One way or another, the debt ceiling will soon be front and center. Perhaps raising the debt limit will be part of a “grand bargain”–for reasons I stated yesterday, I hope not–or a package deal with a continuing resolution to fund the federal government for the next few months. Regardless, it is important to understand that much of the reporting on the debt ceiling is wrong.
It is not true that if the debt ceiling isn’t raised by October 17, the U.S. will default on its bond obligations. On the contrary: constitutionally, the government is required to pay its debt obligations as they accrue, and the government would in fact do so until it runs out of money. Other spending might go by the wayside, but the principal and interest on government bonds would be paid in full. When the government would actually become unable to service its debt obligations has not been reported, to my knowledge, but it would be some months subsequent to October 17. So that deadline is in some respects an artificial one.
The debt ceiling, in my view, serves a useful purpose: it highlights the craziness of our government’s borrow-and-spend mentality. President Obama says it is “irresponsible” to bargain for some measure of fiscal sanity in exchange for raising the debt limit. In fact, it is irresponsible to run up $17 trillion in debt. It is good that the Obama administration encounters a speed bump now and then along the road to bankruptcy. Michael Ramirez sums up brilliantly: