Thursday, January 10, 2013

US Treasury Unable To Pay Bills & Tax Refunds Beginning February 2013

US Treasury
United States Department of the Treasury
The United States will no longer be able to pay all its bills sometime between Feb. 15 and March 1, according to a new analysis from the Bipartisan Policy Center that I came across this morning...

Their research shows that the US has less time to solve this problem than many realize and shows an earlier cash depletion or shortfall. Steve Bell pointed this out in an analysis he did January 7.



Will we see "Obama Bonds" in 2013?
The factors that will decide the actual date include the strength of the economy, which determines the amount of tax revenue the government brings in, and the timing of tax filings and refunds. The government hit its legal debt limit on Dec. 31 and has since relied on extraordinary measures to fund its obligations and operations. (Anyone hear about President Obama's Trillion-dollar platinum Treasury coin idea...?!? Perhaps the Treasury will issue "Obama Bonds" to refinance the $16-trillion national debt in lieu of raising the debt limit or coming to a budgetary agreement? Yikes...

If the Treasury runs out of money, it might either choose which bills to pay or pay entire days' worth of bills at a time once enough cash is available. I suppose they will do some fancy accounts payable "net 30" terms shuffling...I wonder if that will ultimately delay tax refunds? Or perhaps the treasury will throw darts or flip coins to determine which refunds they will pay first...if at all?

Decision Chicken
Southpark's Margaritaville "Decision" Chicken
Perhaps they will follow the idea in Southpark's "Margaritaville" episode where Stan questions the US Treasury and demands answers. The three Treasury Agents say they have to "consult the charts". Stan follows the men inside. He sees a round lit-up game show style board. The men cut off a chicken's head and let the decapitated chicken run on the board while one of them plays a tune comparable to Yakety Sax on a kazoo. The chicken falls on the "bailout!" spot, so that is what the men do. I wonder if the Treasury will use that method to choose which bills and/or tax refunds to pay...

The first scenario is unprecedented, and its legality is unclear, the BPC analysis report says. The design of the Treasury's computer systems also might not allow for it. (See my aforementioned dart/coin-flip suggestion...)

And if Treasury did attempt to pay its bills selectively--BPC says it could afford 60 percent of what it owes from Feb. 15 to March 15--it would have to sort through more than 100 million monthly payments.

For that month, the Treasury could afford to pay the interest on its debt, tax refunds for individuals (what about corporations, partnerships, and/or small business??!!??), Medicare and Medicaid payments, social security benefits, military pay and retirement, and unemployment benefits. But in that case, the government wouldn't be able to pay its defense vendors (GREAT!--sarcasm--), veterans benefits, federal salaries and benefits (WONDERFUL!--sarcasm--), food stamps, or really anything else for that matter.

The cash flow analysis estimates that on Feb. 15 alone, the Treasury will bring in $9 billion in revenue and owe $52 billion in spending, including $30 billion in interest on the national debt.

Photo Credit Netrightdaily.com 2012
The report also predicts chaos and public uproar would ensue if Treasury ends up deciding which of its obligations to continue to fund. Wow, for once the US Government is being forced to operate within cash-flow confines of normal or most businesses (large or small) in the world! No more blank checks or unlimited cash in the vault... And by the way, your credit is maxed-out! Welcome to the real world. Who's going to bail you out?

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