This represents a drastic misrepresentation of the budget/debt ceiling crisis. The author is saying if the debt ceiling isn't extended and the US Treasury doesn't have the authorization to issue more debt, we'll default on our current debts. This is simply not true.
This is why:
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| 2014 White House OMB Budget, page 9 |
It's estimated that it'll cost just 223 billion dollars to service our debt. The Federal government can collect 2.7 trillion dollars, 12 times that amount, without needing to borrow a cent. If defaulting on our debt would be that harmful to the global economy, the US Treasury can simply...not default on the debt.
The treasury can't pick and choose specific items to spend on for technical reasons. Here's Cardiff Garcia from FT:
ReplyDelete"The Treasury’s systems do not clearly mark what scheduled payments are for what reasons, so it is impractical to try to prioritize payments. And clearing systems like Fedwire do not allow defaulted securities to flow, so the system would seize. In order for the clearing systems to work, the Treasury would need to notify the market of a default almost a day before the default happened (to give everyone time to modify payments), and that is not going to happen because the Treasury will not want to declare default while Congress still has time to pass a bill.
Also the Fed does not take defaulted securities as collateral at the discount window, even if those securities are still trading at par."
As a software developer, I can tell you that modifying an existing system to allow the identification and prioritization of payments would be a relatively trivial task, although extensive and rigorous testing and QA would obviously be required.
DeleteFrankly, this thing should have been done as a contingency plan back in 2011 when the first rumblings of a debt ceiling showdown became apparent. The fact that Treasury has not yet done so represents gross mismanagement by Secretary Lew or then-Secretary Geithner, to say nothing of the President. Although, quite frankly, this kind of commonsense emergency protocol should have been implemented from the very beginning. I'm very surprised that it wasn't.