Jeff Jacoby, as usual, ignores anything that doesn’t help his argument:
Whether or not a debt-ceiling deal is finalized this week, the government of the United States isn’t going to default on its debt. For all the scaremongering, the stock market doesn’t seem to be panicking: The Dow rose smartly last week, and closed up again on Monday. An Associated Press story was headlined: “As US default nears, investors shrug off threat.” Maybe that’s because investors — or for that matter anyone with a Mastercard or a home-equity line of credit — know perfectly well that the Treasury is not going to welsh on its debt obligations.
Hitting a credit-card limit doesn’t mean a borrower has become a deadbeat; it means he has to pay down some of the principal before making new charges on that card. The more of his debt he pays off, the more his credit score improves. In similar fashion, the federal government will not be forced to stiff its bondholders if Congress doesn’t raise the statutory debt limit this week. Granted, it will only be able to spend what it collects in taxes. But the IRS takes in around $2.3 trillion per year, or about 10 times the amount needed to service the nation’s nearly $17 trillion national debt.
No wonder Moody’s hasn’t been spooked by Washington’s debt-ceiling soap opera. “We believe the government would continue to pay interest and principal on its debt even in the event that the debt limit is not raised, leaving its creditworthiness intact,” the credit-rating agency serenely forecast last week. “The debt limit restricts government expenditures to the amount of its incoming revenues; it does not prohibit the government from servicing its debt. There is no direct connection between the debt limit . . . and a default.”
The real threat to America’s national interest isn’t a debt ceiling that won’t go up. It’s a national debt that won’t stop going up.
Let’s look at his ‘arguments’:
- the market isn’t spooked. The markets went up at the end of last week and Monday because it seemed a deal was imminent. What happened yesterday?
Stocks were flat or down all day, but the size of the losses waxed and waned. The market closed with its first loss in a week. Short-term government debt yields rose sharply as investors worried about default. After the markets closed, Fitch Ratings said it might downgrade the government’s AAA bond rating. It sees a higher risk for default. The day’s losses were broad. All 10 S&P 500 industry groups fell, and three stocks fell for every one that rose on the NYSE.
I guess we’ll see in the next day or two how this works.
- there will be no default. There are two problems with this: the government sends out bills automatically so there is a question if the government can completely decide on what to pay; the govenment rolls over its bonds all the time and short-term rates have spiked (see above and here) so what happens if the debt limit isn’t increased for a while?
- the problem is the debt. There’s a new report out that shows that the economy is worse off because of the austerity. Paul Krugman puts it together:
They say that combined effects of uncertainty in the bond market and cuts in discretionary spending have subtracted 1% from GDP growth. That’s not 1% off GDP — it’s the annualized rate of growth, so that we’re talking about almost 3% of GDP at this point; cumulatively, the losses come to around $700 billion of wasted economic potential. This is in the same ballpark as my own estimates.
And they also estimate that the current unemployment rate is 1.4 points higher than it would have been without those policies (a number consistent with almost 3% lower GDP); so, we’d have unemployment below 6% if not for these people.
Now go here to see the best case scenario with not raising the debt limit:
the amount of debt we need to issue to pay for everything in the budget, which means that if the debt limit isn’t raised, we need to immediately cut spending by $560 billion, or $46 billion per month.
9. So those are our choices if Congress fails to raise the debt limit: Either we suddenly stop paying for critical programs that people depend on, or we default on US treasury bonds—or both.
10. The former would immiserate millions of people and probably produce a second Great Recession, while the latter would likely devastate the global economy.