The Need to Hang Tough and My Post-Default and Negotiation Thoughts

In the days ahead, it should be borne in mind that in 1923 the federal government, with the exception of war widows, did not pay the personal living expenses of non-federal persons and their families. People back then worked to get the things and services they desired, and America was the greatest nation on Earth thanks to their efforts.

I believe the Democrats did not raise the maximum debt authorization amount when they controlled the House, Senate and White House (and had the absolute ability to do so) because they wanted to play their previously succcessful last minute Republican capitulation game yet again.

However, Republicans now realize that they can't permit the Democrats to buy the majority of the vote through federal handouts. Joe Biden won the Oval Office by offering voter bribes to college graduates ($10,000/voter), parents ($7,000/child) and old folks (a Social Security increase). The Democrats won a Georgia Senate seat and control of the Senate by offering $2,000 handouts.

What the McCarthy plan does is to try to keep Democrats from expanding voter bribery. It would also try to reduce the number of people getting federal handouts by imposing work requirements in the hope of reducing federal expenditures and converting voters from handout-receiving Democrats to tax-paying Republicans.

The McCarthy plan is a political plan as well as a financial plan and it is necessary to ensure that American voters have a choice and that Republican candidates have a chance to win and retain federal office.

There are business people that are worried about an economic impact of a default. The impact will be noticeable but far less than the impacts of a United States run by Donkey Communists who might tax the estate of a car dealer at 90%. Look to the history of Britain in the 1960s and 1970s to see how throughly taxpayers can get fleeced.

These Donkey Communists are often filled with hatred for white people that far exceeds the level of hate in 1930s Germany. After about a decade, the Donkey Communists will control the Supreme Court and their Supreme Court will ignore our Amendment II rights by trying to seize our only means of defense against their burning hatred. Attempted gun seizure in the USA will result in a devasting civil war with tens of millions of dead and most large houses burnt in 1920's Irish civil war style.

It is far better that the nation endure some economic stress than 1921 Tulsa type destruction and death.

There is a great deal of needless worry about federal finances after default. Default is a word that scares people. What default means is late payment. Federal debt due in June 2023 might not be paid until July 2023.

Default will likely happen when say $30 billion of debt matures on a certain day and the US Treasury starts the day with say $8 billion and gets receipt of say $18 billion, leaving the Treasury with say $4 billion of debt it can't pay on the day it is due. That $4 billion will probably be paid a day late, but the Treasury will have defaulted.

By June 30th, the Treasury might have $100 billion of debt that has matured but has not been paid off. The July 15 estimated tax payments will roll in in early July and the unpaid debt will probably get paid off and many federal program expenses paid. Since Democrats at the Treasury will be paying the program expenses, they will probably favor Democrats insomuch as legally possible. A Democrat may get her $1000 July Social Security payment but a Republican may not get his $1800 July Social Security payment. Expect Social Security to be paid lower benefit amounts first.

Medicare Part A and Social Security have trust funds that hold federal debt instruments. A $10,000 Treasury Note is very much like 10,000 $1 Federal Reserve Notes. Instead of Medicare paying a hospital $10,000, the hospital might get a $10,000 Treasury Note which it might sell off for $9900 in ready cash to pay its nurses and other expenses.

The Social Security Administration could work with banks to do much the same thing. The banks would not be willing to take even a 1% haircut though. The banks would have to get either the recipients to pay the 1% via loan/account fees or have their state/local government (or recipient relatives) pay the ~1% Treasury Note discount costs.

About 60% of Republican Social Security recipients can go until January 2025 without a Social Security payment. About 20% of additional Republican Social Security recipients can go six months without a Social Security payment. About 10% of additional Republican Social Security recipients can go six months without a Social Security payment by relying on relatives. About 5% of additional Republican Social Security recipients can go two months without a Social Security payment. About 5% of Republican Social Security recipients need prompt payouts.

For Democratic recipients, the respective percentages are about 40%, 15%, 10%, 3% and 32%.

The federal contractors paying Medicare claims might get paid via the trust funds or by the states for which they serve.

