Don’t Worry About Default

As the nation once again nears its borrowing limit, we are starting to see all the old talking points intended to bully representatives into unconditional support of incurring more debt.

The latest estimate puts the debt ceiling deadline at November 3, just in time for John Boehner to hammer out a deal before his semi-forced retirement from Congress.

(Photo by Brendan Hoffman/Getty Images)
(Photo by Brendan Hoffman/Getty Images)

The national debt now exceeds $18 trillion, and Congress’ inability to pass a balanced budget ensures that the problem is only going to get worse. Within 10 years, interest on the debt alone will exceed our country’s total spending on national defense. One would hope that such statistics would inspire political leaders to get serious about reining in spending, before the debt crisis becomes insurmountable. Yet every time anyone breathes so much as a whisper about the need for spending reforms to go along with a debt ceiling increase, the Democrats scream that Republicans are playing politics with the full faith and credit of the United States.

Failure to raise the debt ceiling, we are told, will result in an immediate and catastrophic default. We will have failed to fulfill our promises to our creditors, jeopardizing our ability to borrow in the future and sending waves of panic throughout the economy.

Okay, everybody calm down.

In fact, that’s not how the debt ceiling works. Hitting the debt ceiling simply means that we cannot borrow any more money, but revenues from taxes, fees, fines, and other sources continually pour into the nation’s coffers. True, we have promised to spend more on goods and services than we can afford, but the revenue we receive is more than enough to cover interest payments on the national debt.

What’s more, the Treasury can choose which bills to pay first with the money that’s coming in. Since Treasury officials are well aware of the dangers of an actual default, and since the Constitution actually forbids defaulting on the debt, debt service always comes first. Because of this, the risk of default is extremely low; it can only occur if the Treasury decides to let it.

To underscore this point and ease minds, Rep. Tom McClintock (R-Cali.) has introduced the Default Prevention Act, which would codify into law what the Treasury already does, legally requiring the Treasury to prioritize payments to interest on the debt before anything else. Why pass a bill that mandates something that happens anyway? To finally end a stock talking point that has been misleading voters and lawmakers alike into making bad fiscal decisions. With the passage of the Default Prevention Act, we could finally have a rational conversation of debt that doesn’t immediately devolve into partisan histrionics.

Of course, this is not to say that there would be no consequences of failing to raise the debt ceiling. When you budget for more money than you have, something’s got to give. Certain programs would begin to see their funding dry up, starting with the least essential and moving to things people would really start to miss. But this idea that we have to raise the ceiling immediately, without discussion or compromise, or else default on our debt is simply not true. It’s a by-product of the “governing by crisis” mentality that has come to be standard operating procedure for Congress.

One of the most important outcomes of the ousting of John Boehner as speaker of the House is the potential to return to a more orderly process of governing. By passing appropriations bills earlier in the year, allowing the proper time for debate and spending reforms, we could avoid this increasingly tedious ritual of last-minute panicking over imaginary default.

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