In making his case for holding the debt ceiling hostage to spending cuts, Sen. Pat Toomey (R-Penn.) said on MSNBC last week, “We Republicans need to be willing to tolerate a temporary partial government shutdown.” He made this same argument in an op-ed two years ago for the Wall Street Journal before the height of the 2011 debt-ceiling fight. It made no sense in January 2011. It still makes no sense in January 2013.
Toomey wrote then that “a default on our debt need not follow when our borrowings reach their limit in the next few months.” His plan was to have legislation “that would require the Treasury to make interest payments on our debt its first priority in the event that the debt ceiling is not raised.” The prioritization plan is lunacy.
Adopting a policy that payments to investors should take precedence over other U.S. legal obligations would merely be default by another name, since the world would recognize it as a failure by the United States to stand behind its commitments. It would therefore bring about the same catastrophic economic consequences.
This isn’t theory. A Wall Street Journal story from July 2011 reported that a managing director from Standard and Poor’s told Senate Democrats and officials from the U.S. Chamber of Commerce and the financial services industry that such a “prioritization” scheme could lead to a downgrade. Turns out the bond rating agency wouldn’t look too kindly on the United States stiffing veterans and the elderly in order to meet interest payments.
Toomey’s plan to rob Peter to pay Paul wouldn’t be popular with the American people either. When we stared into the debt ceiling abyss in 2011, the Bipartisan Policy Center showed the stark choices that would face the nation in August 2011. That month, the U.S. had only $172 billion in hand to pay $306 billion in expenses, which included $29 billion in interest payments. Covering the $134 billion hole in payments would have unleashed hell on the American people.
Thanks to Republican insistence that raising the debt ceiling to pay for the nation’s past spending be linked to future spending cuts, we might face those ugly choices again. President Obama has made it clear publicly and privately that such a link is a nonstarter with him. And he’s right. If Toomey and the Republicans want to ignore the warnings from Treasury and the financial sector about playing chicken with the full faith and credit of the United States then they better be prepared to shoulder the responsibility for wrecking the global economy.
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