Debt ceiling debate: Default ‘a choice’ says Heritage Foundation

January 14, 2013

In his last news conference of his first term, President Obama warned Republicans oon Monday that he would not negotiate over the federal debt ceiling, saying that Republicans were threatening to hold “a gun at the head of the American people.”


(Jonathan Ernst/Reuters)

However, should a deal not be reached, defaulting on government debt would be a choice  by the Treasury, not an inevitability, according to J.D. Foster, an economist at the conservative Heritage Foundation. 

“The only way the federal government would default on its debt in the event the debt ceiling remains unchanged is for the Treasury to choose to default — an utterly implausible eventuality,” Foster wrote on the think tank’s blog. 

Although the government has already technically reached the debt ceiling, the Treasury Department is utilizing “extraordinary measures” in its arsenal to finance operations for approximately two more months. 

If at the end of those two months the debt ceiling has been maxed out and not raised, some say it is at this juncture that the government would have no choice but to default on its debt.

Foster, however, argues that the choice is simple: Severely cut spending to meet the government’s income.

“If the federal government exhausted its financial management tools, then government spending would be limited to incoming receipts,” says Foster. “At that point, the law setting a debt limit and the laws in place directing government spending would conflict — something would have to give.”

However, there are legal, logistical and practical problems that go beyond the current appearance of this as a political or ideological showdown, says Dean Baker of the Center for Economic and Policy Research.

“If we hit the point where the debt ceiling becomes binding, then there is no clear guidance for the president in prioritizing spending,” says Baker, adding, “On what basis is the president supposed to decide which bill gets paid and which don’t? Would it be okay to unilaterally cancel all defense spending or just send out Social Security checks to people living in blue states?”

Baker also points out that not making payments mandated by law would be a logistical nightmare. Computers programmed to send out Social Security checks, veterans’ benefits and other payments would require immense bureaucratic jujitsu, and doubly so when they needed to be reinstated. 

“If President Obama chose to suspend other spending in order to meet debt service obligations, then we have enough money coming in to pay interest on the debt,” says Baker. “However, the Constitution also requires President Obama to spend money appropriated by Congress.”

“Is there any reason he should break the law and not make other payments to ensure that interest on the debt can be paid?” asks Baker. “That’s hard to see.”

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Allen McDuffee | January 14, 2013