Reports: Debt deal likely reached - Boehner will bypass Tea Party in House vote

Multiple news sources are saying that House Speaker John Boehner has decided to present a Senate compromise to the full House of Representatives irrespective of opposition from the Tea Party wing of his caucus. If true it may signal a last minute aversion of a serious fiscal crisis, with potentially huge economic ramifications. It is also likely to leave Boehner in a really hard spot with his own caucus.

Felix Salmon: The Default Has Already Begun

The big question in Washington this week is whether, in the words of the NYT, we’re going to see “a legislative failure and an economic catastrophe that could ripple through financial markets, foreign capitals, corporate boardrooms, state budget offices and the bank accounts of everyday investors”. In this conception — and I have subscribed to it just as much as anybody else — the sequester is bad, the shutdown is worse, and the default associated with hitting the debt ceiling is so catastrophic as to be unthinkable.

This frame is a useful one, not least for the politicians in Washington, who seem to have become inured to the suffering caused by the shutdown, and downright blasé about the negative consequences of the sequester. Both of them could last more or less indefinitely were it not for the debt ceiling, which is helpfully providing a hard-and-fast deadline: Congress is going to have to come up with a deal before the ceiling is reached, because the alternative is, well, the zombie apocalypse.

There’s more than a little truth here: I’m a firm believer, for instance, that the president both can and should prioritize debt repayments in the event that the debt ceiling is reached. If we’re going to be so stupid as to hit the ceiling, then prioritizing debt service is the least-worst outcome. But at the same time, the situation is less binary than it looks, not least because the US government is already in default on its obligations.

The best way to look at this, I think, is that there’s a spectrum of default severities. At one end, you have the outright repudiation of sovereign debt, a la Ecuador in 2008; at the other end, you have the sequester, which involves telling a large number of government employees that the resources which were promised them will not, in fact, arrive. Both of them involve the government going back on its promises, but some promises are far more binding, and far more important, than others.

Right now, with the shutdown, we’ve already reached the point at which the government is breaking very important promises indeed: we promised to pay hundreds of thousands of government employees a certain amount on certain dates, in return for their honest work. We have broken that promise. Indeed, by Treasury’s own definition, it’s reasonable to say that we have already defaulted: surely, by any sensible conception, the salaries of government employees constitute “legal obligations of the US“.

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North Carolina Suspends Welfare for Duration of Federal Shutdown

(Reuters) - North Carolina has become the first state to cut off welfare benefits to poor residents in the wake of the partial federal government shutdown, ordering a halt to processing November applications until a deal is reached to end the federal standstill.

More than 20,000 people - most of them children - receive monthly benefits aimed at helping them buy food and other basic supplies through North Carolina's welfare program, called Work First, which is fully funded by the federal government. Recipients must reapply each month.

The state's Department of Health and Human Services told its local offices in a letter dated October 10 not to process applications for November benefits until the federal government reaches a deal to restore normal operations.

Read the rest here.