If I have a $10,000 limit on my Mastercard and no money and I need to pay the Visa bill and I write a check on the Mastercard account for $500 to cover my monthly Visa bill I'm kiting a check. I have written a check that is bogus. It will bounce.
If I call Mastercard and ask them to raise my credit limit and they raise it to $12,000 and I write the same $500 check it is not bogus. It will not bounce. There is some potential for me to make everyone whole in the end.
Many of us have gotten into hard times and used credit to pay credit. We've felt horrible about it, but we've pulled it off - payed our bills, payed down the principle, gotten out of trouble and not ruined our credit ratings.
As a family we would always take that option over default / bankruptcy, and so should the USA.
Jack - See this is where I don’t think you quite get it.
Technically you are correct. *If* this game was exactly like the credit card example you gave, we would default, But it’s not.
Why? Because the U.S. government has a power that a normal consumer does not have. The U.S. government can *print money*. Printing money is NOT borrowing. It only affects the value of the dollar.
So - follow me here - the U.S. government can PRINT the money needed to cover the principle payments without incurring new debt. Then they SELL new debt without going over the debt limit. Then *remove* the money obtained from the debt sale from the supply so as to NOT dilute the dollar.
In the end, it is a zero sum game. And it could be executed without roiling markets.
See, I think you are thinking the government is subject to the same rules as a normal bloke with his bank account. It’s not.
You are right about one thing: we are broke. We are living on debt. In that way, it’s just like check kiting because there really is no “value” (money) there to pay the bill. It’s just that the government doesn’t have to worry about that minor temporary annoyance because they can just print the stuff.