Our favorite Graybeard has the story:
In the last few weeks, there has been almost a constant replay of a topic I’ve written about almost since the first year of this blog: the recurring disappointment of the “debt ceiling”. This wasn’t a topic every year because the debt ceiling isn’t approached every year. As I pointed out many times,
The biggest lie, however, is that there’s really a debt ceiling at all. There hasn’t been one time since the debt ceiling became law in 1917 that the ceiling has been reduced. It’s either raised, or suspended – which pretty much means raised – every time the limit seems like a hard limit. If every time the ceiling becomes a restraint the ceiling is raised or ignored, how can they claim to have a ceiling? Does it create even the smallest amount of restraint of spending in the congress?
“Restraint” and “Congress” really don’t belong in the same sentence. When it comes to spending, Congress acknowledges no restraints, as Gray notes in the above. But threaten Congress with even a cosmetic veneer of restraint, and what a symphony of agonized screams!
The next big lie is “we’re going to go into default.” Again: bullshit!
This week’s bullshit is that restraining spending so that our budget remains under the debt limit means the government goes into default. That is not default – by definition. Default would be refusing to pay the payments due on our debt – the interest on the debt. Rather than default, this would be better called “living within their means” or “being responsible”. We will not default unless the administration chooses to.
The Debt Clock tells me that the Time Of This Writing, the interest due on our national debt is roughly $568 billion. The Federal Tax Revenue is $4.61 trillion, meaning the interest on the debt is 12.3% of revenue. Only a fool, or someone deliberately trying to destroy the “full faith and trust” in the dollar would choose to not pay the interest on the debt. Holding the spending limit where it is would not affect that at all.
Since FDR, Congressional spending has been almost entirely an exercise in vote-buying. But politicians would rather give up their genitals than forgo the privilege of indebting future generations to purchase popular support.
Now for the critical observation: were Congress to decide not to pay the interest on the federal debt, who would be willing to purchase U.S. Treasury bills – the formal instrument whose sale is used to increase the debt – thereafter? All future federal debt would have to be financed by the Federal Reserve Bank. Every dollar Congress would thereafter appropriate, over and above federal tax revenues, would be a brand-new dollar, created out of the primordial void to leech value from all the other dollars in existence. Inflation would rise to levels Americans have never before experienced. The magnitude of that disaster is beyond my ability to estimate, though perhaps the Congressional Budget Office could provide an analysis.
They’ll pay the interest on the debt, all right. Whether the imaginary “debt ceiling” is raised or not.
See also these Baseline Essays:
- The Nature Of Money And Currency, Part 1
- The Nature Of Money And Currency, Part 2: Bimetallism and Gresham’s Law
- The Nature Of Money And Currency, Part 3: The Great Transformation
- The Nature Of Money And Currency, Part 4: The Emergence of Banks and Banking
…and this more recent tirade, as well.
(Need I tell you yet again to buy gold and silver? I didn’t think so.)