A few days ago, Republican John Cornyn, Chairman of the House Budget Committee, said “We will raise the debt ceiling. We’re not going to default on our debt.”
He continued, “I will tell you unequivocally, we’re not going to default.”
You can read the brief Politico article here.
I appreciate the Republican Rep’s confidence and I agree with him partly; but, not completely.
We will absolutely raise the debt ceiling. And we will absolutely default on our debt.
I know that solving one (raising the debt ceiling) is supposed to solve the other (avoiding default), but that’s not necessarily true. Because there are different kinds of default.
Who’s at (De)fault?
The first kind of default is the most obvious. If the United States government admitted to their inability to pay their bills. It could come in a number of different forms. Either bondholders would not receive their interest payments. Government employees would not receive their paychecks. Or your granny would not receive her Social Security check. The United States has never, ever defaulted in this way. If the United States were to default in this manner, there would be a ripple effect within the global financial markets that could be devastating. The sky is blue, the world is round and the United States doesn’t default.
The United States Defaults, Without Defaulting
Remember a few weeks back, I posed a question of “Would You Rather…”? I asked, if you receive a check from the government, if you would rather receive 75% of what you were getting – or – if you would rather receive the same amount but have everything else cost 25% more.
It’s funny because it’s the same result, but one is seen as CRAZY, RIDICULOUS, and UNTHINKABLE while the other is historically acceptable. Inflation is just part of economics, right?
We have about $16 Trillion in national debt. If you factor in the unfunded future liabilities, the estimates are closer to $100 Trillion. These numbers are absolutely unreal. No combination of economic growth and increased revenue could balance the fiscal imbalances we face. Therefore, the ONLY OPTION we have is to default. Whether we directly reduce government spending or devalue the dollar through inflation, it doesn’t much matter.
The result is, essentially, the same.