Hitting the debt ceiling doesn’t mean default

All across the media there is seeming common understanding that once August 2 roles around, the United States will immediately default on its debt. This is false. The federal government will receive about $30 billion in revenue within the first three days of August and some $200 billion for the rest of the month, which is more than enough to pay the $29 billion interest on the debt – in fact it would be enough to almost pay half of the entire fiscal year’s worth of interest (although this would leave no money for any other programs).

The rhetoric used by the media and politicians is more likely to cause catastrophe by causing uncertainty in the market. If the Treasury prioritizes interest payments there is no chance for a default, which there is legislation to force the Treasury to pay creditors first.

This would force Obama’s hand to make huge structural reforms. We can not waste this opportunity. It may hurt politically – although, if the GOP frames it correctly, and sends a bill to Obama which is then vetoed, he would also look culpable.

A balanced budget/spending limit amendment is worth more than short term political considerations. This can permanently alter the path of the United States towards limiting the size of government.

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  • The Law, Frederic Bastiat

    Life, faculties, production — in other words, individuality, liberty, property — this is man. And in spite of the cunning of artful political leaders, these three gifts from God precede all human legislation, and are superior to it. Life, liberty, and property do not exist because men have made laws. On the contrary, it was the fact that life, liberty, and property existed beforehand that caused men to make laws in the first place.

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