Debt-Default Crisis 2015: Raise, and Then Raze, the Debt Ceiling

Interest rates will skyrocket, instability will roil the financial markets, the federal deficit will soar and the resulting "catastrophic" harm will last years. That is how Treasury Secretary Jacob J. Lew describes a debt-ceiling breach certain to cause a government default. Uncle Sam will be bankrupt. All national government operations will seize-up. All checks for Social Security, Medicare, Medicaid, veterans, contractors and vendors will bounce.

At the stroke of midnight, March 16, 2015, the debt ceiling was again breached. The Treasury Department has begun "extraordinary measures" to forestall the certain default. Jack Lew must rob Peter to pay Paul. He started by shorting federal employees' TSP (G) retirement fund. Independent experts predict that such measures may push the actual default into October. The near-shutdown of the critically-important Homeland Security Department demonstrates that asymmetric partisan dysfunction has worsened. Indeed many of the new Tea Party members of the 114th Congress ran on a no debt-limit increase, default-denier platform.

In his 2014 Stress Test, Tim Geithner warned about the harmful economic delusion of congressional default-deniers: "Many of them truly seemed to believe that default could cleanse the sins of the U.S. economy, which was insane. Boehner was unwilling ... to correct the delusions of much of his caucus." Geithner described the House majority's partisan use of the debt limit as "a tool of extortion" which "jeopardized the full faith and credit of the United States." As a former Treasury Secretary, Geithner can be direct: "They ... strap a financial bomb to their chests and try to extort a ransom in exchange for agreeing not to blow up the economy."

The debt limit statute violates the explicit prohibition of the Constitution's Public Debt Clause; it questions the "validity of the public debt of the United States."

From the article: The debt limit statute violates the explicit prohibition of the Constitution's Public Debt Clause; it questions the "validity of the public debt of the United States."

I guess I would be in default if, while consistently making the required payments on my credit cards, I refused to make any further charges on those cards.

I did not know that.

What is the saying, "It ain't the things you know that get you into trouble. It's the things you know that just ain't so." The motto of the Democrat Party.

First law of holes: if you’re in one, stop digging.

Nobody (well, nobody with an opinion worth speaking of) thinks defaulting on the debt is a good idea. Construing opposition as “default deniers” is harmful rhetoric, not conducive to fixing a severe problem. The “government shutdowns” always have the caveat of not stopping spending on “essential services” - which raises the question of why those non-essential services are funded at all.

That there is a “debt limit” is not to just a subjective artificial cap on spending, it’s to recognize that it’s an objective point where bad things happen. Removing the limit does not change the economic reality that increasing debt beyond that point becomes exponentially harder (starting from the current “d@mn near impossible”) to reduce that debt ever short of devastating economic consequences.

When driving headlong into a wall, you can either slam on the brakes or slam into the wall. Object that slamming on the brakes will prove very uncomfortable to the occupants (pressing against seat belts, near-whiplash, stuff thrown around, squealing tires, etc) does not justify failing to mitigate/prevent a full-on crash.

Problem is, so long as tax revenue comes in and debt service payments are made, no harm is done and few are concerned. The kids joyriding the convertible continue to ignore the parents screaming at them to stop before someone gets killed. And yes, if we default on debt service payments, people will get killed.

Removing the limit does not change the economic reality that increasing debt beyond that point becomes exponentially harder (starting from the current “d@mn near impossible”) to reduce that debt ever short of devastating economic consequences.

I think the country passed that "Bridge Out Ahead" sign several years ago.

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