Benefit Recipient? Disruptions May Be Coming

If the day comes — whether next Tuesday or later — when the government reaches its legal borrowing limit, it will be forced to make a 40 percent cut in outlays.

Congressional Republicans would finally have gotten their wish: Spending cuts of a historic magnitude, at least for a few days. But the cutting would be sudden and potentially haphazard, with ripple effects that are hard to foresee.

Yet some House Republicans believe that such an outcome would force the government to make choices, and “then we can see what's really important and what isn't,” as Rep. Lee Terry, R-Neb., put it Wednesday.

Forcing choices on whom to pay
If unable to borrow more, the government would rely on its daily cash influx, mostly from tax payments.

Treasury Secretary Tim Geithner told Congress last month that he cannot “renege on existing legal commitments.” But which commitments would come first?

If the borrowing were brought to a halt, the ‘D’ word would not necessarily be "default," it would be “disruption.”

The Obama administration would face policy questions — do unemployment insurance benefits get priority over national parks? — as well as nitty-gitty management headaches, perhaps requiring a kind of “manual override” of an automated payment system that sends out tens of billions of dollars a day.

Bloomberg News, citing as its source an Obama administration official who requested to not be identified by name, reported Thursday that the Treasury will give priority to making interest payments to Treasury bond holders if no agreement is clinched on raising the debt limit.

David Beers, global head of sovereign ratings at the bond rating firm Standard & Poor’s, told CNBC’s Larry Kudlow on Tuesday night that reaching the debt limit “would not be default so long as the government is continuing to pay its debt as it matures and its interest payments.”

But the government being unable to borrow and the resulting cut in outlays would be, Beers said, “a very sudden fiscal shock that, the longer it lasted, would filter powerfully through the system ... Potentially that would be deeply disruptive to the economy.”

Among the categories of people and industries affected if the government found itself unable to borrow:

Social Security recipients
According to an analysis by the Bipartisan Policy Center, next Wednesday the government is scheduled to make $23 billion in Social Security payments to the program’s 54 million recipients.

With retired people, the disabled, widows, and children of deceased workers counting on that money to pay rent and buy food, it would be left to administration officials to decide how soon they'd get their benefits.

In his speech Monday night, President Barack Obama specifically cited Social Security checks, veterans’ benefits, and government contracts as items the government would not have sufficient money to pay if no deal were reached on raising the $14.3 trillion debt limit.

Sen. Pat Toomey, R-Pa., has offered a bill to instruct the Treasury secretary, if the debt ceiling isn’t raised, to give priority to three types of payments:

* Interest on the debt, “so that we will not default on our debt and not plunge our economy into chaos,” Toomey said;
* Paychecks for active duty military personnel;
* Social Security payments.

Federal workers
Even if Toomey’s bill were enacted into law, non-military federal employees could be forced to wait before getting their pay.

Back in February Toomey previewed his bill by telling Geithner during Senate testimony, “You're telling us that if we have to delay a payment to the guys who mow the lawn around the Mall, that would have the same kind of impact and cause the same kind of financial crisis that would result if we failed to make an interest payment on a Treasury security.”

But “that's just not true,” Toomey contended.

It’s not just “the guys who mow the lawn.” The household budgets of more than two million federal workers would feel the impact of a 40 percent cut, or a partial delay, in federal outlays.

"We're very concerned about our members' paychecks being interrupted," said John Gage, president of the American Federation of Government Employees, the labor union which represents some 600,000 federal workers. "Many of them make $35,000 or $40,000, and missing paychecks is not something you really plan on, or can just absorb."

Gage said his members are also worried that federal workers' retirement benefits will be cut as part of any deficit-reduction agreement between Obama and congressional leaders.

Medicare providers and other government vendors
More than 47 million people have their care paid for by Medicare, so an interruption in reimbursements to hospitals and other providers would disrupt the cash flow of a significant sector of the economy.

In the week which ended on Friday, the Treasury sent out an average of $1.3 billion a day to hospices, hospitals, and other Medicare providers.

Eric Zimmerman, a lawyer-lobbyist with McDermott Will & Emery in Washington, D.C., who represents hospitals and health care providers, said millions of claims come in to the federal government every day from health care providers for surgery, therapy and other services for Medicare beneficiaries.

