The President’s “Default”

There’s no reason to default, even without an increase in the debt ceiling:

Failing to cut Social Security checks does not constitute “default.” Neither does withholding checks intended for bureaucrats, veterans, or contractors. In the context of the federal government, “default” means a failure to make good on your debt-service payments. Our interest payments run about $30 billion a month, easily paid out of the roughly $3 trillion (or $250 billion a month) in revenue the federal government is expected to collect this year. You can do rather a lot with $3 trillion a year, but not as much as you can do with $3 trillion a year and a limitless line of credit. There certainly is no reason to default on $360 billion in interest payments when you have $3 trillion in revenue.

What can you do with $3 trillion a year? You can have Social Security ($880 billion), Medicare/Medicaid/HHS ($940 billion), Department of Defense and additional war spending ($672 billion), Veterans’ Affairs ($140 billion), NASA ($18 billion), Homeland Security ($55 billion), Transportation ($99 billion), Commerce ($9 billion), the Army Corps of Engineers Civil Works ($8 billion), Interior ($13 billion), State and international aid ($59 billion), Justice ($36 billion), the Small Business Administration ($1.4 billion), the EPA ($9 billion), the National Science Foundation ($7.5 billion), the Department of Energy ($33 billion), and the FDA ($4.5 billion) — and still have enough money to triple the budget at the National Park Service, because people love Yogi Bear and Booboo. Yeah, you’d have to close down the Department of Education, which does not one useful thing, and downsize the Treasury Department, perhaps even to the radical extent of shutting down its Healthy Food Financing Initiative (my apologies to the first lady), sell off the housing projects and close down HUD, and a few other things. I know, I know: radical austerity.

Rather, you could do all of that on $3 trillion — if you didn’t have $360 billion in payments on interest from past spending weighing down the budget. But since you do, take away the State Department and international relations, Homeland Security, Energy, Justice, NASA, DOT, Interior, Commerce, Civil Works, EPA, NSF, and SBA, say goodbye to the national parks and the guys who maintain our nuclear arsenal — all to finance past spending excesses.

Put another way, $3 trillion a year in revenue gets you federal spending at 2008 levels plus a small surplus. Not savage austerity, not the Hobbesian state of nature, not Somalia. That is what we are talking about in the debt-ceiling debate. Republicans are being criticized because they are demanding some modest spending cuts in exchange for raising the debt ceiling. But refusing to raise it at all would simply necessitate balancing the budget at pre-Obama levels of spending. Of course, the deficits we have run since then mean that about $100 billion more of that spending will have to go toward debt service in 2013 than in 2008. We are spending on spending.

And as the president used to claim to believe, before he doubled down on the spending, it’s “unpatriotic.”

29 thoughts on “The President’s “Default”

  1. Thales

    Obama is just threatening to “default” on T-Bills to get Moody’s and S&P on his side. (With the Fed owning an ever-growing share of the debt, even this becomes a shrinking concern.) There’s no sane reason to make not servicing the debt a priority, not with cowboys reading federally subsidized poetry.

    Trolls are in the unenviable position of defending the idea that the US will default on the debt OR the POTUS’s intelligence, but not both.

    1. Jim

      Obama is legally obligated to pay all of the government’s bills. Do you think the president should have the authority to pick and choose which ones to pay?

      1. Leland

        Apparently Geitner thanks so, or at least a variation on the theme. Isn’t the way he extended the time for hitting the debt limit done by, not choosing which bills to pay but, choosing which bills to pay late? The question for the ones receiving the later payment is what then is acceptable and unacceptable in terms of late. From a cashflow perspective, paying late can be just as consequential as not paying at all. That’s why when individuals pay late, it seen as a negative on their credit score. It will be the same for the US under Obama.

  2. Chris Gerrib

    Except Obama does not have the authority to unilaterally change how the Federal government spends money. That’s Congress’s job. They wrote laws telling him to spend X dollars for “cowboy poetry” or whatever.

