National Default on the National Debt

President Barack Obama and his Senators keep saying that House RepublicansCongress must raise the debt ceiling or the US will go into default.  The latest example of this claim came when Obama, through his White House Press Secretary, Jay Carney, said in response to the idea that the administration could simply mint a $1 trillion coin and then spend that,

There are only two options to deal with the debt limit: Congress can pay its bills or it can fail to act and put the nation into default[.]

Here’s what the Constitution says on the matter (you might recall that bit of paper—a document that Progressives insist ought to be scrapped or that already is useless and non-binding; maybe its inconvenient limits on government are why).  From Article I, Section 8, in relevant part:

The Congress shall have Power…to pay the Debts…;

To borrow Money on the credit of the United States;

Thus only the Congress can borrow—or create the conditions for paying what it has borrowed.  The President, as with all laws (nearly all of which, by the way, have his signature on them—he’s actively agreed with them, except in those very rare cases where his veto has been overridden), has only to execute them—here, to spend the money authorized, to collect the taxes authorized, to borrow according to the Congress’ budget and borrowing limit.  He’s Constitutionally, and by his oath of office, required to faithfully execute those laws.

(Incidentally, a later clause in that Section 8 says this:

To coin Money, regulate the Value thereof….

Thus, only Congress can mint a $1 trillion coin, not Treasury.)

The 14th Amendment, which some Progressives like to cite as a means for Obama to bypass Congress on the national debt, says in relevant part:

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.

Notice that confusing part—it being more than 100 years old—”authorized by law.”  The clause not only says that the US’ debt must be paid—no getting around that—but the only debt that must be paid is that authorized by law—that budget thing (from an even older and apparently even more confusing part of the Constitution), which must be passed by Congress and signed by the President or his veto overridden.  The president cannot (not may not—cannot) create debt on his own recognizance.

On the first part above, then, Obama has it right—Congress can agree to continue spending and borrowing, or it can decide not to act (or anywhere between the two extremes: cut spending enough to fit it into current revenues, thereby eliminating the deficit and stopping the growth in borrowing altogether, or cut spending to fit within projected revenues and raise the debt ceiling somewhat, with a view to gradually reducing spending, eliminating the deficit over time, and ultimately stopping the growth in borrowing altogether, for example).

What are the practicalities of the matter?  Say the debt ceiling is not raised; what results?

The interest on our current national debt (some $16+ trillion at the end of 2012, an explosion of 60% in Obama’s first four years) ran to $220 billion.  Total revenue collected from various tax sources (including payroll taxes for Social Security, et al.,) by the Federal government was $2.5 trillion—a shade over 10x those interest payments.

In short, there is no risk of default from Congressional inaction.  There is plenty of money with which to pay the interest, thereby keeping our debt current and not in default.  There’s plenty of money with which to roll existing debt that’s coming due—essentially to refinance by paying off that old debt with new borrowing—within the current debt ceiling.  This is the same as us refinancing our homes, which we must do within our own debt ceilings, values our lenders determine based on our credit rating.  There’s even plenty of money with which to begin in aggregate paying down that debt, reducing it below those $16 trillion, and to reduce it further in subsequent years.

Thus, if Congress declines to raise the debt ceiling at all, there would be spending cuts, but no default.  Federal spending in 2012 ran to $3.7 trillion, rather more than those $2.5 trillion in collections.  Progressive (and Conservative) favored programs would be drastically curtailed.  Welfare programs like food stamps, subsidies for “green” energy companies, farm price supports, and the like would be severely curtailed.  Entitlement programs like Social Security, Medicare, and Medicaid transfers to the States would be greatly circumscribed.  Withal, no default, and not even very many existing programs eliminated.

However, if Obama and his Senators truly are concerned about “not paying for our spending on the backs of our seniors and the middle class” (and the poor—that group these Progressives have been ignoring right along), they’ll get serious about spending cuts, the deficit, and the debt.  The cuts then could occur in a deliberate, controlled manner, across programs about which Conservatives and Progressives compromise on curtailing.

Obama and his Senators know what the Constitutionally mandated priorities are.  They simply are lying when they make their claim of debt default, and the NLMSM are complicit in the claim’s spread.  What these Progressives really mean is that, absent a debt ceiling increase, they will default on their vote buying promises.  And that terrifies them, since among those to whom they “owe” their vig are unions.

What Are They Prepared to Do?

Kimberly Strassel asked this, and three specific questions, in a Wall Street Journal op-ed last week.

Her questions:

Question one: Do they mean it?  In the abstract, the debt ceiling is a powerful tool for forcing the president to give in to spending cuts. …

In the non-abstract, failure to raise government borrowing limits means US default—and with it potential credit downgrades, market panic and resulting economic distress.  Is the GOP willing to inflict that on the economy?  If Republican members instead run for cover, as they did with the cliff, the GOP will have been exposed as bluffers, and the administration will never again have to fear the debt ceiling.

Then,

Question two: What do they want?  Throughout the fiscal-cliff negotiations…the GOP shrunk from laying out its specific demands on Medicare, Social Security and Medicaid.

