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Private Briefingwith WILLIAM PATALON III, Executive Editor
When we recommended micro-cap tech play eOn Communications Corp. (NasdaqCM: EONC) last month, we told you to expect a pretty wild ride.
And that’s just what we’ve seen…
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With possibly less than a month before the United States hits its $16.4 trillion debt ceiling - aka falls off the "debt cliff" - the country is wondering what happens if Washington fails to raise the limit.
Almost everyone agrees that even though the GOP has hinted it will refuse to raise the debt limit to get its way with spending cuts, Congress will agree to another increase. The debt ceiling has been raised 79 times since 1960.
What could happen if it's not raised is a bit of a guessing game, since it's never happened before. But the consensus is we don't want to find out.
As Princeton professor and former vice-chairman of the Federal Reserve Alan Blinder wrote in The Wall Street Journal Monday morning, "Since the federal government has never crashed into the debt ceiling before, nobody knows exactly what will happen if it does. But whatever does happen, it won&'t be pretty."
Here's a look at what could go down.
Hitting the U.S. debt ceiling - or, falling off the debt cliff - means the government may not borrow any more money, so some payments would have to stop immediately.
As Blinder outlined, "At current rates of spending and taxation, federal receipts cover less than 74% of federal outlays. So if the government hits the debt ceiling at full speed, total outlays-which includes everything from Social Security benefits to soldiers' pay to interest on the national debt-will have to be trimmed by more than 26% immediately. That amounts to more than 6% of GDP, far more than the fiscal cliff we just avoided."
The Obama administration would be faced with a stark choice: Do we pay the interest on the national debt and avoid technical default?
If that is our choice, then we must also choose who will not get paid.
Will it be soldiers in Afghanistan? Retirees dependent upon their Social Security checks? Taxpayers waiting for tax refunds? Small businesses that have performed work for the U.S. government?