|Despite Democrats’ protestations to the
contrary, the United States’ run-in with the
debt ceiling does not require default on
America’s issued debt.
The media and most of America has its collective undies in a bunch fretting about the debt ceiling. Don’t worry so much. America is in no danger of defaulting on its debt. Government has the power to retire its issued debt as it comes due, regardless of whether the debt ceiling is increased or not.
To understand why the media is wrong and ‘Puter is correct, let’s look at the statutes that govern America’s debt rather than taking an agenda driven liberal media’s word for what the debt ceiling requires.
The debt ceiling statutes are located at 31 U.S.C. §§ 3101 et seq. Here’s what section 3101(b) of the United States Code actually says about the debt ceiling:
The face amount of obligations issued under this chapter and the face amount of obligations whose principal and interest are guaranteed by the United States Government (except guaranteed obligations held by the Secretary of the Treasury) may not be more than $14,294,000,000,000, outstanding at one time, subject to changes periodically made in that amount as provided by law through the congressional budget process* described in Rule XLIX of the Rules of the House of Representatives or as provided by section 3101A or otherwise.
In layman’s terms, America’s credit card balance can never exceed $14.294 trillion at any moment in time, unless Congress passes a budget changing the limit (ha!) or the United States Code otherwise provides.**
So what does this mean, practically? It means the United States faces the following choice. Once the United States hits its debt limit, it can either redeem bonds as they come due by issuing new bonds to repay the then-current amount due bondholders or it can refuse to repay the bonds and default.
To ‘Puter, this is a no-brainer. Assume $100 billion of issued and outstanding bonds come due the day after America hits the debt ceiling. Treasury can issue and sell new bonds in the face amount of $100 billion to redeem the maturing debt instruments as it is a net-zero transaction against the debt ceiling. More simply, paying the retired debt with new debt of an equal amount leaves the nation’s debt exactly where it was pre-bond retirement.
Note well the two specific exemptions to the debt ceiling noted above. First, accrued and unpaid interest does not count against the debt ceiling, so any market required increase in interest rates to make new bonds salable is permissible, even if such new rates are substantially in excess of those for the retired debt. Second, “guaranteed obligations held by the Secretary of the Treasury,” meaning the bonds Treasury holds in its misnamed Social Security “trust fund” do not count against the debt ceiling. Government can continue to use OASDI payroll deduction receipts to pay Social Security benefits or fund current operations as it wishes, without debt ceiling worry.
Now that we know what the law actually says, we know the United States will only default on its authorized, issued and outstanding debt if Congress and the President decide to stiff America’s bondholders and spend the money that should be used to redeem the matured bonds on current expenditures instead.
Government’s problem is not a lack of liquidity sufficient to repay America’s investors, its problem is Congress and the President knowingly and fraudulently promised Americans more benefits than they can pay for out of receipts and authorized borrowing.
If Congressional Republicans are smart, and ‘Puter is under no impression that they are any smarter than his office’s ficus, they would get in front of every camera and microphone they can find and explain this to America. There’s plenty of money to pay bondholders, and we Republicans are going to make sure America’s creditors are repaid on time and in full.
Further, Senate Minority Leader Mitch McConnell should take to the floor of the Senate, and send his leadership team out to shout from the mountaintops this simple message: If the President and the Senate Democrats wanted to increase the debt ceiling, all they had to do was to pass a budget at any time in the last three years. Congress by rule and by practice contemporaneously authorizes an increased debt ceiling to cover authorized expenditures in a passed budget. Democrats and President Obama are whining because they are now suffering the foreseeable consequences of their stubborn refusal to negotiate a budget in good faith.
Next, the phoenix-like Speaker Boehner should pass two bills through the House, and upon passage, immediately gavel the House into recess sine die, leaving Senate Democrats and the President holding the bag.
The first bill should remove any discretion the President and the Treasury Department may have (if any) to use bond proceeds for any purpose other than retiring currently authorized, issued and maturing debt instruments. This bill makes clear to world markets the United States will not default on its debt unless Democrats choose to do so. Republicans will have shown their intent that any new bonds’ proceeds be used solely to repay America’s creditors.
The second bill should direct specific spending cuts to named programs in an amount equal to the difference between remaining projected revenues for the year net of proposed forward going debt issues and the expenditures authorized in the most recently passed continuing resolution.
The Republicans would thereby force the Democrats to take a firm position. Democrats must either live within the nation’s means or default on the nation’s debt. This stark reality will drive Democrats and their lapdog media into a frothy lather. It will also force Democrats to negotiate in good faith if they want to avoid either of the two aforementioned consequences.
Either way, Republican, along with all Americans, win.
*This provision makes ‘Puter laugh out loud. If Speaker Boehner wants to shove it up Senate Majority Leader Harry Reid’s rear end sideways as a thank you for Reid’s treatment of him in the fiscal cliff negotiations, Boehner can simply note that if America were operating under a duly passed budget, of which the House has passed several and the Senate none in the past THREE YEARS, the debt ceiling would have already been increased in an amount sufficient to cover current year operations. Sen. Reid’s pig-headed intransigence and game-playing by passing only continuing resolutions to fund government will have finally caught up with him. Sen. Reid has no one to blame but himself.
**For those of you paying attention, the debt ceiling is actually more than $14.294 trillion because 31 U.S.C. §3101A authorized an approximately $1.2 trillion increase in 2011’s grand bargain.