USA Africa Dialogue Series - See full post at: http://economystified.blogspot.com/2011/08/debt-ceiling-and-downgrade.html

There is one detail about the little meltdown Washington
just had that I really wish got more coverage over the last month. So
I'm going to take the opportunity here to call it out. It's subtle
one, but I think you'll find it pretty meaningful.

Here goes:

The US executes budget plans over fiscal years. But it
passes them on a calendar year schedule. Effectively, we always are
making our budgets one year in advance. That means that at any given
moment the spending the government is doing is spending to realize and
execute a budget plan made in the previous year.

When the Treasury department ran out of funds the first
day of August, the borrowing they wanted to do (borrowing that would
"increase the debt ceiling") was to meet the requirements of last
year's budget plan for August 2011, NOT the budget plan Congress was
debating at the time.

The budget that we finally agreed upon on 8/2/11, wasn't
due 9/30/11 and doesn't go into effect until 10/1/11. The budget we
are presently subject to is one we set last September (well, it was
due 9/30/10, the final product was delayed until early 4/11, but thats
besides the point).

Back in June/July, when John Boehner and the House
Republicans (cool band name?) first announced they were going to
refuse to raise the debt ceiling, it was a refusal to fund spending
they and the rest of Congress had approved and demanded already – the
spending they (and any other previous Congresses) had scheduled
earlier to happen now ("now" being summer 2011). They would block the
raise, they threatened, until the budget plan they had made for 10/11
- 9/12 was accepted.

So a handful of Congressmen used their power to block
current borrowing (borrowing that Congress had demanded and scheduled
months ago to happen now) as a bargaining chip in negotiations over
next years budget, ie the budget for the end of 2011 and most of
2012. I'm not sure a lot of people caught that, and I didn't hear
that point get hammered too hard during the whole fiasco…

Continue reading at: http://economystified.blogspot.com/2011/08/debt-ceiling-and-downgrade.html

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