Here’s what would happen if the debt ceiling is breached
My friend and fellow RRStar blogger Ted Biondo seems to think that the media are making too big a deal about the possibility that Congress might fail to raise the debt ceiling (see HERE).
Ted argues that if Congress refuses to act, President Obama, on his own, could “simply pay the principal and interest on government debt before paying other federal obligations.”
But, of course, that’s not as simple as it sounds.
Ezra Klein of The Washington Post describes the options available to the government — and the consequences — THUSLY:
The choices it will face quickly become stark. It can cover interest on the debt, Social Security, Medicare, Medicaid, defense spending, education, food stamps and other low-income transfers, and a handful of other programs, but doing all that will mean defaulting on everything — really, everything — else. The FBI will shut down. The people responsible for tracking down loose nukes will lose their jobs. The prisons won’t operate. The biomedical researchers won’t be funded. The court system will close its doors. The tax refunds won’t go out. The Federal Aviation Administration will go offline. The parks will close. Food safety inspections will cease.
This is the difference between a debt-ceiling shutdown and a government shutdown. As Shai Akabas, a research at the Bipartisan Policy Center, puts it, “in a government shutdown, the government is shutting down future obligations. With the debt ceiling, They’ve already obligated the money. They owe these people the payments now, and they can’t make them.”
Then, of course, there’s the financial-market chaos. Trillions of dollars in derivatives and other financial products are based on the interest rate that the federal government pays when borrowing. U.S. government debt is, after all, supposed to be the safest investment in the world, and so it’s used to “benchmark” all other sorts of debt. A spike in the Treasury rate would mean a spike in credit card rates and mortgage rates, not to mention all manner of more esoteric financial derivatives. The damage to the economy would be tremendous, and it would occur at every level, from individuals looking for a loan to buy a house to hedge funders trying to play the markets.
Ted Biondo also seems to ignore the fact that Congress has routinely voted in the past to raise the debt ceiling without great controversy — until Barack Obama became president. Every president since Harry Truman has raised the debt ceiling. Ronald Reagan did it 18 times. George W. Bush did it seven times.
But today’s congressional Republicans are counting on the American people misinterpreting the meaning of the debt ceiling.
Raising the debt ceiling only allows the government to pay the bills it already has incurred. It does not allow Obama or anyone else to spend even one penny that Congress has not already appropriated.
Spending bills emanate from the House of Representatives, which currently is controlled by a Republican majority. Obama simply is not free to conjure new spending programs without specific consent of the House (and concurrence by the Senate). To suggest otherwise is to lie to the American people.
But Republicans have, in fact, repeatedly lied about the matter in recent years. House Speaker John Boehner, among others, has said that raising the debt ceiling would give Obama “a blank check.” That’s pure rubbish.