    So, if the debt ceiling isn’t raised, Obama has to decide who to pay and who to stiff. And everybody he stiffs is still owed money that we will have to pay. It’s just like when you pay your power bill late – you still owe the money, and will sooner or later have to pay or sit in the dark.

    Since stiffing the bondholders means chaos in the financial markets, he can’t stiff them. Thus he stiffs everybody else on whatever priority basis he determines. Should we stiff troops in the field and not Grandma back home?

    If Congress wants to cut spending, then they can actually cut spending. This current exercise is the equivalent of refusing to pay your credit card bill after you charged a bunch of stuff to it.

    The Republicans want to cut spending, fine. Come up with a plan that will actually pass the Senate and vote on it. Otherwise, they’re just whistling Dixie.

    1. A. Nonymous

      What plan will pass the Senate? Harry Reid wouldn’t even pass an all-Democrat budget, back when he had the opportunity.

    2. wodun

      Wow blaming Republicans for Obama’s spending?

      Obama will be late again this year for his budget proposal and due to the Senate refusing to vote on any budget, spending levels are at stimulus levels and growing. It doesn’t matter what budget the Republicans send to the Senate because the Democrats wont take any action that will lower spending. They wont even vote on Obama’s budget!

      And this over the top rhetoric that Obama isn’t getting everything he wants from Republicans because they want poor people to starve to death and old people to die from lack of medical attention has to stop. Its total bullshit.

      Obama and the Democrats refusal to limit spending is causing this mess. Do you want to make interest payments or have Medicare? Interest payments exceed $400b a year. Under Obama’s stewardship, interest payments will soon exceed what we spend on defense. Every dollar we spend on interest payments, is a dollar a tax payer can’t spend on their own and is a dollar our government can’t spend on services. It is the money multiplier sucking money out of our system 2:1.

      1. Jim

        Wow blaming Republicans for Obama’s spending?

        It isn’t Obama’s spending. Every penny of it was mandated by bills passed by Congress.

        Has the GOP even proposed, much less passed, a spending bill that would obviate the need to raise the debt ceiling?

        1. George Turner

          Oh how soon you forget how you all screamed over Paul Ryan’s 2012 budget, which passed the House without a single Democrat vote and which would’ve cut $6.2 trillion in spending. But it seems another party is in control of the Senate, so it was dumped in the trash bin.

          1. Leland

            And when would that have occurred, Jim? I see you assert that, but no actual facts. I suspect because anything that got passed would be too late to change the current debt ceiling hit. However, that begs the next question, how much then would Ryan’s proposal need to raise the limit versus the Democrat’s proposal? Oh wait, the Democrats have no proposal and according to Obama, will be late in meeting their Constitutional requirement to provide one this year.

          2. Jim

            And when would that have occurred, Jim?

            Around the same time. Ryan’s biggest spending cuts (to Medicare) don’t start until 2022. Meanwhile, he’d immediately implement big tax cuts.

            how much then would Ryan’s proposal need to raise the limit versus the Democrat’s proposal?

            Ryan never specified his tax plan in sufficient detail to have it scored by the CBO, but even taking his promises at face value he’d add $3T to the debt, which would necessitate raising the debt limit that much.

          3. Leland

            What wodun said. Let’s also keep in mind $3T over 10 years is less than what Obama added to the National Debt in just 4 years. Turning around the mess caused by Pelosi, Reid, and Obama won’t happen overnight.

        2. Larry J

          The Democrats controlled both houses of Congress from January 2007 through January 2011. They wrote the last budget passed by Congress. Since then, the Senate has failed to pass a new budget (a conveniently non-punishable violation of the 1974 Budget Act) so a series of continuing resolutions has maintained spending at the last budget’s level.

          1. Jim

            So is it the Democrats’ fault for not compromising with Republicans to pass a budget, or the Republicans’ fault for not compromising with the Democrats?

            The voters weighed in on that question in November: they voted for Democrats.

