While hopes of a government budget deal today flicker on and off, you surely heard the latest example yesterday of President Obama threatening a default:
Talking to reporters at an event in Washington D.C. Monday, President Obama said the U.S. faces “a good chance at defaulting.”
“This week if we don’t start making some real progress, both the House and the Senate, and if Republicans aren’t willing to set aside their partisan concerns in order to do what’s right for the country, we stand a good chance of defaulting. And defaulting could have a potentially have a devastating affect on our economy,” the president said.
Remember, default would be Obama’s choice because he has two Constitutional ways to avoid it:
- He could negotiate his differences with the GOP in good faith, like a leader.
- Failing that, he could prioritize debt service spending (the U.S. “minimum debt payment”) ahead of other government spending. Tax revenue alone is enough to cover it many times over. If there is a legal issue, he could ask Congress (Democrats) to help.
Thus, Obama talking about any serious possibility of default is Obama planning to default if he doesn’t get his way 100%. That is a very bad threat to be making; in no way fitting for a President of the United States.
In effect, Obama has put U.S. creditors on notice that he will prioritize them last in any real budget crisis. That means U.S. debt (the Treasury bond) is unsafe and unsound whether or not he defaults this time, and investors are fools to hold it (unhedged).
UPDATE via HotAir: Sen. Rand Paul agrees, and pushes the idea of a Full Faith And Credit Act to make prioritization explicit. And even liberal Cokie Roberts (NPR) admits that Obama has been trying to talk the stock market into crashing. “Thanks, Obama!”
UPDATE: Nice piece a couple of weeks ago from Jeffrey Dorfman at Forbes. Key idea: Not raising the debt ceiling means simply that the government must live within a balanced budget until these issues are worked out.
And that, to Democrats, is “a fate worse than default”. Literally. Democrats would literally rather choose default (which means, according to them, the collapse of our economy, the end of the world, yadda yadda) than a 20-25% net spending cutback to live within a balanced budget.