Honoring the Debt Ceiling does not mean default
Tuesday, October 15, 2013 10:00 PM
Default isn't inevitable if Congress decides to honor the national debt limit. It's a choice. It's a choice the U.S. government has to make between either lowering spending so it can pay off treasury bonds that come due, or keeping spending the same and not paying off the bonds (i.e., defaulting on debt). It's just like if someone has maxed out his credit card. It's a choice he makes, to cutting spending so he can pay his credit card bill on time.
If the debt ceiling is reached, the government still has tax revenue coming in. It just means it can't spend more money that's coming in anymore. In other words, it'll actually have to balance their budget just like real people have to do every day.
For those who insist, "we must raise the debt ceiling!," does the debt limit mean anything? Does it make sense that we can keep spending more than we take in forever? Let's go back to the guy who maxed out his credit cards. Let's say he makes $20,000 a year. If his financial situation was like the federal government, he would be spending $36,000 a year! He would have $167,000 of credit card debt, and he would be getting hit with $2300 just in finance charges. Over 10 percent of his paycheck would be going to interest on his credit card. So if we're giving this guy advice on how to get out of this pickle, what's the right answer? Is it, (A) "You need to cut spending wherever possible and start paying down the principal on your credit card debt," or (B) "You need to ask the credit card company to raise your limit"?
The answer is obvious. Cutting spending might be painful for him and it will mean he'll have to reduce his standard of living while he gets out of debt. But, it's the only way he's going to solve the problem. Otherwise, if we let him keep on putting more and more on the credit card forever, his finance charges would eventually eat up his entire paycheck. And then he'll default on his credit card bill anyway.
The same is true for the federal government. If it doesn't reduce federal spending, it will eventually default in the future. That puts the burden on our unborn children and grandchildren. The right answer is for Congress to hold the line on the debt ceiling, and for the federal government to cut spending to avoid default.