“Nope. Nothing to see here. No government default happening here. Nope, nothing at all.” – The Guy Working at the Treasury Department Back in 1979
There’s something very reassuring about the fact that House Republicans are relatively close to a spending deal that would avoid a government shutdown. But you want to know a fun fact? You know all that talk in the past about Congress not coming to a compromise that would shut down the government and not raise the debt ceiling? Well, it’s happened before!
The year was 1979. The Sugar Hill Gang released their magnum opus Rappers Delight as their gift to humanity and America was still naïve to the horrors of history’s greatest monster, Jimmy Carter Presidency. It was also the year when the US government accidently defaulted due to a software glitch.
The story goes that the US accidently defaulted on $122 million in Treasury payments due to a word processing error in the system’s software. This mistake was of course rectified as soon as it was found out.
So all was cool, right? Well…
Even though it was just a clerical error, the damage from the incident had long lasting effects on the US economy.
In a 1989 study by Terry Zivney and Richard Marcus, published in The Financial Review, had estimated that the minor error had permanently increased interest rates to 0.6% costing the US government around $12 billion over time!
This is a staggering number because if the US government were to default this time around, the government would owe around $67 billion – with a ‘B’ not an ‘M’ – in Medicare payments, Social Security pay, disability benefits, military pay, and many other miscellaneous services.
Even if you adjust for inflation, if a $122 million computing error had cost the US $12 billion, think how much irreversible damage $67 billion in back pay could cause! Actually don’t, it’s best not to think of that scenario.
Let’s just all agree, it’s in everyone’s best interest if the US government doesn’t go into shutdown mode again and sidesteps the whole debt ceiling argument. Three cheers for sanity!
(Photo Credit: Associated Press, Google Images)