The Flinchum File

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Painful Priorities . . .

Assuming the worst case that the budget ceiling is not raised in a timely fashion, we have been somewhat flippant, making the choice of what to pay and what not to pay in a “guns or butter” format.  It is, of course, more complicated than “the bondholders or grandma.”

I expect the bondholders will be paid first, as they should, and that Social Security checks will be mailed second.  There is enough for both.  That’s the easy part!  Now, who gets cut?  I suspect the troops will be paid, but bills from the defense contractors, like General Dynamics, will be deferred.  They won’t be happy.  I suspect all bills from medical care providers and drug companies will be deferred.  They won’t be happy.  There is a very real possibility that government employees will get furloughed, and the regular transfers to states will be deferred, where more employees will be furloughed and bills not paid.  And, none of them will be happy either.

Instead of owing more money to bondholders, we will owe more money to contractors, to health care providers, to employees, and to states.  As we starve the government, we’re substituting creditors.

Am I selling defense contractors or health care providers now?  No, it is not clear that no deal can be reached, and the market may rally strongly if there is a deal.  I don’t like “all-or-nothing” bets!  And, I don’t like betting on headlines!