downgrade the ratings unless the United States actually defaults on its bonds, which is unlikely.

Q: How does our situation compare to other countries with debt problems, such as Greece?

A: It's not nearly as bad - but the trends are headed in that direction. The U.S. public debt - what we owe to private investors, much of it held overseas - is about 70 percent the size of the economy. Counting state and local debt, it's 93 percent. In Greece, it's about 130 percent.
(Edited to add: Source)

Well, I suppose this has been a long time coming. But probably what astonishes me the most is the brinkmanship of the Republicans. There have been some stories this past week about how some of them are no longer marching in lockstep. In fact, it's the Tea Party caucus that's starting to take a lot of blame for the delay. Perhaps some of that vaunted "Republican Unity" is starting to fray around the edges, or maybe after years of trying, maybe there's finally a true "third party" starting to emerge.

In any case...you know the old redneck stereotype about landing in the hospital or even getting killed after drinking heavily and yelling "hey, watch this!"? I fear that's what we've reached in Congress. Only instead of personal harm, it's all our futures, and indeed, our children's futures that are at stake. Sadly, I have no confidence that anyone in Congress will do the right thing this time around. The only silver lining is that whoever gets the blame for this will be destroyed politically. While we all hope we know who it is, who can really tell?
 

3 comments (Latest Comment: 07/23/2011 16:38:16 by livingonli)
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