With the debt limit deadline a week away, there is a strong contingent of Congressional Republicans and conservative-policy shop analysts in Washington who deny that the U.S. will default if the debt ceiling is not raised.
“We have 10 times as much tax revenue as we’ve got annual interest on the debt obligations,” said Rep. Mo Brooks, R-Ala. “So if the president does not want us to default on our credit or obligations, we won’t.” If the government stops all payments except those on interest on the debt, Brooks and his colleagues believe, then the country won’t default.
But it’s a flawed plan for many reasons, not the least of which is that it's based on a false assumption. Also, it's illegal.
By the numbers, what Brooks and many of his fellow Republicans are saying is true: The Treasury brings in about $2.5 trillion in revenue each year and pays out $250 billion in interest on the debt. The problem comes with defining "default" as limited to interest payments to bondholders while excluding the numerous other debts the government owes to people and organizations.
“It’s sort of like saying, ‘if I pay interest on my mortgage, I’m not defaulting,’” said Richard Kogan, a senior fellow at the left-leaning Center for Budget and Policy Priorities. “Even if you’re not paying your credit card, you’re not paying your credit card company, you’re not paying your heating bill and you’re not paying your water bill. You certainly are defaulting, just not to everybody.”
Interest payments on the national debt are one kind of payment the federal government is obligated to make. It is also obligated to pay Social Security recipients, salaries owed to federal workers, payments to contractors, and payments to disabled veterans, among many others. “If you’re not making payments that are legally required by law, you are defaulting,” Kogan said. “You may not be defaulting to bond holders, but you are absolutely, positively defaulting.”
Over the next few weeks, however, the Treasury would have to default on these payments in order to hoard the cash necessary to make its interest payments. Otherwise, the government will run out of money later this month.
Then there’s the legal hiccup to the default deniers’ plan. Even though the government could in theory withhold payments to everyone but the nation’s creditors in order to meet its interest payments, it is legally obligated to pay everyone from contractors delivering army supplies to Social Security recipients. So it would have to illegally withhold payments in order to keep the money. It’s unclear whether the Treasury is willing to engage in that illegal activity in the event Congress doesn’t raise the debt ceiling in time.
Lastly, there’s a serious question about whether it is technically possible to only make interest payments and withhold the rest. The last time the United States defaulted on some payments, it was 1979, and the default occurred when Congress stalled on lifting the debt limit, creating a chaotic situation that led to an unintentional technical error.
more -- http://www.ibtimes.com/debt-ceiling-debate-default-deniers-plan-raises-legal-logistical-question
No comments:
Post a Comment