Politicians are Allowed Comments That Would Get the Rest of Us Fired
Senator Richard Burr (R-NC) has always modeled himself as a politician who understands basic business issues. Before running for a House seat, he spent 17 years as a sales manager for Carswell Distributing Company, a distributor of lawn equipment. Apparently, our senior senator wasn’t too involved in the financial side of the business, because he doesn’t understand the basics of economics, capital markets, or cash flows. Yesterday, The New York Times reported the Senator’s lack of concern about the pending debt ceiling deadline:
“We always have enough money to pay our debt service,” said Mr. Burr, who pointed to a stream of tax revenue flowing into the Treasury as he shrugged off fears of a cascading financial crisis. “You’ve had the federal government out of work for close to two weeks; that’s about $24 billion a month. Every month, you have enough saved in salaries alone that you’re covering three-fifths, four-fifths of the total debt service, about $35 billion a month. That’s manageable for some time.”
Obviously, the Senator’s math is off by a bit, because he’s still off by $11 billion according to his own calculation. Moreover, his notion that we can keep the government shutdown and use the payroll to service debt is the kind of strategy used by companies or governments just before their debt rating is downgraded from junk to bankrupt. This isn’t the kind of statement one makes when a debtor is on the verge of default.
The Senator and the rest of us seem to forget that the United States reached the debt ceiling some time this spring. The US Treasury took extraordinary action at that time in order to buy time for Congress and the Administration to reach a deal. For example, in May the Treasury stopped making payments into the G-Fund, the Thrift Savings Plan that is the equivalent of the government workers 401(K) plan. This step allowed Treasury to borrow an additional $160 billion. However, when the debt limit is lifted it will have to accommodate the payments into the G-Fund. Also in May, Treasury stopped selling non-marketable treasuries to state and local government. This action postponed the debt ceiling crisis, but created headaches for state and local government. Payments to federal retiree and disability plans have also been suspended, but will have to be reimbursed. Earlier this month, the US Treasury suspended the last and most extraordinary of its options for forestalling default by ceasing to reinvest earnings of the Exchange Stabilization Fund. The ESF is the government’s emergency reserve fund that was used to stave off collapse during the Mexican peso crisis in the 1990s and was used during the credit crisis to protect money market funds. Treasury has been emptying its cuboards for months.
My guess is that the US Treasury might have one or two maneuvers left that would get the United States past the October 17th deadline. We might be able to buy a few more days for politicians to hash out a deal. However, that’s hardly the point.
Clearly, this is no way to run a large organization be it a government or corporation. However, when “reasonable Republicans” like my Senator make ill-considered statements, it’s hard to see how we are going to reach a sound financial solution to our fiscal challenges.
It’s lucky for Senator Burr that he’s not in a position where he’s held strictly accountable. If he were a senior business executive or a member of the executive branch, he would have been summarily dismissed from his position.
 I had to rely on Wikipedia for this information, because the Senator’s office web-site is down due to the government shutdown and his campaign web-site has been moth-balled.