U.S. Government Shutdown, Not a Default, is the Far More Likely Scenario

Now that President Obama has signaled he will sign a three month bill to extend the debt ceiling if it reaches his desk, America should stop being hysterical and realize there is a major difference between defaulting on our debt and shutting down the government.

For those who believe a failure to raise the debt ceiling actually means America would default on her debt, consider reading the Fourteenth Amendment, which remains the focus of debate over one of its more obscure provisions — Section 4. The section was meant to ensure the payment of Union debts after the Civil War and to disavow Confederate ones, but was written in broader terms.

“The validity of the public debt of the United States, authorized by law, including debts incurred for payments of pensions and bounties for services in suppressing insurrection or rebellion shall not be questioned.”

While constitutional scholars continue to debate if this somewhat obscure piece of American history actually makes the entire debt ceiling legislative process irrelevant, not even our brilliant conservative friends deny it ensures our prior debts will be paid no matter what other expenditures suffer from lack of funding.

So for just a second, let us ponder the consequences of the senate again failing to actually do anything useful such as actually bringing to the floor a three-month extension of the debt ceiling. What would a federal government shutdown entail?

We could listen to the hype proposed by current cabinet heads, or worse, the mainstream media believing everyone from Grandma and her Social Security check to Cousin Marge who needs dialysis provided by Medicare would all be left penniless or to die.

But a more realistic assessment can actually be found reviewing what happened back in 1994-1995 when Government actually did shut down for 28 days.

When a government shutdown occurs, the Office of Management and Budget — an office within the executive branch — must decide which expenditures of the federal government are essential and which are not. All non-essential services are suspended to reduce expenditures, and all relevant employees are furloughed until the shutdown ends. Emergency personnel will be kept on, so the military, air traffic controllers, border patrol, and FEMA would be kept online.

Believe me, I’m not recommending a federal government shutdown. Remember, I’m not a big fan of the federal government to begin with. But the thought of having to compensate hundreds of thousands of furloughed workers back pay for having done nothing once the budget crisis is eventually resolved absolutely drives me nuts.

Second, a government shutdown would impact the private sector with which the federal government contracts for everything from paper clips to highway construction creating economic activity and employment.

Third, I really like to hike and seeing the national parks closed would be terrible.

Okay my priorities are a little screwed up.

If you don’t remember anything else from this essay, while Fitch or Moody’s or S&P might downgrade the U.S. credit rating if the debt ceiling battle isn’t resolved, the Fourteenth Amendment to Constitution guarantees we will not default on our debts.

We may end up seeing the federal government shutdown if the House, senate and the president cannot finally come up with a spending plan to fund our expenditures but we’ve been there and done that before too.