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Wednesday, July 27, 2011

The August 2 Drop Dead Date For a Deal Is Really August 10th

Well, well if August 2nd is the drop dead date for raising the debt limit, it seems the US gets eight days of being undead. According to a NY Times report, early tax payments and some treasury department maneuvering has allowed Turbo-Tax Tim Geithner to store a little extra money under the White House mattress.  The result is while the US still won't be able to borrow money after the 2nd, there is enough cash on hand to pay all bills until August 10th, at least according to estimates Barclays Capital Research and some of the Wall Street banks.

After August second, the US will be able to make its interest payments, medicare, social security, military salaries etc. about 60% of its projected budget, unless off course President Obama decides to change priorities and turn seniors into a political pawn.
Some Republicans have expressed skepticism about the Aug. 2 deadline, describing it as an artificial line drawn by the Obama administration for political reasons. Analysts emphasize, however, that the deadline is real; it’s just the date that is inexact.

“Should policy makers wait till Aug. 10 to come to an agreement? If they can agree sooner, absolutely not. There are no definites in this case,” analysts for Barclays Capital wrote in a note to clients entitled “Is August 2 really ‘August 2’?”

Analysts also said that all of the estimates, including those from Treasury, were necessarily inexact, because they relied on variables like incoming tax payments. That means each passing day without a deal increases the risk that money will run out.

“This is more like predicting the weather than predicting the sunrise,” said Jay Powell of the Bipartisan Policy Center, a nonprofit in Washington that has analyzed the issue.
This gives the parties a few more days to come to an agreement. As discussed yesterday, it wont delay a downgrade of US debt. The downgrade may happen as early as tommorrow as the ratings agencies are less concerned about the US defaulting (they are sure it won't) than the massive $14.5 trillion dollar debt. Whether we end up with Harry Reid's  $2.7 trillion cut plan which really only cuts $1.7 trillion or Speaker Boehner's $1 trillion dollar cut which actually cuts only $850 billion or some other scheme which we don't know about as of yet, one thing is very clear, the United States is about to lose its AAA Credit Rating.

As to what will happen then? Well according to Bill Murray:




But for the rest of us...the cost of money will rise, the debt will become more expensive, the stock market will fall but thankfully no human sacrifice.

Note: Johnah Goldberg feels that missing the deadline will bring about The RED HOUR!
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