Where The Debt Dealing Stands
MARY LOUISE KELLY, host:
Okay, let's take a closer look now at what could happen if Congress can't put together a deal by next Tuesday.
We've called David Wessel. He is economics editor of the Wall Street Journal.
Nice to talk to you again, David.
Mr. DAVID WESSEL (Economics Editor, The Wall Street Journal): Good morning.
KELLY: Good morning. So we're hearing from leaders in the House and the Senate. They both say they want to pass a bill by next week. The big question: What happens if they don't?
Mr. WESSEL: Well, that's a good question. And nobody can really answer that definitively 'cause we've never been here before. The Treasury says that after August 2nd it can't borrow anymore money, so it will only be able to pay out what it has in cash and what it takes in taxes. And the problem is that in August, the Treasury has commitments to pay $130 billion more in bills than it anticipates receiving in tax receipts.
So at some point after August 2nd or 3rd, it won't have enough cash to pay the bills. And something has to give. And presumably it won't wait until there's no cash left in the checking account before it says were not being someone.
KELLY: If there isn't enough money left to pay all the bills, who decides who gets paid, who doesn't? How will that all work?
Mr. WESSEL: Well, the Treasury is the decider but that's about all that's clear. It's a whole lot more complicated than simply taking the bills that come in your mail and deciding Ill pay some and pay others.
It seems a good bet though that they will be paying the interest on the debt; paying the bondholders - the both American and Chinese and European bondholders. And we know that they have some big bills to come due in August. August 3rd, for instance, there's $23 billion in Social Security payments due; on August 15th, $29 billion in interest payments. So they're going to have some - it's going to be challenging.
KELLY: David, I want to ask you about this question of the credit rating agencies. S&P's has said even if Congress raises the debt ceiling, it may still cut the U.S. credit rating. That sounds pretty ominous. How worried should we be?
Mr. WESSEL: Well, it's definitely not good. And it could be one of those unpleasant milestones in American economic history that our kids and grandchildren read about someday in the textbooks. But there's surprisingly little consensus on what exactly will happen if Standard & Poor's decides to downgrade the U.S. from AAA, which is the gold standard, to AA.
Nothing changes automatically, no switch is thrown. And we know that one of the reasons that people buy U.S. Treasury bonds is because the market is very liquid, you can buy and sell them in an instant and you can roughly know what price are going to get. And there simply is no good alternative to that.
So in one sense the S&P thing and maybe like sports columnists writing about the World Series - what matters is the game, not the commentary. On the other hand, it will be an embarrassment if U.S. that is rated lower than Canada, Australia, Germany, France and Britain. And it's likely, although not certain, that the U.S. government will have to pay more every time it borrows. How much more it's impossible to know. But with $14 trillion worth of debt, every little more interest really hurts.
KELLY: David, just a couple of seconds left but let me ask about the markets. So far they've been pretty calm. Wouldn't they care if there were a credit rating downgrade?
Mr. WESSEL: You think so? You think that if the markets were really worried we'd see more action in the markets? We've seen a little bit the dollar is weaker. But I think the thing that's really hard to know is this is uncharted territory. And we saw during the financial crisis there are often unanticipated effects, and they can be hard to see in advance.
KELLY: Okay. David Wessel, thanks very much.
Mr. WESSEL: You're welcome.
KELLY: That's David Wessel. He is economics editor of the Wall Street Journal.
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