This Year’s Default Drama

We go through this periodically: the In party wants to raise the federal debt limit so it can disburse even more money than the trillions we are already spending, while the Out party tries to use its leverage to trade support for more debt for something it wants. The whole thing is a game of chicken, as everyone knows the limit will ultimately be raised, and more debt will be incurred. Washington can imagine nothing else.

So it probably isn’t surprising that we have not yet written anything about the “debt crisis” that is currently roiling Washington. Or that part of Washington that is paying attention. House Republicans are willing to raise the debt ceiling, but they want a small degree of spending restraint in exchange. Lawrence Kudlow, ever the optimist, has a take that is complimentary to the House GOP:

Speaker McCarthy notched an enormous victory by passing a debt ceiling bill that would lift the federal borrowing allowance by $1.5 trillion over the next year in return for nearly $5 trillion of deficit reduction over the next 10 years. This changes the political fiscal game — completely.

Mr. McCarthy has turned the tables on President Biden. Why? Because Mr. Biden has been prattling on for weeks and months, saying he won’t negotiate until the House Republicans come up with a budget. Well, they just did, and it’s going to force Mr. Biden to the negotiating table sooner than he and his minions think, regardless of whether they like it.

Yes, well, maybe. But Democrats are in no mood for compromise these days. They are pedal to the metal in pursuit of their far-left agenda, and I doubt that they think McCarthy’s position is credible. They know that the press is lying in wait to blame Republicans for any purported “default” that may occur. So they think McCarthy will blink first.

The Wall St. Journal’s news reporters, liberal unlike the Journal’s editorialists, strike a conventional, pro-Democrat tone:

Treasury Secretary Janet Yellen said the U.S. government could become unable to pay all of its bills on time as soon as June 1 if Congress doesn’t first raise the debt limit.

Both the thoroughly-discredited Yellin and the Journal refer to inability to “pay all of [the government’s] bills on time” as default. This is wrong. Default refers only to failing to service sovereign debt. But the U.S. government has vastly more revenue than it needs to pay interest on the national debt, more or less forever. If the debt limit is not raised, the effect will be as though a balanced budget amendment had suddenly passed. No new debt could be incurred.

So the government might need to close down the Department of Education, terminate all contracts with diversity consultants, defer various kinds of spending, temporarily furlough some non-essential workers, and so on. But there is zero chance the government will actually default, i.e., fail to pay the interest that is contractually due on government bonds.

The Journal’s liberals are hysterical about the prospect of “default”:

Doubts that the U.S. could pay back buyers of its securities could therefore have wide-ranging, dangerous financial and economic consequences, including a potential global crisis, analysts say. Missed payments on other U.S. obligations, including on Social Security benefits, could also cause economic pain across the country.

But note the inconsistency: if the federal government deferred making Social Security payments, or such payments plus Medicare, there would be plenty of money to pay interest on the debt. Realistically, the government would not do either: there is an enormous amount of federal spending that would be cut or deferred long before they got to Social Security. And the contractual obligation to pay bond interest cannot be, and would not be, deferred.

The whole “default” hysteria is more Democratic Party propaganda intended to misinform the ignorant and stampede Republicans into giving up a perfectly sound position. The federal government wastes an unfathomable amount of money, and cutting spending is an unqualified good. If the Democrats’ need to raise the debt ceiling presents an opportunity for an absurdly modest amount of spending restraint, hallelujah.

Speaker McCarthy, please stand your ground!

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