I don’t know why I didn’t think of this question before.
We have two issues going on right know: the government shutdown and the debt ceiling crisis. While the first one ranges for some people as slight inconveniences, others it is a major life problems and other see it as a necessary evil. However that issue is very different from the debt ceiling crisis with predictions ranging from an interesting intellectual exercise because it’s never happened before to a holy-fucking-shit! Armageddon.
So let’s say that we simplify “default” to not paying on treasury securities. Oh sure there may be a lawsuit that the government not paying it’s Q3 payment on a contract to Halliburton is a default but we’re pretty sure not paying for a T-bill is a legal default and credit-rating plummeting “We fucked up.” moment. What is to prevent Congress from raising the debt ceiling by the amount needed to cover treasury securities that mature before the end of the year (I’m sure they know that exact amount) and specify the new debt can only be used for that purpose? Wouldn’t that give us some time to work on the shutdown compromise?
They almost certainly could do that. In fact, that’s the way bills worked before WWI. Congress would include specific debt authorizations each time they borrowed money.
I’m not sure that, given your scenario, they’d have to, though. Taking out loans to pay off existing loans doesn’t increase the debt (except, I guess, by the interest paid, but that’s comparatively negligible. You’re just rolling the debt over. It’s like if I owe you $100, and to pay you, I borrow $100 from another friend. My total debt remains the same.
The problem with the debt ceiling being reached isn’t that we won’t have the money to pay our debt obligations or reroll the debt. It’s that the government has a budget deficit and spends more for day to day operations of the government than it takes in. As a matter of policy, we’ve decided to base our government on deficit spending. It’s that the government won’t be able to pay its Q3 payment on the Haliburton contract, or won’t be able to send out full Social Security checks, or won’t be able to spend all that other money we’ve decided to go into debt to spend. That’s what’s about to hit the fan. A technical default is the least of our worries.
In your previous GQ thread on debt questions, please note that I explained that not paying contractual obligations (for goods, services, employment, etc) is NOT a default, because contracts are obligations, not debt.
Congress can legislate that: twice in 1996 Congress authorized debt limit increases that would only apply to Social Security programs. Those laws were soon superseded by a general debt limit increase.
Whether the Department of the Treasury could actually administer such a restrictive law is another question. As the current Treasury Secretary said to Congress recently, the whole financial control system of the United States is designed to make sure all the Nation’s bills get paid efficiently. The system isn’t designed to be able to pick and choose which bills not to pay.
“Stupid government,” you might say, “Why did they design a system that doesn’t have features that we might need?” Because we’re not supposed to need those features. Similarly, if you ask the Treasury to start paying our government’s bills in gold, the system would not be able to do that, either. The government was not stupid for not designing a system to do things that should never have to be done.
They also can’t selectively authorize debt because if they were capable of agreeing on what money the government could spend, we’d have a budget right now.
I put that first part in to avoid discussions in this thread about social security, payroll, military costs, outstanding contracts, etc.
And I don’t recall making your last point an issue. I’m assuming that if necessary someone could juryrig a system to pay off just the securities or Rosa Rios (or is it Jacob Lew) would have to handwrite all of the checks.
That can’t be done. It’s impossible. Monthly redemptions of securities are in the tens of billions of dollars: first, there’s no way for the government to hand-write checks like that, because the financial transactions still have to be recorded; second, human beings can’t process that much paper.
The U.S. Government isn’t a small business, you know.
The United States is sovereign. Meaning, with some reasonable exceptions, it can do what it wants.
For example it can do these things:
Print money without basing it on anything. For example, gold, silver, or land.
Require its citizens to accept that money as payment for what the government owes them. When guns are pointed at them, citizens usually comply.
Control prices and wages.
Communicate with foreign governments and advise them as follows: “If you have reasonable expenditures, we will allow you to print money to cover those expenditures. We will not lower our exchange rates for your money, providing you do not lower your exchange rates for our money.”
In other words, the United States does not need to balance a budget. Nor does it need to tax its citizens. With reasonable procedures–for example, controlling prices and wages, and communicating with foreign countries to stabilize exchange rates–all that the United States needs to do to cover its debts is to print money.
A situation in which China gets paid and Halliburton gets stiffed would not last long. Consider that a lot more people work for government contractors than work for the government:
Not paying contractors means 12% unemployment overnight, and more before long because unemployed contract workers can’t buy the products made and sold by others.
There’s a word for prioritizing debt payment over everything else: Austerity. Some of the parliamentary democracies in Europe are enduring enormous austerity without a governmental collapse. In Ireland and Iceland it seems to be actually (but still slowly) working.
A presidential system with a separation of powers does not have that kind of discipline.
US newspaper columnists sometimes mention Greece as an example of a country much worse off than we are. And in a lot of ways, it is. But in its ability to raise taxes when needed, the US is even worse.
It’s contractually a default, it’s just not a default on debt. If you have a contract, a party that doesn’t live up to the terms of the contract is said to be in default of the contract.