Medicaid is more problematical since it is a pay as you go system without a trust fund. The federal government pays about ~67% of standard Medicaid and 90% of PPACA expansion Medicaid. The states pay the balances: ~33% of standard Medicaid and 10% of PPACA expansion Medicaid. The states would continue to pay their shares, but the federal government won't pay their shares until after the standoff has been resolved. States might change their nursing home staffing laws to reduce their Medicaid nursing home costs.

The hospital Medicaid funding gap can partially be made up by hospital borrowing and by state lending. States might have to raise their sales and fuel taxes to get the needed money. Hospitals may have to hold off paying nurses and others their full wage and bill amounts. A nurse at an urban hospital might only be timely paid at 70% of her normal amount. She will get the past due amounts after resolution.

State funding of Medicaid will allow hospitals to continue to treat Medicaid patients, but many patients may not get timely elective Medicaid care.

Doctors get lots of income from Medicare and Medicaid. Doctors will insist on timely Medicare Part B 20% patient co-pays. If you need a Medicare Part B appointment, don't expect to get one until your past co-pays have paid. Most doctors will still have private pay and private insurance patients and hence income. Some doctors rely heavily on Medicaid and the ~33% state Medicaid amount will be insufficient to cover their expenses, so states might have to lend these doctors money.

Low-income clinics might be state-funded, shuttered or have reduced hours as their doctors work elsewhere to make money.

The VA medical care system will lack federal funding. Fortunately it has had years to do what it could for our combat wounded.

Medicare, Medicaid and the VA pay for lots of drugs. The drug companies will still have private insurance and private patients paying for drugs. These drug companies will probably front drugs to Medicare and Medicaid patients in the reasonable expectation of getting future federal payment.

Many VA patients are in Medicare or still young and not big consumers of drugs. Some middle age veterans will not have a job with drug coverage and might not be able to get every drug prescribed on a timely basis. These drugs will typically be for conditions not service connected. The drug chains that agreed to opiate settlements might be asked to provide the needy veterans the drugs their alleged conduct has made far more expensive. Political jurisdictions flush with opiate settlement money might fund drugs for the needy veterans without other options.

The August and subsequent month SNAP amounts will probably not get paid out. To prevent looting, grocery stores might have special lines selling certain low cost food at a modest discount, say cans of vegetables at 50 cents each, day-old bread at $1 a loaf, store brand cereal at $1/box, hot dogs at $1/package, etc. If you lack cash, you grocery store might take down your SNAP card number and eventually bill the low cost food at its regular price, say 67 cents a can of corn instead of the 50 cents cash price.

Federal employees will not get promptly paid from federal funds. Social Security Administration and federal Medicare people might get paid via their union and the trust funds.

The military people and most federal employees will not get paid until resolution. They might be allowed to collect state unemployment by their state of residence. The military people might be placed on unpaid leave and ordered to get private employment. Private employers will welcome many of these disciplined military people. There will be problems with private leases in towns with a large military presence.

TSA people at airports might get paid via the airport or the state where the airport is. Airlines might levy an added fee to each ticket, or the airport might charge a $5 entrance fee. FAA air traffic controllers might get paid similarly.

Federal housing vouchers will not get paid until after resolution. REITs and other large landlords that mostly own their buildings will be able to carry on. Small landlords may have to sell their buildings if the standoff continues. Most small landlords have some carrying ability since those that don't were knocked out of the landlord business by the Trump administration Covid eviction moratorium. The buildings that must be sold can be sold readily and at a good price due to the strong demand for modestly priced housing.

Let me say that it is a bad idea to further fund the federal voter bribery cancer corroding the moral fiber of our nation.

However, since compromise with the Democratic devils is probably going to be necessary, Republicans might agree to stop inflation adjustment of income tax brackets (and of credits) (as has been done in England) for a number of years. I suspect the mere mention of this would cause its rejection.

Rolling back the Trump income tax cuts for large (and mainly woke) corporations is a possibility.

A second possibility is a new inflation-related tax on the income of corporations with sales of over $1 billion annually. This might be the percentage change in the CPI over the third and second calendar years before. Since this tax would be variable and based on corporate pricing behavior, it would have far less negative impact on stock prices than a fixed percentage tax or tax increase would.

A lawsuit windfall tax is a third possibility levied on all legal awards and settlements. What does a nearly 80-year-old woman need with a $5 million lawsuit windfall?

Raising higher bracket personal income tax rates is a bad idea since the doctors are already upset about their finances.

