Is the White House bluffing about an imminent default on the $16.7 trillion national debt? Is the debt ceiling crisis just a made-up D.C. myth meant to frighten young children?
Heretofore, the story coming out of the U.S. Treasury has been that if the government’s borrowing limit is not increased come Oct. 17, the U.S. will default on its debt for the first time.
Besides the verbal threats that have been issued by the President on an ongoing basis, a 2012 Treasury Inspector General’s report on the 2011 debt ceiling debacle claimed there was no way the Treasury could distinguish between debt service payments and regular expenditures when the limit is reached, “While Congress enacted these expenditures, it did not prioritize them, nor did it direct the President or the Treasury to pay some expenses and not pay others.”
The report continues, “[B]ecause Congress has never provided guidance to the contrary, Treasury’s systems are designed to make each payment in the order it comes due.”
Meaning, there would be no way for the Treasury to pay interest owed to creditors without extra borrowing authority, right? After all, the payment systems won’t allow it. Right?
Well… that might not be true after all.
Besides the fact that the government takes in an average $250 billion in revenue each month yet only owes $35 billion a month in interest this fiscal year, and can refinance existing debt up to the limit, both President Barack Obama and Treasury Secretary Jack Lew are now stepping all over themselves to redefine what a default actually means.
In short, they are capitulating on their principal threat to refuse to pay the debt. How do we know that?
On Oct. 6, on CNN’s State of the Union, Candy Crowley explicitly asked Secretary Lew if the government could “just pay the interest rate on these debts while this is worked out,” and Lew refused to answer the question.
Instead, Lew chose to equivocate with responses like, “They are willing to concede that if we don’t pay interest and principal on the debt, that that’s bad. Well, you know, it is bad, but there are a lot of things that are bad. You can’t pay all the bills if Congress doesn’t raise the debt ceiling.”
Emphasis on an inability to pay “all the bills” — he’s saying that other items besides the debt might not be paid — but nowhere did Lew say he would fail to make debt service payments. That failure let the cat out of the bag.
Unsurprisingly, after that performance by Lew, just a day later on Oct.7, Moody’s Investors Service, one of the top credit rating agencies in the world, came out with this whopper, sharply contradicting the White House’s prophecies of impending doom: “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.”
Ouch. That kind of contradicts everything Obama has said to date on a default, doesn’t it?
On Oct. 8, Bloomberg Television’s Julianna Goldman asked precisely the same question to Obama in his White House press conference about what happens when the debt limit is reached: “if we were to get to that point, would you prioritize and pay bondholders first to maintain the semblance of credit?”
Obama responded, “I do know that there have been some who have said that if we just pay bondholders, if we just pay people who have bought Treasury bills that we really won’t be in default because those interest payments will be made. And to them, what I have to remind them is we’ve got a lot of other obligations, not just people who pay Treasury bills.”
Whoops. Again, like Lew, Obama is saying it’s just other things, besides the debt, that might not get paid. That kind of takes the credible threat of, you know, an actual default off the table. What a relief.
But, boy, he really had us going there for a minute. What a kidder.
For the uninitiated, the only bills that matter to the nation’s creditworthiness — as Moody’s confirms — are payments on the $16.7 trillion national debt.
Here, Obama and Lew are attempting to put welfare transfer payments, agency expenditures, and bridges to nowhere on an equal footing with paying principal and interest on the debt, including owed to pension funds, the Social Security and Medicare trust funds, and foreign governments that all hold U.S. treasuries.
If you accept that premise — and that of so-called “mandatory” spending where monies are drawn from the Treasury every year without any vote in Congress for that matter — you have to accept that an entitlement once given can never be rescinded. That spending tax dollars on food stamps is the same thing as averting default.
But, failing to fund, for example, the Internal Revenue Service or the Environmental Protection Agency at last year’s levels is not a default, it’s a spending cut. To claim otherwise is a massive fraud.
Finally, to put the icing on the cake, on Oct. 10 before the Senate Finance Committee, Lew without question attempted to redefine what a default actually means: “I think prioritization is just default by another name.” Every member of Congress should read that sentence carefully. Jack Lew thinks spending cuts called for in a payment prioritization plan are somehow the same thing as failing to make debt service payments.
They are not.
In his prepared testimony, Lew outlined several items that the federal government might not be able to cover should the debt ceiling be reached, but guess what? Not one of them included principal and interest owed on the debt.
“We have large payments to Medicare providers, Social Security beneficiaries, and veterans, as well as salaries for active duty members of the military. A failure to raise the debt limit could put timely payment of all of these at risk,” Lew said. Perhaps, but still no mention of a default.
Yet even if those payments were in question, Congress could easily pass a prioritization plan that includes the most essential functions of the U.S. government. Such a plan would have to pare back some $627 billion, or about 17 percent, of the total budget.
Which, go figure, is exactly about as much of the budget that is already being funded during the current so-called government “shutdown,” according Senate Budget Committee sources published by the Washington Examiner’s Byron York.
“Based on estimates drawn from CBO and OMB data, 83 percent of government operations will continue. This figure assumes that the government pays amounts due on appropriations obligated before the shutdown ($512 billion), spends $225 billion on exempted military and civilian personnel, pays entitlement benefits for those found eligible before the shutdown (about $2 trillion), and pays interest costs when due ($237 billion). This is about 83 percent of projected 2014 spending of $3.6 trillion,” the source wrote.
In other words, Oct. 17 could come and go, and virtually nothing would change. With $3 trillion of revenue expected this fiscal year, all items currently deemed mandatory and essential will be paid. The only thing different will be the mechanism by which Treasury pays for current budget obligations.
Oh, and the budget would be balanced overnight.
Couple that with the fact that in spite of all his bluster, Obama has completely caved on his default threat, and suddenly the entire debate over the debt ceiling has completely shifted in House Republicans’ favor.
Obama may as well have raised a white flag in front of the White House. And now that House Speaker John Boehner knows Obama’s tell, it is time to call the President’s bluff.
Robert Romano is the senior editor of Americans for Limited Government.
