Anyone who wanted to trade debt for cash could do so on the open market. The debt would still exist the interest would still accrue. Nor would there be a global financial crisis even if the Treasury did manage to stop paying interest on federal debt. If it decides to stop issuing bonds (because of the debt ceiling), that’s a problem for private investors, not for the government, despite what top government officials may say. Rather, it issues bonds to provide private investors with a safe interest-bearing asset in exchange for the cash it just created by writing checks. It does not raise the money first by issuing bonds. Like all governments, it spends by writing checks. Life would not end, and in most cases, it would barely slow down.įourth, the Treasury does not need to issue debt to spend. If necessary, most could borrow for the short term – that’s what banks and credit cards are for. Third, if the Treasury somehow did delay paying some bills, most businesses, governments, and households would just carry on – knowing perfectly well that the cutoff would be short-lived. Why would it? Social Security has never once missed a payment. So far as I know, it still does not exist. The last time I checked (during Barack Obama’s presidency) the software needed to stop them had never been authorized and did not exist. The Treasury makes millions of payments every day. Second, the Treasury has no legal authority to single out Social Security or interest payments or anything else for cuts, and – so far as I know – it couldn’t stop those payments if it wanted to. Debt ceiling or no, it cannot legally default on any obligation. But so are Social Security, Medicare, Medicaid, interest payments, and every other mandated or appropriated form of spending. True, the debt ceiling is written into law. Look at the factsįirst, a failure to raise the debt ceiling does not override any legal obligation to spend. It’s time to drop the hype and look at the facts. That said, his arguments do need to be challenged on their merits. I agree with him, but neither will happen. Failing that, he urges a clean vote to increase it. He would prefer that Congress repeal the debt ceiling entirely. It would raise serious doubts about the nation’s creditworthiness, sap the confidence of lenders, call into question the dollar’s place as a reserve currency, and increase federal borrowing costs.” Such a large drop in spending would plunge the nation into recession and drive up unemployment.…Moreover, the government’s inability to pay all its bills would shake financial markets around the world. Cuts in grants-in-aid would strain the budgets of state and local governments. Some households, businesses, and nonprofits would be unable to pay their bills while they waited for payments the government legally owed them. “If the government couldn’t borrow, it would need to impose sharp, massive reductions in spending, which would have devastating economywide consequences. What is the crisis? Paul Van de Water of the Center on Budget and Policy Priorities puts it this way: runs up against its debt limit, so Treasury starts using ‘extraordinary measures’: Here’s what that means For the media- left, right, and center-it’s the drama, stupid. For Democrats (and a few surviving mainstream Republicans), the threat of catastrophe justifies a politically dangerous vote to raise the ceiling. For the Republican extremists, the impending crisis is their chance to remake America. There is firm bipartisan agreement on what this would mean.
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