Risk of Debt Default Rests Solely with Obama
With government funding negotiations at a standstill, and agreement to reopen the government may also include a deal to increase the debt ceiling. As it currently stands, Treasury expects the ceiling to be reached on October 17.
This has generated the usual apoplexy about the dangers presented by not increasing the country’s borrowing authority, with the President repeatedly claiming he will not negotiate over “paying the bills the United States has already incurred.”
The President, however, is fully able to make the payments on those obligations to avoid default. The real threat is failing to confront the unsustainable spending and debt practice in Washington. Richard Finger lays it out neatly at Forbes.com:
Inconvenient as they may be, some facts are in order. The fiscal 2013 debt service for the twelve months ending September 30 will be somewhere around $420 billion. (Per the Bureau of Fiscal Service the actual figure of 11 months through August was just under $396 billion). IRS revenues for the calendar 2012 tax year will probably be around $2.3 trillion. That equates to over a five and a half times debt service coverage. So having enough money is not even close to the issue. There has been some discussion of what some are naming “prioritization of payments”.
Finger goes on to explain the dangers of a true default: tanking the value and stability of the world’s most common collateral would send financial markets into chaos. Not making treasury payments would result in inconceivable pain for not just the U.S. but the global economy as well.
But the government has more than enough cash on hand to avoid this kind of catastrophe – what it doesn’t have is the revenue to satisfy trillions in other spending programs. Payments on the debt could be prioritized to keep the country from ever entering into default. However, sustained spending reform to manage the other U.S. obligations, services and entitlements would be subject to severe and indiscriminate cuts.
The President and his allies in Congress have spent years decrying the reckless nature of across-the-board spending cuts. They should be eager, then, to come to the table to negotiate serious spending reform, lest sequester-style governing become the rule and not the exception. Raising the debt limit with no discussion of current spending practices will only lead to the kind of pain Democrats declare they are trying to avoid.