Jack Balkin concludes a good post on the distinction-without-a difference between a government shutdown without a budget resolution and a debt ceiling crisis with one:
Let’s assume that’s what people are fearing– that the debt ceiling crisis will not turn out to be the same thing as a shutdown, and therefore will have far worse consequences.
If that is so, the President’s correct strategy is fourfold.
(1) announce that you will not bargain over the debt ceiling under any circumstances.
(2) make preparations if you can’t pay all your bills but don’t tell anyone about your contingency plans;
(3) emphasize the difference between a debt ceiling crisis and an “orderly government shutdown;” and
(4) emphasize how terrible a debt ceiling crisis will be and how unprepared the country is for it. That is especially so even if you have made preparations.
Which, it seems, is exactly what the Obama Administration is doing.
Against the million of bits spent on Beltway augury reading the entrails of chickenhawks, there is very little discussion of the mechanics of default since the platinum coin was taken off the table by the White House and the Fed. Matt Yglesias links to a report (leak?) that the Treasury actually has no way of prioritising its payments: it´s the computer, Guvnor. Quote from analysts at RBC Capital Markets:
The Treasury’s systems do not clearly mark what scheduled payments are for what reasons, so it is impractical to try to prioritize payments.
But that can´t be quite right. The Treasury does have a way of shutting down half the government, the discretionary programmes; it already did so in 1995. There´s an interesting situation (in the sense of three of the four bomb interlocks going) question if mandatory programmes (≈60% of the budget) plus debt servicing (≈6%) are greater than the incoming tax receipts (≈68%), but it´s clearly close and maybe just manageable. Don´t tell me it´s impossible technically to wall off and meet the debt payments – you could do it at a pinch with handwritten cheques.
None of this makes a difference to the shock quite probably coming very soon to US citizens and world capital markets on default day. Jack Lew may have to announce that from the following morning the government of the most powerful nation and mightiest economy on Earth won´t be meeting a third of its legal payment obligations, until a bunch of loons elected by mistake to the US Congress in the name of a ¨Republican Party¨ decide to stop wrecking the Republic.