The Bogus Threat of Default
In today's Wall Street Journal, Sen. Pat Toomey of Pennsylvania, the man whose reputation as a friend of the Republic would remain secure even if he never did anything beyond replacing Sen. Arlen Specter, publishes a forthright, fascinating and--to my mind--utterly compelling article on the debt ceiling. His argument, in brief:
Point one: Let's all stipulate, right here at the outset, that it would be very, very bad for the federal government to welsh on its debts.
Under no circumstances is it acceptable for the U.S. to default on its debt. Not only are we morally obligated to honor our debts, but we benefit greatly from the nearly universal conviction that those who lend to us will always be repaid, on time and in full.
Point two: Unless we raise the debt ceiling, many now argue, default will become inevitable. To which Sen. Toomey responds, Aw, hooey.
Next year...about 6.5% of all projected federal government expenditures will go to interest on our debt, and tax revenue is projected to cover about 67% of all government expenditures. With roughly 10 times more income than needed to honor our debt obligations, why would we ever default?
Point three? Well, point three is where things get especially interesting.
If we do not raise [the debt ceiling], the government's tax revenue will enable us to fund roughly two-thirds of projected expenditures, including interest payments. Without the ability to borrow the other third, spending cuts would be sudden and severe....But it would be even worse simply to raise the debt ceiling without regaining control of federal spending....The vote on whether to raise the debt ceiling—and, if so, by how much—is our best opportunity to insist that any increase in our nation's debt be coupled with concrete steps toward fiscal sanity.
Pat Toomey means business. And he's not about to permit himself--or his fellow Republicans--to be panicked by a bogus threat of default.
Oh, but this is glorious.
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Comments:
Jul '10
Re: The Bogus Threat of Default
I love Pat Toomey.
But I fear he doesn't understand my sense of humor. He brought his infant son along on the National Review cruise and I took every encounter with the little cherub to try to teach him to say, "Chuck Schumer."
Senator Toomey said, "You're gonna scare him."
I replied, "But Senator, I'm only trying to teach him to remind you..."
Re: The Bogus Threat of Default
Um, Peter? To use the phrase "welsh" on a bet is hate speech, against the good and decent Welsh peoples.
Better to say that we, as a country, don't want to gyp our creditors.
Oh, wait.
May '10
Re: The Bogus Threat of Default
I'm glad I voted for Toomey. I only hope that he continues to stick to his campaign promises.
May '10
Re: The Bogus Threat of Default
Toomey is exactly correct. Some very difficult decisions are inevitably in our national future. The only point of contention is when we will face them.
There is no "good time" to deal with a problem like this, except that sooner is usually better.
Jan '11
Re: The Bogus Threat of Default
I'm no expert, (disclaimers etc), however isn't there an additional underlying the problem? The US government can print all the money it wants and needs, but this luxury isn't available to cities and states. With upcoming threats of state insolvency, what's the plan then? Does the federal government bail them out? And also cities or municipalities? That's likely a whole lot of extra coin, no? How does that fit in to the equation?
Jul '10
Re: The Bogus Threat of Default
On the bankrupt state: Tough love says we force them to operate under the prevailing rules of their states and mitigate the price of their own profligate insanity. They can ask Chris Christie of New Jersey and Bob McDonnell of Virginia how to get it done.
Bailing them out in the past has simply led to grander insanity. Public employee unions and over-promising on pension schemes seem to be a recurring theme. It should be made clear to the unions that, in order to pay those pensions, we will have to make do with a lot fewer unretired union members. A lot fewer.
As for printing the money to retire the debt, while it is true that we are currently under a fiat monetary scheme, debasing our currency through quantitative easing or other inflationary schemes is not only a bad idea given our reliance on our creditworthiness, but hasn't worked. I do not know why, but suspect the currency is quickly finding foreign homes and not being lured back by domestic products and services. Meanwhile, the federal debt to foreign creditors assures us our trade deficit.
When companies and states are too big to fail, the country fails.
Dec '10
Re: The Bogus Threat of Default
This is, in many respects, similar to Tim Pawlenty's position, wherein he advocates for "sequencing". Actual executives with actual experience running businesses and political entities are aware that not all bills come due on the same day. Raising the debt ceiling means automatically continuing to fund all obligations, including nonsense like "Irish Relief", (with borrowed money), just to pay the interest on the debt. Paying bills as they come due isolates them and exposes them to greater scrutiny.