There is no default

I’m not the biggest fan of Powerline, given their full-throated preference for all things Republican rather than conservative, but Hindrocket has provided the best explication of why all the talk of a federal “default” is sheer nonsense.

So the question is, if Congress does not raise the current debt ceiling, will the federal government run out of money needed to pay its existing debts? The answer is clearly No. A reader supplies the math: 

 On average the federal government’s daily expenditures are about $16.7 billion; receipts are about $14 billion, implying an average daily borrowing requirement of about $2.7 billion. So the planned flow of revenues is now about $650 billion less than the planned flow of expenses…about $2.7 billion a [business] day, $650 billion annually.

So the “default” scenarios are bogus. Interest on the $16 trillion in debt is covered by a factor of about 10x by revenues! That puts the federal government deep into AAA land. Revenues would have to fall by a staggering 90% to jeopardize interest payments.

And, of course, retiring principal by “rolling over” maturing debt can never require an increase in the debt ceiling, since there is no net increase in the nation’s debt, even if the money used to repay the original principal is borrowed.

So what will actually happen if Congress doesn’t increase the debt ceiling by approximately October 17? The government’s debt obligations will be paid, but reductions in other spending will start to become necessary. In effect, leaving the debt ceiling as is would function as a spending cut. This is why the Democrats hate the idea so much. They know there is zero chance of default, but they are horrified at the prospect that voters and taxpayers may find out that there is a relatively simple way to bring about spending reductions that would create, in effect, a balanced budget. Hence the hysteria.

If Republican senators and representatives give in to the Obama administration for fear of a nonexistent threat of federal “default”, which is actually a real threat of reduced federal domestic spending, it will underline the fact that they have no genuine reason to exist.

As Rand Paul and others have pointed out, there are 10x more tax revenues than are required to pay the interest on the debt. It is absurd to say the Federal government is in any danger of debt default than to say a man who makes $10k per month is in imminent danger of losing his house because he has to make an $850 mortgage payment every month.

UPDATE: Apparently the minor fact of the threat being nonexistent wasn’t sufficient to prevent the leading Republicans from aggressively pursuing surrender:

House Republican leaders said Thursday they will offer a temporary increase in the federal debt ceiling in exchange for negotiations with President Obama on longer-term “pressing problems,” but they stopped short of agreeing to end a government shutdown now in its 10th day.

In a news briefing following a closed-door meeting of House Republicans to present a plan to raise the debt limit for six weeks, House Speaker John A. Boehner (R-Ohio) said, “What we want to do is offer the president today the ability to move a temporary increase in the debt ceiling.” He described the offer, to be presented to Obama in a White House meeting with House Republicans on Thursday afternoon, as a “good-faith effort on our part to move halfway to what he’s demanded in order to have these conversations begin.”

Boehner did not immediately provide specifics of the plan. But the speaker made clear that House Republicans are not agreeing to Obama’s demand that they pass legislation to fund the government with no partisan strings attached, thereby ending the first government shutdown in 17 years.