Take Default Off The Table
Published on TheHill.com on October 15, 2013
Everybody who has studied the current fiscal situation will tell you that there is no real way that the U.S. would default on any of its debts. With $250 billion of tax revenues coming in on average each month and debt service, including interest, averaging only $25 billion each month, how is a default possible? We don’t need borrowed funds to pay the debt. Tax revenues, which will continue to flow in a debt-limit stalemate, are quite enough.
But President Obama has succeeded in paralyzing his own economy, the stock market, the International Monetary Fund, and even China with phony fears of default.
Were it not for the imagined danger of default, the public would side with the Republicans in refusing to raise the debt limit. The latest Fox News poll shows the public opposing any debt-limit increase, 58 percent to 37 percent.
By holding the prospect of default and talking about the end of the world, Obama has managed to make the Republicans appear to be flirting with national disaster by not raising the limit.
The answer is simple.
Any debt-limit extension should require that the Treasury secretary grant absolute priority in the use of tax revenues to paying the service on our national debt. Presumably he would anyway, but Obama could no longer threaten that default would ensue from any Republican refusal to raise the debt limit.
Otherwise, Obama will win the next round of the debt battle as easily as he won this one. All he has to do is holler “default!” and the Republicans freeze in place, the stock market roils, the international community panics and businesses yell fire! Republicans, many with healthy stock market portfolios of their own, cannot stand the pressure, and cave.
Insanity is doing the same thing as you did before and expecting a different outcome.
Moody’s is one of the few Wall Street firms to put the default claims into perspective:
“We believe the government would continue to pay interest and principal on its debt even in the event that the debt limit is not raised, leaving its creditworthiness intact,” it said in a recent memo. “The debt limit restricts government expenditures to the amount of its incoming revenues; it does not prohibit the government from servicing its debt. There is no direct connection between the debt limit (actually the exhaustion of the Treasury’s extraordinary measures to raise funds) and a default.”
Faced with the facts, Obama has taken poetic license with the word “default” and broadened it to include all obligations of the U.S. government. If we fail to send out one Social Security or veterans check, one paycheck, one food stamp or one payment to Medicare or Medicaid contractors, we are in “default.”
But however strong the case for a “moral default” may be, that is not what the world is talking about when it refers, in tremulous tones, to the risk of default. Default is the failure to meet debt payments. Period.
We can block defaults. We don’t need to accept huge increases in the debt limit. We can stand firm for more spending cuts as long as the word default is banished from the debate.
Republicans were wrong for shutting down the government. But they are right for resisting increases in the debt limit. Politically, voters do not favor closing down the government, no matter what. They do not see it as a legitimate part of the political or legislative process any more than they think impeachment should be part of it. But they do support limits on the debt and accept the need to cut spending as a measure ancillary to the debt-limit increase.
Just get rid of the D-word.
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