Debt limit danger delayed till September? 

Jason Fichtner and Veronique de Rugy of the Mercatus Center have a new paper out today on the debt ceiling which takes a detailed look at Treasury Secretary Tim Geithner’s post May 16th option and reaches a conclusion I have not seen anywhere else:

The United States should not consider defaulting on its debt, nor should it put itself in a position where it has to postpone payment to contractors or “manage” other non-debt obligations. Neither, however, should Congress be forced to raise the debt ceiling under false pretenses. By our calculations, the United States has enough expected cash flow (tax revenue) and assets on hand to avoid either of these unattractive options until at least the end of the current fiscal year in September, perhaps even longer.

First, Fichtner and de Rugy explain that their is absolutely no reason Geithner should ever have to default on any Treasury security or miss a single Social Security payment:

According to the Congressional Budget Office, the federal government is estimated to collect $2.2 trillion in tax revenue over FY11. That alone would be enough to cover interest on the debt ($214 billion), thereby avoiding any technical default of the U.S. government; Social Security ($727 billion); Medicare ($572 billion); and Medicaid ($274 billion) and would leave approximately $400 billion for other priorities.

But the U.S. has more than $400 billion worth of other priorities. Fichtner and de Rugy note that the federal government will have to issue an additional $738 billion in debt above the current statutory limit to finance obligations for the remainder of FY2011. Read the full paper to discover how Fichtner and de Rugy propose Geithner come up with the cash.

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