In recent days, I’ve ridiculed President Obama’s claim that not giving him a debt ceiling increase would somehow force him to default on U.S. debt payments. (Since current revenues cover the minimum debt service many times over, making any debt default the president’s choice.)
But over the longer term, U.S. default is inevitable – if we keep raising the debt ceiling.
If you’ve ever seen a bankruptcy, you know that the path to default is to take on ever more debt – to supposedly “pay your bills”, in Obama’s expression – as you fail to cut your spending down to what you can afford.
By raising the debt ceiling so that Obama can borrow even more, America comes closer to default. NOT raising the debt ceiling – that is, giving up the deficit habit now, and running immediate balanced budgets – would postpone or prevent America’s coming default.
Some may answer “Ah, but letting Obama borrow more will keep things smooth and buy time to fix our other problems.” All I can say is: People told me that in early 2009, some six trillion dollars ago (of U.S. debt). Bullhockey. It’s how an alcoholic or drug addict thinks: tomorrow is always the day to officially clean up; never today.
Under present leadership, a U.S. default is inevitable. The only question is what form it will take.
- Less likely: We could yet have an ‘honest default’, where we admit that we can’t repay our creditors and we negotiate cutbacks to our debt – and to our spending.
- More likely: We will have a ‘dishonest default’ where we borrow, spend and print money until the dollar is confetti, and we never officially default, but we pay our creditors in dollars that buy far less than the dollars they loaned us (or were promised).
Either way, it’s a default (our debt is no good; our creditors don’t get what they were promised). And it’s the road we’re on. “Thanks, Obama!”
- Niall Ferguson on why “the fiscal position of the federal government is in fact much worse today than is commonly realized”.
- Jim Grant on America’s past defaults – honest and dishonest – and the one that’s coming.
- Seeing the inevitable, China has called for the dollar to be overthrown (removed) as the world’s banking reserve currency. Read about it in the IB Times, the New York Times (which twists the facts to blame the Tea Party, natch) or the LA Times.
UPDATE: Obama has just called on America to stop listening to ‘the bloggers’, by a strange coincidence!