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Today around the watercooler, us active duty military, and civil service employees were discussing the possible effects of the US defaulting. Since we are all paid by the government, this is a very intensely personal issue to all of us. During the discussions, a claim was made that I found hard to believe.

CLAIM: If the US Government defaults, and must decide what bills and services to not pay, by law, Congressional pay is protected, and would be the last thing NOT paid (i.e. all other government bills would be cut before congressional pay gets cut).

Is this at all true?

Sklivvz
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JasonR
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    When you think it over, this sounds a lot less outrageous than you’d initially feel, even if actually true: a running government is eminently important, *especially* when there’s a huge (financial) crisis. Preventing that the government can no longer function is likely near the top of the priorities list. – Konrad Rudolph Jul 26 '11 at 19:09
  • Can you imagine the social chaos if the military wasn't paid? I'd like to image the triage of paychecks would include the military and lawmakers. – TheEnigmaMachine Jul 26 '11 at 20:00
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    @Konrad - That would be true if you accept that you must pay congress to do their job. I would think that it would be better incentive to get things working if your pay depended on it. – Chad Jul 26 '11 at 21:01
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    @AgentKC - Actually the military would deal with it like they do all things, stoically and professionally. Now the government union employees on the other hand... – Chad Jul 26 '11 at 21:02
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    If the us defaults, it will merely stop paying back its bonds for some time. It's not like bankruptcy. It will merely say to its creditors to wait some extra time (or indefinitely) to have the bonds paid back. It would be quite bad because it would make it very difficult for the us to get any further credit. – Sklivvz Jul 26 '11 at 22:39
  • The US has quite a lot of reserves it can sell on around August 2nd to stave off default. However, if things truly derail, the US will probably cut off or reduce payments to those least able to defend themselves first (elderly, sick, ...) and with the least impact on credit rating (civil servant & military wages). The long-term risk is interest rates: Greece had bonds with a coupon rate of 3%, but now they hover around 29%. It's doubtful the USA rates would go that high, but for illustration a 10% interest rate on treasury bonds would create $4 trillion annual deficit-I calculate on a napkin. – Brian M. Hunt Jul 26 '11 at 22:50
  • @Konrad: as example of Belgium shows, having no government messing up economy is actually good thing during crisis ;-) Belgium had no government for almost a year, and highest economic growth in the region. – vartec Jul 27 '11 at 08:35
  • @Konrad: running the legislature is not the same as running the government. – Dave Costa Jul 27 '11 at 14:25
  • @Dave: I parliamentary systems "government" can mean the coalition controlling the parliament (and therefore the ministries) as opposed to the civil service or some other entity. So it is fair to say that Belgium has had no "government", even while their basic governing bureaucracies plod along without new rules coming down from the legislator or the ministries. This is of course, different from threats to "shut down the government" in the US. – dmckee --- ex-moderator kitten Jul 27 '11 at 23:15
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    @vartec: Belgium currently has 5 governments instead of their usual 6. (Flemish, Flanders, Brussel, Walloon and German). That really should be sufficient ;) – MSalters Jul 28 '11 at 09:33

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It looks like they might be because the office of Congressman Jim Cooper (D-Tenn.) has proposed a measure to prevent it from happening; although I don't think there are any hard rules on the books about this.

Source: http://nashvillecitypaper.com/content/city-news/cooper-wants-congressional-pay-stopped-if-us-defaults-debt

AvatarOfChronos
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