The debt ceiling is falling!

One thing that the popular media keeps forgetting about in their reporting about the debt ceiling negotiations: the sky will not fall and the US has no reason to default if a deal isn’t reached by August 2. That date was created out of thin air by Tim Geithner and I’ve been wondering what, exactly, his criteria is for that date. Aside from trying to get the story off the front pages of the newspapers before September, that is –which is traditionally when the general populace begins to seriously pay attention to the world of politics.

The chart below (courtesy of the Treasury Department) outlines the projected cash flow for the United States during the month of August:

The black line represents the money coming into the treasury, assuming they can’t borrow another dime. The bars represent the cumulative day-by-day expenditures. Note that on every single day for the month, spending on Social Security, Medicare, Defense and the debt interest is covered. What isn’t covered is what we commonly refer to as discretionary spending. There is a reason for that – discretionary spending isn’t necessary. Just like you might eliminate dining out or your Netflix subscription if your personal budget didn’t have the cash to cover them, these are the programs that are nice to have – but aren’t essential to a functioning country.

So when the President dramatically raised the stakes yesterday by suggesting that old-age pensioners won’t receive their Social Security checks, he prioritized a chunk of discretionary spending over Social Security. If you or I did that, we’d have to answer for that in a bankruptcy court. This is President Obama at his finest: threatening the most vulnerable – and vocal –constituency when he isn’t getting his way and looking to score political points.

Based on the Treasury’s own cash-flow predictions; we wouldn’t face the prospect of a default until mid-October. Even then, the federal government could do what a large number of the states are doing now: put off paying federal contractors for 180 days (among other programmatic delays), which would allow Washington until next April to hammer out a budget. (Irregardless of the fact one was due two weeks ago for FY2012 – and we still don’t have one for FY2011). I’m not sure where Geithner is getting his information, but I’m beginning to think it’s directly from David Plouffe.

This isn’t to say raising the debt ceiling won’t be required at some point. It will. But the Republicans should stick to their guns and insist that any rise in the ceiling be accompanied by budget cuts, both immediate and long-term.