“Technically, it’s not possible to default because there’s always enough revenue to cover the interest,” Fleming said. “If we defaulted it was because the president chose to default, not because we ran out of money.”
This is the altar of prioritization. Disciples of this doomed-to-fail philosophy believe that as long as Washington makes the interest payment on the debt everything will be okay if the limit on the nation’s borrowing is not lifted to pay for the things the nation has already bought. They think the markets won’t freak. They are convinced the bond-rating agencies will be pleased. As bad as this thinking is, Fleming compounds the insanity by telling Politico that “nothing happens” if the debt ceiling is breached. Wrong!
Let’s review what is already known, shall we.
Treasury Secretary Jack Lew sent a letter to Speaker John Boehner (R-Ohio) last month warning that sometime in mid-October, the department will have exhausted all extraordinary measures it has employed to prevent the nation from hitting the debt ceiling, which was actually hit in May. Lew also pointed out that without increased borrowing authority, the government would have to finance the government with whatever cash is on hand. He estimated that to be $50 billion. Sources at the Treasury tell me that number has already shrunk a bit as corporate tax receipts have started to come in. In fact, Lew told the Economic Club of Washington that “things have moved a little bit in the wrong direction since I sent the letter.”
The debt limit analysis produced by the Bipartisan Policy Center (BPC) last week is in line with Lew. But it goes a step further in revealing an “X date.” According to the venerable think tank, the Treasury will run out of that $50 billion sometime between Oct. 18 and Nov. 5. And I don’t need to tell you that $50 billion is barely pocket change for a nation with a $3.5 trillion budget.
Fleming’s assertion that “nothing happens” if the borrowing limit is not raised to pay for past spending smacks up against the reality presented in the BPC report. Once the United States has exhausted extraordinary measures and run out of money before hitting the debt ceiling, BPC estimates the country “would be about $106 billion short of paying all bills owed between Oct. 18 and Nov. 5.” As a result, “approximately 32 percent of the funds owed for the period would go unpaid.”
In the scenario presented by the BPC, the $35 billion in interest payments Fleming cares so much about would get paid. So, too, would Medicaid and Medicare, Social Security and military pay. But the justice department, veterans and federal workers would get stiffed.
What Fleming and others who tout prioritization fail to consider is the hell that would be unleashed. There would be political hell to pay as the administration picked winners and losers in its mad scramble to rob Paul in order to pay Peter. Imagine if the administration weren’t able to follow the best-case scenario presented by BPC and had to delay Social Security checks or military pay. And there would be economic hell to pay as the world came to grips with the federal government not meeting its financial obligations for the first time in history.
Mark Zandi, chief economist at Moody’s Analytics told Reuters this week that if the nation’s borrowing authority were not increased in time, “confidence will evaporate, consumer confidence will sharply decline.” He added, “Businesses will stop hiring, consumers will stop spending, the stock market will fall significantly in value, borrowing costs for businesses and households will rise.”
We’re facing this economic doomsday all because a supercharged minority of House Republicans insist on forcing President Obama to defund or delay his signature policy achievement passed by Congress and upheld by the Supreme Court. That the House just passed a bill that funds the government through December and strips funding for Obamacare — despite repeated assurances from the Democrat-controlled Senate and White House that such legislation is DOA with the defunding provision — shows that the GOP is hellbent on mayhem.
“This handful of House Republican radicals can believe whatever they want, but there is absolutely no scenario in which Obamacare gets defunded. They are in fantasyland,” Jim Kessler, senior vice president at the centrist think tank Third Way, told me. “That said, it is entirely conceivable that after flirting with default for the past five years, this Congress will touch the third rail and breach the ceiling. The economic mayhem that would ensue will make everyone forget Obamacare awfully quick.”
There’s gotta be a better way.
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