If we do hit the debt ceiling, we should make other cuts rather than default on our debt

Great Debates
1

Please correct me if I don’t properly understand the situation.

Right now we’re taking in X billion in revenues and paying out Y billion in expenditures every month, with Y being somewhere around 2x. Due to decreased tax receipts and increased spending, we simply cannot pay for expenditures as we go with revenues, so we have to borrow the difference.

If the debt ceiling isn’t raised, we can no longer borrow the difference. At that point we can only spend X dollars, and we need to cut enough to make up the difference between X and Y. This means drastic cuts - we stop paying back our current debt as it comes do, we shut down government services, etc.

Here’s my position: In the event that the debt ceiling is not raised, we should still repay our debt that’s currently due. It should be the highest priority. It should come before basic government functions.

For one - we may be able to preserve our credit rating to some degree if we show we’re willing to pay back our debts first and foremost, even before taking care of our own and running our government. We’ve got 14 trillion in outstanding debt. It tends to roll over - new debt pays off the debt that’s due now - so if there’s a hike in interest rates due to our loss in credit status, it’s going to become much harder to pay back our debt as the current debt will raise in interest costs to meet the new rate.

There’s a moral component. We asked and agreed to pay back that money in good faith and should make every effort to do so. It’s not the fault of our creditors that we’re being wildly irresponsible. If anyone should suffer the hardships associated with the cuts, it should be us, the citizens - the ones who elected the government who got us into this mess.

People should feel the consequences of this mess. Cutting out our debt payments in order to keep more of the government functional will push our problem further down the road to some degree - the consequences of our actions will be more spread out in the form of less and more expensive credit down the road, and higher interest payments on our current debt.

It would be better to make this painful now - shut down essential services, show the people what the Republicans’ … principled stand is actually costing us - so that the outrage prompts a solution to the debt ceiling. Within a week of catastrophic cuts, people will be ready to riot, and they’ll force a debt ceiling increase. If we default in this time, we’ve screwed our credit and effectively increased our debt. If we keep sending out the debt payments, we don’t default, we maintain our credit rating (although it’ll be damaged to some degree by the insanity of this, it will be superior to defaulting), and when sanity is restored, we’ll have a better credit and debt situation to work from.

2

I think that’s the government’s position also.

3

It seems to me that the media equates hitting the debt ceiling with defaulting on our debt. Are they wrong? It’s mentioned so ubiquitously that I assumed that our plan was to cut debt repayments.

4

I should add that the reliability of the US credit rating has worldwide importance. A lot of laws are based around the idea that US debt is the safest thing in the world - like how some retirement accounts are required to have substantial holdings in US debt. A downgrade in our credit rating could shake up the world on a fundamental level - investment risk assessment gets thrown out the window, and there will probably be global economic reprecussions. And a global economic collapse would also prolong and deepen our own economic collapse.

It’s way better if we miss a week of social security checks/military expenditures/federal services and what have you than risk sending the world economy into a freefall.

5

I know comparing the Federal Government of the US to a single person’s own financial situation is a tenuous analogy at best but still…

Imagine you have run up against your own personal debt limit. You cannot take out another credit card or loan and all your friends have lent you everything they will ever be willing to lend you already.

You declare “I have a spending problem!” and resolve to fix it by cutting spending.

Now you are still a human being and you still have a powerful need to eat. It also helps if you have electricity. And if you want that revenue to keep coming in, perhaps a car (and attendant costs such as gas, oil, maintenance, insurance etc) or perhaps a bus pass (should that be an option in your area, which it is not in the case of the Federal Government. Obama is not about to start flying Air Tran because Air Force One is too expensive). So you’ve got some obligations that just have to be paid no matter what. Stiff these debtors and you will not have a pot to piss in.

So you decide to stiff your credit card company instead. “Screw you, Visa!” you triumphantly declare. “I have a spending problem and the only reason for it is because you assholes keep lending me money! I’m not giving you another goddamn dime until I cut all my spending down to nothing!”

Now there are two problems with this. First, you already owe them the money. Acknowledging that you have a spending problem does not make already incurred debts go away. You may spend absolutely nothing after you make your declaration. You may continue to eat steak and lobster. You may live off macaroni and cheese. But no matter what you do, you still have a huge Visa bill to pay.

That leads to the second problem. Your creditors may acknowledge and praise your recognition of your bad spending habits. Nonetheless, they still want their goddamn money. And you promised you would pay it to them by a certain date, which has come and gone. So the first thing they do is jack up your interest rates. Instead of 19.9% you are now paying 26.9% and if you do not pay it on time and in full for a period of several months, you will continue to be charged the higher rate. And now that you’ve pissed them off, they will not lend you any more money in the future, even though circumstances may warrant it (say for example your car breaks down and you do not have sufficient cash on hand despite stiffing your credit card company and keeping what you would normally give them). So now you are paying more on a debt you haven’t even begun to pay back yet, a debt you eventually have to pay back.

But you’ve cut your spending to nothing, so you’re winning. Right?

