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To: reaganaut1

All the more reason not to raise it, if he could just spend the money anyway. Why provide him with political cover?


65 posted on 06/28/2011 8:22:02 PM PDT by COgamer
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To: All

The article talks about spending, not borrowing. If they can find the money somewhere without borrowing, sure, they can spend it.

The problem is that the first priority needs to be to pay off all of the T-Bills and Notes maturing every week, plus the interest on the both the maturing and the outstanding debt. The maturities could be funded with new borrowing because their cancellation lowers the debt outstanding below the ceiling, but the interest becomes a problem. At some point, there’s no money left and we default on the interest, unless the debt ceiling is raised.

The alternative to the above scenario is to stop paying other obligations, social security, Medicare, Medicaid, defense contracts, military payroll, staff payroll, etc. This is what will, in fact, happen because they can’t issue debt above the debt ceiling legally. Then politics will dictate the winners and losers, as in 1994.

What he absolutely can’t do legally is issue new debt above and beyond the debt ceiling without Congressional authorization. The unauthorized debt would not be purchased by the public unless a penalty interest rate were applied to it. How big a penalty would depend on the politics of the moment. If a Republican leader said that all debt issued beyond the debt ceiling does not, and would never, carry the full faith and credit of the U.S., no one would purchase it without a huge penalty rate being applied.


66 posted on 06/28/2011 8:36:32 PM PDT by Norseman (Term Limits: 8 years is enough!)
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