Monday, September 30, 2013
Predictions on how debt default would play out and affect retirees appear on web
Here we go again. There’s rhetoric around (as on the Issues blog), that a shutdown, while painful for some people, will make a default over the debt ceiling in mid October less likely. In fact, the New York Times just published some new analysis on how a default might play out and “escalate” this morning, link here. The article gives a link to the Alphaville blog (link for details – just x-out the pop-up to see the content. Essentially, the second blog warns that it will be impossible for the Treasury to distinguish among valid and defaulted securities, “throwing sand into the gears” of the financial system.
But in fact, I think there is every reason to think that Treasury would indeed pay bond holders first. Still, this leaves “Tea Party” Republicans to explain why they are so willing to make others sacrifice for their own ideological goals (and, yes, there are some people – constituents – who can lose jobs to Obamacare).
The most dangerous rhetoric came from Boehner himself in 2011 when he suggested that Congress should just stop paying better-off retirees Social Security and Medicare benefits, as part of a way (in his mind) to handle “default”. It doesn’t work that way, since a Trust Fund is involved, and the Social Security Trust Fund is effectively a bond holder. Furthermore, he is ignoring the fact that retirement assets might suddenly become worth a lot less in fiscal chaos. It sounds like a kind of bullying of seniors. Politicians can impose stiff means testing as a deficit reduction means even in the near future, but that would occur outside the scope of the debt ceiling debate. Again, that's why some of us would like legal ownership of our benefits -- "privatization".