6

Imagine you have $1000 in the bank and $1500 of debt to pay this month.

What do you decide to pay off? You can continue to pay the minimum on your credit cards which is (usually) paying the monthly interest payment. Or you can pay your mom back for that loan. Or you can pay your car payment.

Point is who knows?

This is unprecedented. Who decides who gets paid is an interesting question and likely a constitutional crisis on its own. Technically it is congress that makes those decisions but if they don’t then what?

IIRC the US will be unable to pay 40% of its obligations. That is significant. Something has got to give.

7

Or it might not. There are a few other countries with AAA ratings that aren’t in any danger of a downgrade ya know?

–Australia
–Austria
–Canada
–Denmark
–Finland
–France
–Germany
–Hong Kong
–Netherlands
–Norway
–Singapore
–Sweden
–Switzerland
–United Kingdom

So the US gets downgraded. The Dollar goes down in value and large institutions move their investments into government bonds of the countries above. The US dollar stops being the world’s reserve currency. The end of “American Exceptionalism”.

It may come as a shock to you, but I don’t believe that would be the end of the world, the global economy would move on, there is plenty of growth in Asia at the moment and that growth is mostly from selling to other growing asian economies, not from trade with the US. US trade has been stagnant for years already.

8

But (a) there’s got to be a huge cost to everyone selling their downgraded US paper and buying AAA paper to replace it. And, more to the point, do these countries issue anything like enough paper to meet the demand from all those wanting AAA paper?

9

We should continue paying the current debt, federal judges and pensions per the 14th amendment and stop paying everything else, including things like air traffic control, congressional salaries, military salaries, etc. Only the employees sending out the checks should be paid. If it happens this is the only thing that will make the morons in Congress understand what their duty is.

10

How about some numbers? How much would the US government save by

Bringing the troops in Afghanistan and Iraq home?
Stopping welfare?
Stop paying Federal employees?

11

lets face it AA investments and AA- are also exceptionally safe. Institutions that “require” AAA can do emergency board meetings and change their rules. As for the costs, of course there is costs, but I don’t see global economic collapse, I see a hiccup that the world will get over, just like they did with every other wall street crash. It will hurt, but people will deal for the most part.

12

I would imagine none. Or even it would cost more. We’re not talking about long term savings - we’re talking about being able to pay our expenditures up front. Military operations would probably spend the least essentially staying in place - a big withdraw would involve the cost of moving a whole lot of troops home, and it would make the issue worse I would guess.

13

How much would they lose battling civil unrest?

14

I’m not supposing you’re actually advocating this, but I often wonder why this is floated as a solution. You still have to pay the troops whether they’re sitting on ass in Germany or South Korea or the good ol’ US of A. The infrastructure to support the troops while they are deployed is the expensive part. And bringing them home would save a chunk of change I’m sure. But then you’re paying people to sit at military bases in the US doing nothing. Thus, it becomes welfare for people with fancy guns.

I am not a big believer in paying people to do nothing. As I recall, the unions of the big three automakers had these silly sweetheart deals in which workers were being paid full wages even when there was no actual work for them to do. It’s a great deal if you can get it. It’s also totally counterproductive if you have a revenue problem.

(FTR: welfare is not paying people to do nothing. Welfare has expectations attached and is not meant to be a support system for those who don’t want to participate in productive society. Does it get abused? Most certainly. Is this somehow more worthy of outrage and indignation than legislators right now (who get paid $150k per year) who are actively working on a bill that they know will not pass under any circumstances? Or multi-million dollar subsidies to oil companies who make profits in the billions?)

15

(Emphasis mine).

I agree with this entirely, including the 14th amendment option as an emergency measure, but especially the part where the government stops paying congressional expenses, including but not limited to, salaries, staff expenses, travel expenses, insurance, vacation time, security and campaign expenses. Fuck them if they won’t do their job.

16

There is also the sticky point that it is not clear if the President has the authority to decide which of the already legislated appropriations to ignore. If it were to come to that sort of constitutional issue, he’d be better off asserting that the debt ceiling violates the 14th Amendment and telling the treasury to keep borrowing. Better to defend one decision than hundreds or thousands.

17

Hey, come on guys, we’ve been around since 1776, I think we’ve had a good run. It was sure nice getting to know all of you. I’ll buy us a round of drinks so that we can remember all the good times this country had, and for get the bad times.

18

Out of curiosity, can the President decide not to pay Congressional salaries?

I’m wondering if this debt ceiling debate could be fixed if instead of saying that social security checks might not be mailed, Obama says that Congressional pay checks will be the first federal obligation that the government won’t meet if they are short on money.

19

Nope. Separation of powers issue; no branch can mess with the compensation of the others in the middle of a term, except that Congress can raise salaries whenever it likes, other than its own.

20

Yep, because no country before has ever gone through a financial crisis, and the ones that did just collapsed. They ceased to exist afterwards. They closed up shop and went home, and the country was relegated to the history books.

This is why there are no longer such countries as Spain, Argentina, Russia, China, Italy, etc.