“It is possible that that could get suspended or disrupted in the event there are choices that have to be made about how limited federal dollars are going to go out,” Zimmerman said.

He added, “Every day that there is a disruption caused by the debt limit crisis, that’s a cash flow problem for hospitals, physicians and nursing homes, anyone who furnishes services to Medicare beneficiaries.”

Rural hospitals at risk
One group of 195 rural hospitals, defined in federal law as Medicare Dependent Hospitals, would be particularly at risk, Zimmerman said. As Medicare Dependent Hospitals, they get enhanced payments from the federal government.

More than 60 percent of their patients are Medicare recipients and the hospitals are located in rural areas where they’re a big engine of the local economy.

Case in point: Tiny (64-bed), not-for-profit Waynesboro Hospital in Waynesboro, Pa., 85 miles north of Washington D.C., which gets $18 million a year in payments from Medicare.

In the short term, the hospital could manage without a disruption in service, said Patrick O'Donnell, the senior vice president of Summit Health, which owns and operates it. But a longer payment interruption or ending the Medicare Dependent Hospital program (one deficit reduction possibility) would jeopardize the facility and others like it.

Interruption of payments isn’t unprecedented.

Zimmerman said there have been occasions when Medicare payments to doctors have been put on hold while Congress wrestled with the issue of whether to make cuts mandated by the 1997 budget law. For the past several years Congress has postponed those cuts and eventually allowed full payments to go to doctors serving Medicare patients.

Investment fund managers
It was clear from comments this week by major Wall Street firms and individual money managers and analysts that there’s no consensus on how pension and other investment fund managers might react to a disruption in government payments, or if Standard & Poor’s and other rating agencies downgrade Treasuries from their AAA rating.

“We find virtually no evidence that asset managers would be forced to sell U.S. Treasuries in the event of a downgrade,” Wall Street firm J.P. Morgan said in a report Monday. “In a survey of our asset manager clients, less than 5 percent responded that they would be required to sell U.S. Treasuries in the event of a downgrade and that was by ‘a modest amount.’”

It added, “Most investment managers hold assets that are linked to certain indices or reference a particular asset class (governments) and a downgrade to AA doesn’t remove them from their reference/benchmark portfolio.”

Treasury yields move inversely to price: as investors sell bonds and they drop in price, yields rise. A spike in yields indicates a sovereign debt crisis.

The J.P. Morgan report said the impact on Treasury yields from a downgrade to AA would be “quite modest and on the order of 5-10 bp” that is, basis points, or hundredths of a percentage point. In other words, a bond that had yielded 3 percent would rise to a yield of 3.05 percent to 3.1 percent.

But investment advisor Richard Bernstein said on CNBC Wednesday that a downgrade of Treasuries to AA would lead to a 50- to 150-basis point increase in yields in the short term. “I don’t think right now the U.S. economy is strong enough to withstand, say, a 100 or a 150 basis point increase in the ten-year (Treasury) rate,” he said.

