Generally, I tend to agree with your analysis Richie, as far as it goes.

Debt service will be the first thing the Treasury pays. And demand for our bonds will still be pretty good, only because almost every other economy in the world is more screwed up than ours. But we shouldn't forget that only about 15% of our bonds are purchased by foreign governments. The rest are purchased by banks, money market funds, mutual funds and individuals, pretty much in that order. If banks, money market funds and mutual funds are precluded from investing in anything less than AAA-rated securities, that would take them out of the pool of potential buyers as our debt rolls over and needs to be re-financed. That's a significant problem if our debt rating is dropped from AAA to AA as expected.

It's probably also worth noting that any slowdown in our economy resulting from reduced confidence in our government, reduced spending and the like, which results in lessened tax revenues will make the deficit problem and capped borrowing authority even worse.

But without an increase in the debt ceiling, there will still be some painful changes in government spending that we'll all notice. I won't go thru the convoluted arithmetic, but we're spending at a pace that will increase the deficit pretty dramatically, even over last year. In that we would be capped at about $14.3 trillion in borrowing, about 40% of the increases in deficit spending that would push total debt higher than $14.3 trillion couldn't be paid for. The spending would have to stop, programs stopped, federal employees laid off, etc. The only question will be what programs and what employees?

What we normally refer to as the federal budget are only the "discretionary" expenditures which amounts to 18% of our federal spending. Without amendments to the laws enabling the entitlement programs the entirety of spending cuts would have to come from those discretionary budget items. (How long do you think Congress will debate and negotiate cuts to Social Security and Medicare? Hah!) We'll have to cut discretionary federal spending to the tune of 40% of any of the deficit spending that would push total debt higher than $14.3 trillion. The amount of the deficit projected for the end of this fiscal year is $1.56 trillion. That would mean that this year's federal discretionary budget (about $3.9 trillion) would have to be cut by $624 billion, a 16% cut. To the extent that half the fiscal year is already half over with elevated spending, the cuts for the last half of the year would have to be even higher, maybe 20% or even more. We WILL notice the results.

Of course, with capped borrowing authority there will be no ability whatsoever for the Congress to authorize supplemental spending bills as they regularly do to fund budget shortfalls in Social Security, Medicare, Veteran's Administration, the U.S.P.S., Amtrak, Fannie Mae, Freddie Mac, and the like. And what would they do about the military? Would our withdrawal from foreign wars and even foreign bases be accelerated? We certainly can't afford the military expenditures we've made for the last decade or so.

Given the way our Congress has politicized almost everything they touch, it wouldn't surprise me if the programs and employees chosen as first to be cut would be the most noticeable and painful to the public. Those in control could try to make their point by demonstrating how much this dramatic conservatism will hurt. Could they close the national parks, museums, monuments? Lay off TSA employees and make air travel even more intolerable than it already is? Stop federally-funded local infrastructure projects in mid-shovel? Stop funding PBS? Shut down some of the more revered regulatory agencies, the FDA and the like?

There are all kinds of programs and employees that are better candidates for cost-cutting than those I've suggested, of course. Let's see how much further the politicians politicize this situation.

Do the right thing for the country? Are you kidding me?