Tuesday, October 08, 2013

What Happens If Debt Ceiling Isn't Increased?

Most people assume that there won't be a crisis related to the debt ceiling and that either Obama or John Boehner will chicken out before it happens. And that is arguably still the most likely scenario.

But a debt ceiling crisis is certainly far from a far fetched scenario and may very well happen. After all, Obama has said that he will as a matter of principle not negotiate or make concessions while Boehner demands concessions. Thus, there is really no way to solve this without at least one of them "losing face".And because they're both very committed to avoiding that, a crisis isn't an unrealistic scenario.

What happens if the crisis breaks out? Many people have pointed out that the US can avoid defaulting on its bonds since a debt ceiling doesn't prevent the refinancing of expiring bonds and since
revenues are something like 12 or 13 times greater than interest payments.

But while the government indeed has more than enough money to pay their Chineses creditors it doesn't have the money to meet their other commitments. since the government is obligated by current law to pay for example Social Security and Medicare to seniors, various other transfer payments and various other
expenditures, a failure to increase the debt ceiling would create a logical conflict between existing laws. After all, debt changes isn't some independent entity, they're the residual effect of gaps between revenue and spending. With laws at the same time requiring the government to spend more than it earns and another law in effect forbidding it from doing so, it becomes necessary to break at least one law.

But which law or laws should be broken then? This in effect gives the executive branch of government, which is to say Obama, the obligation to choose which laws should be broken. He could at that point simply choose to say that he gives precedence to the laws obligating him to spend more and therefore ignore the debt ceiling. Or he could choose to not spend on programmes he likes less than others or even to give priority to spending that goes to Democratic states and congressional districts over spending that goes to Republican ones.

Republicans in Congress could of course try to impeach him for that, but as current laws gives him no choice but to break some of them, it is extremely unlikely that Senate Democrats would vote to convict him.


Post a Comment

<< Home