          2. Josh Reiter

            No they voted for a Democrat President. The House remained in GOP control and several Republican governors were elected.

            But yes, just keep pounding the desk and declaring, “WE WON!” It’s so becoming of you.

          3. Larry J

            Harry Reid has repeatedly refused to bring any House-passed budget before the Senate. The American public did indeed elect Obama president, not dictator or emperor. They also elected a majority of Republicans to the House where spending bills are required by the Constitution to originate.

            Compromise doesn’t mean that Republicans must cave to every Democrat demand. There must be give and take on both sides. All I see is the Republicans giving and the Democrats taking. What are the Democrats willing to give? Anything? Anything at all?

          4. wodun

            Jim, not passing another budget is not about compromise or lack of it. It was a deliberate measure to make stimulus level spending permanent as long as Democrats hold the Senate and Obama is President.

            Yet another example of the underhanded political philosophy of Obama.

          5. Jim

            The House remained in GOP control

            The 2012 Democratic candidates received more votes than the Republicans in all three categories of federal elections: House, Senate, and presidential. You couldn’t ask for a clearer indication that the public favors Democratic policies, and wants the GOP to relax its obstruction.

            All I see is the Republicans giving and the Democrats taking.

            Just out of curiosity, what color is the sky on your planet?

          6. Larry J

            The 2012 Democratic candidates received more votes than the Republicans in all three categories of federal elections: House, Senate, and presidential.

            Fortunately, that’s not how the Constitution established the process for federal elections and is irrelevant. Obama was not elected dictator or emperor despite what you seem to want and what he seems to believe.

          7. wodun

            “All I see is the Republicans giving and the Democrats taking.

            Just out of curiosity, what color is the sky on your planet?”

            There have been zero net cuts only increased spending. Taxes went up on the rich. What exactly have Obama and the Democrats compromised on?

            Letting the Bush Tax Cuts expire on the “rich” didn’t magically solve our fiscal problems as Obama claimed they would. Obama also said raise taxes first and we will cut spending later. Well, taxes went up let’s see some cuts from Obama.

          8. Larry J

            There have been zero net cuts only increased spending. Taxes went up on the rich. What exactly have Obama and the Democrats compromised on?

            The Republicans keep caving while the Democrats are holding to their party line. They’re not only refusing to cut spending, many of them are demanding expansions of the very entitlement programs that are bankrupting us. That’s what I meant by the Republicans giving (caving) and the Democrats taking.

    1. Larry J

      You can’t reduce the national debt until you end the $1+ trillion annual deficits. Approximately 40 cents out of every dollar spent by the federal government is deficit spending. When they can’t get others to buy the debt, the Federal Reserve simply increases the money supply and buys the debt itself.

      Isn’t it comforting to know our country is following the same playbook that made Zimbabwe the international economic powerhouse it is today?

    2. Jim

      We don’t need to retire the debt, we just need to keep its fraction of GDP from continually increasing.

      Current law (including the sequester) is very close to stabilizing the debt-to-GDP ratio for the next decade; by one estimate a mere $257B in spending cuts and/or tax hikes (spread out over ten years) would do the trick.

      1. McGehee

        We don’t need to retire the debt

        The fact you say this is a very good argument that we do.

        Austerity is just another word for nothin’ left to spend.

      2. wodun

        Predicting the future spending habits of congress will not turn out well. Why would future politicians magically decide not to act like Obama Augustus?

        We don’t need to retire the debt all at once but we do need to lower it to a manageable size. There are two ways to do that, pay off debt at a faster rate or stop adding to it $1.4t a year. Interest payments exceed $400b a year and are growing fast. Those payments take up too much of our revenue. At the height of the Iraq/Afghanistan wars we were only spending $200b a year and we all know how leftists freaked out about those costs.

  3. PeterH

    The House needs to do something about the debt limit. Passing a balanced budget, even knowing the Senate would irresponsibly kill it without a vote, would be a proper something.

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