It is important to realize that federal finances are not the same as those of a business. The federal government has the 110-year old might of the Internal Revenue Service at its command. A business is dependent on faith, goodwill, and most of all, a track record of timely payment. A business can't borrow money based on the force of law. Congress has the Article I, Section 8 power to borrow money, including percentages of new bank-issued certificates of deposit (say 80% of 1% or less CDs sliding down to 20% of 4% CDs). Congress could reduce the FDIC insurance maximum to steer money in search of loans towards the Treasury rather than to banks.

As I have said previously, default is another word for late payment. As soon as a new mutually beneficial by political party maximum debt authorization amount agreement is reached, new federal debt auctions will get scheduled.

The interest rate on new Treasury issues will be impacted initially, but not by much because it would make sense to sell a 4% corporate bond to buy a more secure 4% Treasury Note.

After a month or two, the interest rates the Treasury will have to pay will be reduced since the McCarthy plan reduces the amount of money the Treasury (and the nation as a whole) needs to borrow.

So if the Republicans hold firm, the Treasury and nation is quite likely to see a modest short-term interest spike followed afterward by lower interest rates as a result of reduced federal borrowing requirements.

Here’s what I propose: A Constitutional Amendment declaring a Jubilee Year fifty years from the date of ratification.

In that year all debts public and private will be absolved and no new debts will be issued and any that are issued will be legally invalid.

If possible, I’d go further to prohibit the Federal or State governments from carrying any debt for more than five years.

It will never happen unless we bring the bankers to heel and put an end to the financialization of our markets. That might require executing a few bankers both at home and abroad.

Medicare Trust Funds

Medicare is paid for through 2 trust fund accounts held by the U.S. Treasury. These funds can only be used for Medicare.

Hospital Insurance (HI) Trust Fund

How is it funded?
Payroll taxes paid by most employees, employers, and people who are self-employed
Other sources, like these:
Income taxes paid on Social Security benefits
Interest earned on the trust fund investments
Medicare Part A premiums from people who aren’t eligible for premium-free Part A

What does it pay for?
Medicare Part A (Hospital Insurance) benefits , like inpatient hospital care, skilled nursing facility (snf) care , home health care , and hospice care
Medicare Program administration, like costs for paying benefits, collecting Medicare taxes, and fighting fraud and abuse

Supplementary Medical Insurance (SMI) Trust Fund

How is it funded?
Funds authorized by Congress
Premiums from people enrolled in Medicare Part B (Medical Insurance) and Medicare Drug Coverage (Part D)
Other sources, like interest earned on the trust fund investments

What does it pay for?
Part B benefits
Part D
Medicare Program administration, like costs for paying benefits and for fighting fraud and abuse

https://www.medicare.gov/about-us/how-is-medicare-funded

https://news.va.gov/111089/13-places-free-wills-trusts-veterans/

Be aware that wills not notarized at their creation have to be proved valid (a somewhat costly process) at least here in Florida.

A notarized will is considered a self-proved will here in Florida.

I have a will but it is not a self-proved will.

Any cut whatsoever to Social Security (not SS disability) or Medicaid is sheer suicide.
Not going to happen, and any idiot that thinks is will, or should, needs to be tossed off the same cliff that will be re-used in any commercial about tossing grandma off of it./

Just nope; there is no political objective, tax cut, or military program that is more important as far as one BIG chunk of the population is concerned.

Members of Congress and retired members should have their pay and retirement checks stopped immediately after the default and not one more nickel to Ukraine or any foreign nations. Of course we all know that Congress will continue to get paid as will the Ukrainians while Social Security recipients and active military will get IOUs

“Any cut whatsoever to Social Security (not SS disability) or Medicaid is sheer suicide.”

There might be some Social Security payment delays, but there will be full payment.

Medicaid is for low income folks and elderly in nursing homes.

Medicare is for standard medical care for the 65+ and SS declared disabled.

I could have gotten Social Security 31 months ago, but chose not to.

The median liquid wealth of Republican Social Security recipients in my Florida county is probably over $250,000. Their cats aren’t going to starve because their Social Security is two weeks late.

I will have about $75,000 in liquid assets when I take my first Social Security payment at my full retirement age of 66 years and 8 months.

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