In order to properly negotiate a path to fiscal sanity and avoid the inevitable long-term default, we need to understand the leverage, opportunities, and potential pitfalls in forging an agreement or in failing to forge such an agreement by a certain date. Both parties have been operating under a false assumption that there is a June 1 debt default cliff that, absent an agreement to raise the debt limit, will destroy us immediately and immutably. Indeed, Speaker McCarthy said yesterday that we have seven days left until default. This messaging is wrongly distorting the debate, and Kevin McCarthy needs to set the record straight immediately.
Default on debt is not the same as a shutdown, slowdown, or rolling blackout of certain government agencies, functions, and programs. We have an obligation to pay our creditors. We have a strong need to pay for Social Security and Medicare. We have no obligation, however, to fund HUD, the EPA, Department of Education, Ukraine, or illegal aliens. There is enough money to pay the interest on the Treasuries, so there is no threat of default. Period. And for the most part, there is money for other critical functions for a while longer. Full stop with the default talk!
According to the Bipartisan Policy Center, there will be an estimated $495 billion in revenue coming into the Treasury in the month of June. Although it doesn’t cover all of the expenses our government would like to (but doesn’t need to) fund, one thing is clear: There is easily enough money to pay the interest on the treasuries. There is no default now, and there will never be default, because there will always be sufficient revenue to pay the interest. Unless, of course, we fail to balance the budget now, in which case we will actually reach a time when we won’t be able to pay the interest, regardless of how much we want to raise the statutory debt limit.
Unfortunately, Republicans are echoing the false sentiment that there is a default cliff on June 1, thereby raising the pressure on themselves to agree to some sort of deal even before the Memorial Day weekend. The reality is that there is no default on the debt, and as for the other obligations, it’s not a cliff but more of a rolling hill that will squeeze out functions of government over time and force prioritization. This is exactly what families go through when they blow through their credit. They might need to find a new line of credit one more time, but only after prioritizing their absolute must-pay expenditures while eliminating others.
If you came down from Mars and watched the rhetoric of both parties, you’d think that come June 1, there is no money to pay for anything. In reality, there will be enough money in June ($495 billion) to pay for interest ($15 billion), Social Security ($101 billion), Medicare ($126 billion), Medicaid ($52 billion), Defense ($33 billion), and VA ($25 billion). The remaining $140 billion or so can be used to prioritize roughly $270 billion of the total remaining federal budgetary items, including all of the federal departments and government workers. It will force a shutdown of some of these remaining offices and programs.
The intensity of that shutdown will vary from day to day, as some days there is greater cash flow than others. Some days will require a delay in payments for certain functions; others will not. Obviously, if that goes on for months, it will grind many things to a halt, but it’s not an immediate cliff, and it’s not a default on the debt.
This is a huge distinction. For an immediate default on the debt, it might not be worth risking a game of chicken. But for a rolling government shutdown, you better believe it’s worth it. Republicans already agreed to issue $1.5 trillion in more debt on condition of modest reforms. By a margin of 60%-24%, most people in a CNN poll said the debt ceiling should only be raised with commensurate spending cuts. As such, there is no reason to rush for an immediate new deal to vitiate the previous bill, which is the only one to pass a body of Congress.
Democrats have the option of passing the House bill, avoiding any slowdown of government functions, and trimming some basic fat and eliminating harmful policies, such as the Green New Deal. If they fail to pass that bill, that is their problem. The only other bill the GOP should pass is one to mandate prioritization of cash inflows to go toward a hierarchy that elevates interest on the debt first, Social Security and Medicare second, the military third, and then moves on down to veterans and Medicaid.
There is clearly enough revenue to cover a lot more than that for the month of June, but it might require a very short delay of one to three days at various times in the month. Revenues come in on the 15th and the 30th, the same day interest on Treasuries comes due. Social Security payments will be on June 3, 14, 21, and 28.
Is this ideal? No, but it’s not nearly as unideal as continuing the debt and weaponized government that will induce a vicious cycle of deficits, public debt, inflation, and private debt that will destroy the country to a point that we will default without the option to even cut our way out of it. This is the choice officials presented us with when they spent and printed $11 trillion to shut down our society and fund the Great Reset. Here’s the breakdown from the Committee for a Responsible Federal Budget:
Actions have consequences. Ideally, Republicans should demand a return to pre-COVID spending levels, which were quite high. Instead, they have only asked for fiscal year 2022 levels. There’s nothing more to negotiate from there. A government shutdown is not a default, and if they want one, then that is on them.If we were able to force a shutdown of society and humanity in 2020 to run up this debt, we can certainly incur a partial, rolling public-sector shutdown and delay of some payments to force solvency from this very same debt. And unlike the senseless COVID shutdown, downsizing of government will actually solve an existential crisis.