First there was the claim that global warming was a hoax. Then came the assertion that President Obama’s Hawaiian birth was a fiction. And now we are hearing that the prospect of a U.S. government default is, likewise, a fantasy.
Treasury Secretary Tim Geithner says that it’s the real deal: that if Congress doesn’t agree to an increase in the debt limit by Aug. 2, the United States will be forced to default on its debt, potentially spreading panic and collapse across the globe. During debt-ceiling showdowns in the past, President George W. Bush’s treasury secretaries and President Ronald Reagan himself issued similar default warnings.
But what do you expect of a government that faked the moon landing, falsified Osama bin Laden’s death and put fluoride in the drinking water to control your mind?
Insidious though fluoride may be, the default hoax is potentially worse. If the two sides in Washington can’t agree on basic facts, how can they possibly reach agreement to resolve the nation’s crushing debt?
The leading purveyor of this new school of economic thought, dubbed the “default deniers” by their opponents, is freshman Sen. Pat Toomey (R-Pa.), who presented his case before the American Enterprise Institute on Wednesday. His theory: The government won’t really go in to default on Aug. 2, and, even if it did, things wouldn’t necessarily be so bad.
“The bottom line is there is no danger of a shortage of cash to pay the interest on our debt and to avoid a default,” Toomey announced, as long as the Treasury continues to roll over existing debt. Toomey argued that it is “irresponsible for the administration to even implicitly threaten the possibility of a default.” The Obama administration, he said, should “send a clear and unambiguous message to the market that under no circumstances will this administration choose to default on our debt.”
Obama administration officials don’t regard this as a matter of choice. Neither did past presidents. In fact, Bush’s first treasury secretary, Paul O’Neill, likened those who opposed raising the debt limit to “terrorists.” But Toomey, whose Tea Party backing helped him to vanquish Arlen Specter and then Joe Sestak, says it is “absolutely false” to claim that failing to raise the debt limit by the deadline would “equate to a default on our debt at all.” He argued that, even without the ability to borrow more, the government can easily stay current on its debt payments using the $2.2 trillion it expects in tax revenues.
There’s only one problem: Without borrowing, we’d have to cut Obama’s budget for 2012 by $1.5 trillion. That means even if we shut down the military and stopped writing Social Security checks, the government would still come up about $200 billion short.
Andy Sullivan of Reuters asked Toomey if he worried it “would push the country back into recession if, for example, we have to suspend Social Security payments.”
Toomey wasn’t worried. “I don’t think it’s going to have an adverse impact on the economy in the days, weeks or perhaps even months that this would continue,” he said, allowing that “this is not an optimal arrangement indefinitely.”
It may, however, be an optimal arrangement for Toomey and fellow conservatives who hope to force the Obama administration to make massive spending cuts in exchange for Republicans’ permission to raise the debt ceiling. If the notion of default is a hoax, then the administration (which has dropped its irresponsible resistence to cuts) has no leverage to force Republicans to accept even a small tax increase along with the spending cuts.
I asked Toomey if he could accept a deal that included $1 in tax increases for every $9 in spending cuts.
“The problem is spending,” he replied.
“Is that a line in the sand?”
“Not one dollar” of tax increases?
“I’m not interested in raising taxes.”
Toomey called the audience’s attention to a Wall Street Journal interview with Stanley Druckenmiller, in which the hedge fund manager argued that the markets could tolerate a “technical default” of U.S. government’obligations. “He has said that he would actually accept even a delay in interest payments on the Treasurys that he holds and would prefer that if it meant the Congress would right the ship,” Toomey argued.
Preferring default on the national debt? Let’s hope that’s a hoax.