Do House Republicans have the courage to lay out big demands (say, premium support for Medicare or block grants for Medicaid), send a bill to the Senate, and sell entitlement reform to the public?  If they can’t face the demagoguery that Democrats will use against them for making substantive proposals on entitlements….

Finally,

Question three: What other hostages are Republicans willing to see shot?  Knowing he has lost his tax trump card, Mr Obama seamlessly moved on this week to the defense budget.  …Mr Obama intends to make further tax hikes the price….

Are the GOP’s defense hawks willing to stomach those cuts as a price for entitlement reform?  Having publicly campaigned against this slashing of the military, can the party stare down the president with a unified position?  Mr Obama is betting they can’t….

It’s pretty clear from the Republicans’ past performances in showdowns with Obama that all they’ll do is run for cover—too much of the party consists only of bluffers.  During the just concluded tax cliff matter, hey could have put up big demands concerning tax structure and tax rate reductions—just putting forward the Romney tax plan would have sufficed—but they quailed at the thought and shrank from their duty.  They also could have put up big demands concerning spending cuts—just putting forward the Ryan plan would have sufficed on entitlements—and big demands concerning so-called discretionary spending (so-called because all government spending is at the discretion of the Congress).  After all, Obama was publicly willing to conclude such a “grand bargain;” the Republicans should have held him to his word.  But they failed here, also.

On the matter of selling their position to the public, it’s pretty clear the Republicans have no capability for that, even if they had an actual position to sell.  They’re still not talking to us.

Vernon Pinkley, on walking the Republican halls of the House (or of the Senate), might ask, “Very pretty, Speaker/Minority Leader. Very pretty.  But, can they fight?”  The answer is, “No.”

I pointed out nearby the necessary and encouraging words of a rookie Republican Senator from Texas.  Unfortunately, there’s no reason to believe there are enough more Republicans like him to accomplish much of anything.

What He Said

Senator Ted Cruz (R, TX) has some thoughts in a Washington Post op-ed on the needed direction of the Republican Party, if it’s to recover its roots, and the mechanics of achieving that new direction.

Herewith, some excerpts.  RTWT.

Free-market policies expand opportunity, produce prosperity and improve lives, especially for those working to climb the economic ladder.

And

On the flip side, widespread economic redistribution places enormous burdens on small businesses, kills jobs and rarely helps the recipients of government largess.

Dependency is corrosive. Ask any abuela if she wants her grandchildren dependent on government. Dependency saps spirit and diminishes self-respect.

And

Americans want to stand on their own feet, and Republicans need to champion policies that enable us to do so: ownership, choice and individual responsibility.

And some mechanics for achieving that:

Republicans shouldn’t just assail excessive financial and environmental regulations; we should explain how those regulations kill jobs and restrict Americans’ ability to buy their first home.

Don’t just say no to new taxes—fundamentally reform the tax code so that every American can file his taxes on a postcard.  Eliminate the corporate welfare and complexity that enrich only accountants and lawyers.

Don’t just criticize union bosses; explain how closed shops confiscate wages and make it harder for low-skilled workers to get jobs.

Don’t talk generically about education; advocate school choice to empower parents and expand opportunity for children struggling to get ahead.

Don’t just dwell on the long-term solvency of Social Security; promote personal accounts to allow low-income Americans to accumulate wealth and pass it on to future generations.

Republicans ought to view, and explain, every policy through the lens of economic mobility.  Conservative policies help those struggling to climb the economic ladder, and liberal policies hurt them.

What he said.

Now that the Bill Has Been Passed

…and we can see what is in it, the pork for President Barack Obama’s paymasters that is in it is quite impressive.  Here are some, in no particular order.  Enjoy the sausage.

  • Accelerated tax write-off for owners of NASCAR tracks: $78 million
  • Tax credit for companies operating in American Samoa: $62 million
  • Distillers rum tax rebate: $222 million
  • Film and television producers expense the first $15 million of production costs incurred in the US ($20 million incurred in economically depressed areas in the United States): $430 million
  • Wind production tax credit: $12 billion
  • Cellulosic biofuels tax credit continued and expanded to include producers of “algae-based fuel:” $59 million
  • Biodiesel and “renewable diesel” tax credit: $2.2 billion
  • Plug-in motorcycles tax credit: $7 million
  • Energy-efficient appliances tax credit: $650 million
  • Energy-efficient homes tax credit: $154 million

Most of these seem like chump change, but they, with other inclusions, sum to $40 billion of pork in the tax “deal.”

The Spending Cuts Achieved by the Tax “Deal”

Here, in no particular order, are some.

  • tax subsidies for special business interests:
    • wind tax credit $12.1 billion
    • tax break for cellulosic ethanol—$59 million
    • tax break for impoverished producers of Hollywood—$248 million
  • extending extra jobless benefits for another year—$30 billion

Oh, wait—those weren’t cuts….

Just to put a cherry on top, the Congressional Budget Office scores the Senate bill as adding $4 trillion to the national debt by 2022.

Oops.

Update: Sorry, I don’t know what happened.  An earlier iteration of this post led with an inordinate amount of word processing commands before getting to the post itself.