Recently I posted on freezing the debt limit. More advice of this sort is offered by Doug Bandow using an argument provided by Veronique de Rugy:Posted by Doug Bandow on 02/07/11 11:28 AM
Congressional Republicans say they will not raise the debt limit without some tough spending cuts in return. The Obama administration is wailing about the dangers of default.
But this is nonsense, points out Veronique de Rugy of the Mercatus Center. She writes in Reason:
” the Treasury Department has other options. For instance, if the debt ceiling is not increased, the Treasury can prioritize interest and debt payment to avoid a default. The chart below shows what part of the budget Treasury needs to cover with tax revenue to avoid a default.
If Congress refuses to raise the debt ceiling, the federal government will still have more than enough money to fully service the debt. This year, for instance, about 6.1 percent of all projected federal expenditures will go to interest on the debt, and tax revenue is projected to cover about 60.1 percent of all government expenditures. With roughly 10 times more income than needed to honor its debt obligations, why would the government ever default?
Let’s sum it up: As long as the government continues to pay interest on the debt, then it technically is not in default. With tax revenues expected to be $2.2 trillion, interest payments amount to roughly $300 billion-this would still leave $1.9 trillion in revenues to pay for the government’s most important priorities. For instance, lawmakers could decide to honor the promises made to people benefiting from entitlement spending, such as Social Security, Medicare, and Medicaid. In that case, even after paying for all of the entitlement spending, the Treasury would still have $300 billion left.”
The answer to the debt crisis is easy: self-restraint. That’s a shocking concept in Washington, to be sure. But don’t let politicians tell you it can’t be done. They just have to learn to say no.