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  • by laura Location: greenville on Aug 2, 2011 at 06:19 PM
    First thing they need to do is a review of every single SSI case. I know so many people who get a "crazy check" and a "back check", people in their 30's that are healthy but learned how to work the system from their parents, found some dishonest doctors, and now they're sitting on their rear ends doing nothing. I've reported them but nothing happens, meanwhile, we work harder, pay more taxes, and roll our eyes at the idea of SS when we retire. Every Dr. and person committing SSI fraud should get life in prison. I'd pay for that, happily.
  • by Obama Snake Oil co Location: Washington on Jul 31, 2011 at 02:15 PM
    Well, where is you foil cap and clown car? Did you misspark it or did you get lost? Actually, Bush won a second term...Obama will win a POD home with the family back to Chicago. But check the Rasmussen polls on Obama and Bush...Carter and Obama...sad, but Bush had both at the start of their second term...Obama, like Carter...really one would re elect them...both were tax and spend liberals that always get us into the budget thing.....We sure miss a good leader like Bush...those were the days...5% unemployment...people working...
  • by and ... on Jul 31, 2011 at 07:27 AM
    The rich boy tax cuts have been in effect for along time , too bad all the rich people I know just keep their money- that's why they are rich. As a fellow democrat thank you for talking about george duBYa - he is the worst president we have ever had and now we have to deal with the two wars he started with NO EXIT PLAN. Hope he is not waiting for in invite to speak at the GoP party!
  • by Obama Snake Oil co Location: Washington on Jul 30, 2011 at 02:49 PM
    What part of no more spending we are riddled with debt do some of you not understand? The point is Boehner better walk out if spending the the debt ceiling is on the board. If you husband or wife maxed out a credit card, took a second mortgage on your house and wanted to but an expensive car...what would you do? Sit there and negociate or just say no, not right now at this moment. Ok, lets throw on you lost your job on top of this....all you can do is cut grass now. What are you going to tell her now? Reality folks...this is what the DNC did over the past 6 years and now they want even more when our credit rating is in the tanks if we do. And for all those DNC supporters, I am a democrat but I am not one of you thank god. It seems some of us see reality instead of party lines. Time to walk away. I am ashamed of what the DNC has done over the past years, the blaming bush when no other president in history ever did that, only Obama...spending, putting Obamacare in place, cutting Medicare and blaming it on the other party when Pelosi's pen did the stroke and Obama signed it. What a bunch of snibbling little weingers....
    • reply
      by to OSOC on Aug 2, 2011 at 11:30 PM in reply to Obama Snake Oil co
      You're a Democrat? BWAHAHAHAHAHAHAHAHAAAAAAAAAAAAA!!! Nice try. At least 48 year Republican admits that he's been an Independant for the past 6 years. If you had any credibility on this board, that statement would have ended it. Thankfully, your racist rants and twisting of facts did that long ago.
  • by here Location: enc on Jul 30, 2011 at 06:23 AM
    It is strange how the experienced Republican leaders are wanting compromise and coming out against the TP. But HERE, the conservative posters are ignoring even that-standing by the TP which is showing how inept, childish, and ignorant they are! Boehner kept us on hold all Thursday because he couldn't get votes on his first bill, he left the talks because he couldn't get the votes on Obama's compromise bill. He has no control over the TP! Cantor is just "waiting in the wings" to get Boehner's job and all this while the US is on the brink of default!
  • by bishopleland Location: Cedar Point on Jul 29, 2011 at 07:31 PM
    Like all politicians who wield power they really don't have, our current crop of reprobates are acting like a bunch of six year old girls fighting over positions at hop scotch.
  • by Boehner bill Location: enc on Jul 29, 2011 at 06:11 PM
    The House was given the right to vote on Boehner's bill with an up or down vote, yet in the Senate-McConnell is insisting that the Reid bill meet 60! They have flat out said-that the GOP is delaying until the deadline. At least they are admitting it now!
  • by Boehner bill Location: enc on Jul 29, 2011 at 06:07 PM
    The Boehner bill was "dead on arrival" by a bi-partisan majority in the Senate. In the House, it barely passed with Rep. votes only-NOT bi-partisan. This is what they say is compromise?
  • by New figures Location: enc on Jul 29, 2011 at 06:03 PM
    New economic figures show that the recession that began in 2007-2009 was even worse than originally thought. The US economy shrank by 5.1%! This is what Obama inherited! In 2010 it rose by 3%! You can call this worse only if you don't know the difference between negative and positive numbers. Since this new House went into office-unemployment has gone up and this week on Wall Street was the worse in over a year. These are facts, people. The economy was improving-that was the problem-how to sabatoge Obama-well they have found a way and watch while the GOP lets us reach the cliff and dump the entire problem on Obama! Boehner wasted another day submitting a bill he knew would not pass the Senate. Wasted time and paper! They keep screaming about a written plan-apparently they do not know the difference between a "rough draft" and a "final copy". If the "rough draft" won't fly-there is no need to write the "final". Any 8th grade English student knows that! To make matters worse-the Republicans in the Senate filibustered the bill!
