A new study suggests it is highly unlikely that the Treasury would actually default on its debt beginning in early August if the White House and Congress fail to agree on a long-term deficit-reduction plan and an increase in the current $14.3 trillion limit on government borrowing.
A respected bipartisan group says that, based on current projections of tax revenues for August, the Treasury would have ample funds to cover the interest on Treasury securities, as well as issue Social Security and unemployment checks, make Medicare and Medicaid payments, and reimburse Defense Department vendors throughout the month.
But the analysis by the Bipartisan Policy Center strongly warns that failure to raise the debt ceiling by the August 2 deadline set by Treasury Secretary Timothy Geithner might make it more difficult for the government to roll over or refinance almost $500 billion of short-term and long-term debt coming due without paying higher interest rates. And it would immediately force the Treasury to slash spending by 44 percent for most other government agencies and programs, including military pay, veterans affairs programs, criminal justice programs and education.
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