Right Wing Utopian Paul Ryan and the GOP may be playing Chicken with Grandma and Grandpa’s Social Security checks:
It appears that Republicans are determined to hold the nation’s credit rating hostage to their demand that federal spending be slashed before allowing the debt limit to rise. Rep. Paul Ryan, chairman of the House Budget Committee, is already warning Wall Street that a “technical default” is likely; that is, some bondholders may not get their interest payments precisely on schedule.
The Treasury continues to warn that a financial apocalypse will occur if the debt limit isn’t raised soon, but Republicans pooh-pooh such concerns as political grandstanding. They maintain that as long as the Treasury has sufficient cash flow to pay interest on the debt, then Treasury can simply put off paying its other bills for a while and default will be avoided. […]
Where OMB may have some important flexibility is with spending for some Department of Defense projects that have multi-year appropriations. For example, if DoD is building an aircraft carrier the funds need to be appropriated for the entire project even though it may take several fiscal years to complete. OMB apportions the funds as needed to pay for various phases of the building. There is about $800 billion of future year appropriations in the budget. Assuming these funds are spent at an even rate throughout the year, there may be $200 billion or so of appropriations that can be shifted into fiscal year 2012 that may provide Treasury with flexibility to manage its cash.
The real problem is Social Security. It’s unthinkable that Treasury would fail to make Social Security payments on schedule; too many of the elderly live from hand-to-mouth on them and there’s no way Republicans would risk their wrath. But Treasury is inevitably going to be forced at some point to choose between paying Social Security benefits or making interest payments and may face an untenable situation. A May 17 report from investment bank Morgan Stanley explains the dilemma Treasury will face:“Some have argued that the Treasury can manage its cash in a way that avoids default…. However, the approach they are advocating does not seem workable to us. Treasury’s cash flows are too lumpy to simply prioritize one form of spending over another. For example, we would expect a significant political outburst if the Treasury withheld monthly Social Security checks at the beginning of the month (even though there was sufficient cash on hand to make the payments) just in case they needed the cash to make debt service payments at mid-month. Such a scenario is highly impractical – and probably not even legal.”
When Treasury faced this problem back in March 1996, it told Congress that it could not make Social Security payments unless Congress passed a law specifically exempting such payments from the debt limit. Congress acted instantly. It will undoubtedly be forced to do so again if the debt fight is protracted, which it probably will be.
A missed Social Security check or Three may not mean much to a young whippersnapper like Paul Ryan, but it will to lots of folks. I suspect they’ll be mighty angry if Ryan actually goes through with it and snatches their checks.