Send Out the Notices

Obama needs to inform Congressional leaders tomorrow that, absent a deal this week notices are going out Monday to all recipients of government checks that Congresses failure to raise the debt ceiling will cause, effective August 2:

1. Social Security checks, food stamps, etc to be paid 50% of entitlement.
2. Medicare & Medicaid reimbursements to 50% of amount due.
3. Pay the troops, but immediately forgo spending on any non-essential items, including R&D and procurement. Any outstanding bills not related to continuing operations will be paid at 50%, if that, until funds are available.
4. Pay reduced to 50% for any transportation or infrastructure improvements.
5. Farm supports, etc to be paid at 50%.

In short, we will feel what it would be like to live without borrowing. We would not need to default as the GOP caucus likes to say, with the cuts described above, and we would have the funds for interest payments and redemption of bonds (rather than rollover) as they mature.

Would America like it? I think not. Would taxes on the rich be off the table? I doubt it. Would Warren Buffet still pay a lower tax rate than his secretary? Nope - the paradigm would have changed big time. GOP members of Congress would probably need to hire an army of Blackwater security guards for their protection.

What would happen to the economy? If a deal was still not reached, even after Tea Party members turned their pitchforks against Republicans, August would be devastating. We would experience a 12%+ drop in GDP (the amount of the deficit) before factoring in the multiplier effect. I expect a deal would be reached in July, if not early August.

Then, we could enjoy the 2012 election with the electorate well aware of the beneficent role that the federal government plays in a modern economy. Once informed, taxes don't look so bad, after all.