It obviously would have been a terrible event for the human race if the world had ended Saturday as some had prophesied, but it might not have been all that bad from a federal budget perspective. Not only would the hand wringing over the debt ceiling have been immediately rendered trivial, the Rapture actually could have had a positive impact on the situation if the big overseas owners of Treasuries had all been called to heaven. That would have allowed the debt they owned to be written off and dropped the United States so far below its existing ceiling that it would have been quite some time — closer to decades rather than years — before legislation to raise the government’s borrowing limit would have been needed again.
The irony is that the next date for which a disaster of sorts is predicted has to do with the federal debt ceiling itself. According to the Treasury Department, after using all of the previous tried-and-true techniques available, the government’s cash flow will reach a crisis situation around Aug. 2. That’s the date at which the government will have to decide who will get paid on time and who could face a catastrophe because they will have to wait, perhaps for some time.
With this in mind, here are some comments about and reactions to the latest inane debt ceiling developments and pronouncements that have occurred over the past week or so.
1. Government contractors should be very concerned. There has been no official or even unofficial statement about where government contractors are on the priority list of those who will be paid if the debt ceiling issue isn’t settled by Aug. 2, but it’s hard to see how they will be at the top. Politically, economically and financially, contractors can do less damage than bondholders, recipients of Social Security and other entitlement programs, and federal employees if they aren’t paid on time. Suing the government would be expensive and take a great deal of time, and many contractors most likely would be paid before a case could be resolved anyway. In addition, contractors who sue the government run the risk of souring relations with their main (or, in some cases, only) customer.
When you also factor in that the federal contracting community, especially small businesses, may be in the best position to pressure Congressional Republicans on the debt ceiling and that the GOP is likely to need a push, the value of making contractors the first victims becomes even clearer.
2. Investors in government contractors should be very concerned. For all the reasons mentioned in No. 1, stock owners, bondholders and lenders need to think about what will happen if payments to federal contractors are significantly delayed. They also need to consider what it will mean to the business forecasts, profits and stock prices if federal procurements are put on hold — as already seems to be happening — as the government positions itself to minimize its cash needs after Aug. 2.