    • reply
      by Anonymous on Jul 29, 2011 at 06:22 PM in reply to New figures
      It's ok for the Dems to just table bills but not for the Repubs to filibuster?Are you kidding the Dems have not even looked at bills the Repubs have proposed. Declare before they are even completed that the bills will not have a chance to be passed. THEY NEVER LOOKED at the bills never gave them a chance at debate or vote. And you come condemn the Repubs. Are you saying that they don't deserve the same courtesies the Dems are demanding in their houses for their bills?
      • reply
        by To anonymous on Jul 30, 2011 at 06:18 AM in reply to
        The Boehner bill required a Constitutional amendment in 6 months! Not one DEM. in the House-even the Blue Dogs voted for it and 6 Re. voted against. This was a TP bill-not a Republican bill and it did NOT pass by 60%!. Tabling the bill (which Boehner KNEW would happen) gave the Senate time to change and vote and send back to the House. The filibuster requires Reid's changes to pass by 60%! So, now the Senate's hands are tied until the filibuster time is up-Sun.! ie. The Republicans are requiring their bills pass by a simple majority, but the Dem. bills must have 60%. A 60% requirement is government by the minority-NOT the majority! Think about it-41% of the voters can prevent a vote from passing!
        • reply
          by Anonymous on Jul 30, 2011 at 07:11 AM in reply to To anonymous
          Amazing you can see so clearly all of the repubs errors but NOT ONCE mention anything that the Dems have done wrong that lead us to this impasse. Repubs are following Constitutional procedure and have done so throughout. I guess that it what is so disturbing. The left's inability to say, yep, our guys have screwed up royally too. Nope, it's consistently been the TP or the Repubs fault. That's why there's been little to no room for compromise.
      • reply
        by Hmm on Jul 30, 2011 at 10:16 AM in reply to
        The same way Boehner said "no" about all the offers made by the White House and Senate committee? Cantor-walked out, Boehner-walked out (twice!).
    • reply
      by Anonymous on Jul 29, 2011 at 06:24 PM in reply to New figures
      That's the problem New figures this admin has had to have it their way the last 3 yrs. Even to the point of shutting doors to pass bills. They have not made any attempts at bipartisan bills. We have some enormous debt that proves it...can we say healthcare, cash for clunkers, billions for brazil...gimme a break!
    • reply
      by Mark Reid on Jul 30, 2011 at 01:38 AM in reply to New figures
      Inherited problems, yes but the longer we blame the past for what our future holds we will keep spinning our wells. Isn't time to stop to blame game and to start addressing the problems with solutions. Everyone needs to take notes on who is hindering the flow and make your electoral voice be heard. I believe I heard a news report indicating Obama wants to push forth a plan that requires better gas mileage. Great, but that technology already exist in many different forms, Cars are being sold today that get this kind of mileage, but just not in the U.S.A., why I ask are we trying to recreate the wheel. It's time to open the patent office and look at what has been "locked away". The technology exist, today. Again the special interest group getting their voices heard, over ours. Is that the government we want, well we have accepted it for years, it's time for change.
      • reply
        by Anonymous on Jul 30, 2011 at 07:21 AM in reply to Mark Reid
        Well said, Mark. And for him to be focusing on such a NON-ISSUE at this juncture stuns me. But again it's pandering to the SIGs making sure votes are in the bag for 2012. Same thing FDR did with the WPA programs and every Pres that followed. It's not about us it's about their political careers. Which truth be told a Term Limit Constitutional Amend would resolve quickly enough. But that's another amendment that will never see the light of day. The only group of people not willing to play politics as usual is the TP. But we all know they're considered the lunatic fringe.
  • by Mark Reid on Jul 29, 2011 at 05:55 PM
    We all know there is a problem in D.C. and we all love to complain. But most of us off no solutions to the problems. The fat cats of D.C. are not really representing the common people of the U.S.A. who among us will stand up and take the challenge to make the corrections necessary to start to fix, not fix but start to address the problems of the past "several" administration have brought on our shoulders and the shoulders of the children. At nearly 50 years old I do not expect social security to be available in my elder years. But no one will stand up and tell the truth about a failing system of social security or social welfare. We need new leaders, new leaders who will speak our language. Tell the hard story, that taxes will rise, services will be cut and we need to do more with less. We need to take our dose of reality medicine and plan for ourselves and NOT rely on Washington to get the job done. They (the D.C.) elitist are failing us and failing us miserably. To repeat a phrase, "we need change", well that change has been shoved down our throat and it's not working. As an individual we will fail, but as a group we can defeat those who have made government a profession when I was raised serving in the government was suppose to be for the common good.

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