Reply #17: Theoretically.... [View All]

bear in mind the "default" is not like a family not paying the mortgage. The US would still honor all debt interest and maturity, it would simply not be able to borrow any more.

S it would have to fund expenses from cashflow. This means on average $23B a day could not get paid.

Nobody knows what would get cut first. The only constitutional protection is for covering the debt. My guess for first cuts would be:

Payments to states and other institutions - anything from helping to build roads to subsidizing research. If shortfall cannot be made up the roads don't get built and the people building them are SOL.

Federal payrolls get cut to essential staff only - lots of licenses and permits don't get done so more work stops. Passports aren't issued so those people don't travel, cutting the need for airline and customs staff, travel agents, desk agents, etc etc.

Procurement spending is severely reduced. This not only hurts big ticket items like new planes and ships (which are built by "little people" working for "the rich" - who do you think has more cash to cover the interruption in income) but cuts the need for millions of workers who sell goods and services to the Feds, from safety inspectors to accountants to janitors and landscapers.

Foreign aid (< 1% of spending BTW). See how Pakistan responded this week? Multiply by 50-100 countries.

Essentially the whole multiplier effect of federal spending, where building a bridge gives money to the contractor, thence his employees, thence all the merchants who sell to them, and so on, goes into a grinding reverse.

And then you hope UE benefits and welfare doesn't get chopped.

The pain will, as always, be felt worse by the poor. Not only are they likely more dependent on direct government transfer, but they are more likely to be cut when the work dries up (one contractor, 10 executives, 75 middle managers all of whom work on supporting a range of production lines, or 500 assembly workers who have specific jobs on specific lines that may or may not run any more). They are less likely to have cash cushions either.

I do not buy the 'we need pain to pull together' idea. What pain does to most people is make them lash out and blame "others" for their problems. Risking Godwin here, there is a reason Hitler's xenophobic and anti-semitic extremism was popular - foreigners and Jews were handy scapegoats for the economic turmoil of 1920s and 30s Germany. Americans won't finally realize we need a better social safety net when the money stops flowing - they will blame those whom they perceive as taking all the money so that it "ran out" - immigrants the poor, etc.

The real bugger is the Feds only spend really huge sums of money on three things outside debt interest: Defense, medicare/medicaid and social security. Anybody who thinks either would escape cuts when we have 1.7T less to spend annually is nuts. Won't be the first to be cut, but they will be cut.