Saturday, January 12, 2013

National Default

I am stunned by how many noted economist are reporting that a failure to raise the debt ceiling equals default on the debt.  Somehow, not incurring additional debt equals defaulting on the existing debt.  How does that work?  With the money coming in, the government can easily pay the interest on the $16 trillion debt, send out Social Security checks, pay Medicare, and maintain pensions.  Those would be the debts.  Everything else is just spending that can be cut without risk of default.
 
Stranger still, I read one fellow who said he was opposed to using the debt ceiling as a route to cut spending but was okay with the idea of shutting down the government to put a brake on spending.  Doesn't a failure to raise the debt ceiling do exactly that?  It will cause the government to shutdown all 'non-essential' functions so that it runs on incoming cash rather than the Credit Card of China.  The reason everyone uses 'default' is to instill panic in the populace so that the spending can go on and on.  The spending will stop eventually, on terms we won't like.  Better to stop it now while we still have some hope of digging out of the hole.
 
On a related point, big government tends to slow growth.  Our best hope in recovering is a high growth rate which is becoming more and more out of our reach as government expands.  Look at Europe: massive governments and sluggish economies.  Why go down that path?

No comments: