"The Next Big Lie" [updated]
Bill Wilson, ALG:
Barack Obama is threatening that if Congress does not increase the $14.294 trillion national debt ceiling, the nation will default. In a letter to Congress, Obama’s Treasury Secretary, Timothy Geithner wrote, “Failure to raise the limit would precipitate a default by the United States.”
It is a rather curious formulation. Note that the Administration is not saying that if we continue to borrow trillions of dollars year on end without ever presenting a plan to repay the debt, we will default. But that if we do not continue borrowing, we cannot meet our obligations to creditors.
Call it the next big lie.
And it is nothing more than a scare tactic. Just like a consumer credit limit, if the debt ceiling is reached, this will simply mean that the Treasury cannot issue new debt. The existing debt could still be refinanced, but interest owed on the debt would have to be paid out of revenue and the budget would also have to be balanced immediately. That is not a default.
Surely, it would mean big cuts in spending. Of the $2.173 trillion in revenues, $430 billion would have to be dedicated to paying total interest owed on the national debt, including to the Social Security and Medicare trust funds. That would leave $1.743 trillion to pay for the remaining $3.612 trillion of the budget, requiring approximately $1.869 trillion of immediate cuts.
To take the Obama Administration’s threat off the table, Republican Study Committee (RSC) Members Tom McClintock, along with RSC Chairman Jim Jordan, Rep. Virginia Foxx, and Rep. Scott Garrett have introduced the Full Faith and Credit Act. It mirrors a bill in the Senate offered by Pennsylvania Republican Senator Pat Toomey.
According to an RSC description of the bill, “The Full Faith and Credit Act directs the United States Treasury, in the event the debt ceiling is reached, to pay principal and interest due on debt held by the public before making any other payments.”
Critically, the description notes, “This bill would merely codify standard Treasury practice.” So, which is it? Does the Treasury, as standard practice, pay the debt first or not?
In reality, the Treasury makes the decisions of who it needs to write checks to every day. The only difference is that every week it holds new auctions to sell U.S. debt, and so has a relatively limitless supply of funds to meet all of the government’s obligations. The sensible thing to do would be to pay the creditors first.
And if there is any question, then the only other sensible thing to do would be for Congress to pass the Full Faith and Credit Act.
Of course, the real reason for the Obama Administration to pretend that the nation will default if the debt limit is not raised is because it does not wish to make any concessions to achieve the vote. Republicans need to say: Too bad. And to use its leverage to achieve something big.
Like maybe an uncorrupted BBA.
What I don’t understand is why the GOP isn’t making the case to the American people that the quickest, biggest, and most easy cut to make would be the erstwhile “stimulus” money that was sold as a one-time budget item, but which total is now included as a baseline in Obama’s new budget proposal. Honestly, can we not even sell that?
Then we could condition any raise to the debt limit on a balanced budget amendment and other key reforms, as suggested by Marco Rubio, among others.
Of course, all of this takes political will. And frankly, I’m just not sure the GOP has it — or that it necessarily even wants any of this, in the aggregate. Just appearing to seems to them to work if the real goal is merely re-election and an eventual GOP re-ascendency. As the early and very public cheerleading over the GOP jungle cats’ enormous budget victory suggested…
update: Rush Limbaugh is warning that the same GOP establishment types who gave us the fearsome budget victory are planting the seeds for avoiding a fight on the debt ceiling — preferring instead to once again save their ammunition for the Ryan budget fight.
If he’s right, that will mean the GOP — given 3 leverage points to negotiate for fiscal sanity — will have punted on two of them.
Readying themselves for the really really really big pounce, no doubt.