Thursday, January 17, 2013

Prioritizing Government Bill Paying

The next stage in the ongoing political conflict over federal spending will be about the debt ceiling.

It is estimated that the Treasury will run out of money to spend unless the debt ceiling is raised within about a month.

One scare tactic being used is that the government will default on its debt.

This is just not going to happen. Default requires a failure to pay interest, which currently is around 10% of tax revenue. The only way you end up not making payments that small is because you choose not to. No one will let that happen. But they can threaten! The White House has made clear (in the fine print) that they regard it as a default if the government misses or delays any payment. By that definition, many households default every month. But they’re not advertising this fine point.

Alternatively, some Republicans are proposing that refusing to raise the debt ceiling would force the executive branch to prioritize its spending:


Read the whole article, entitled “Some in GOP: Don't Pay All Bills Now” in the January 16 issue of The Wall Street Journal.

N.B. The Republicans tried something similar to this once before in 1995-6. Politically, it didn’t go well.

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