August 2 is supposedly the drop-dead date for hiking the debt ceiling or, the consensus is, all sorts of “bad” things will happen. Commonly, this has been described as the date the U.S. would default on its debts.
The U.S. Treasury is slated to take in more than $200 billion in August. Problem: It’s slated to spend about $370 billion. That’s enough money to pay the interest on the debt, Social Security, Medicare and “essential” Defense department costs. This isn’t default, it’s a government shutdown of some sort.
Obama’s dire warnings that Social Security checks may not go out is also hogwash, unless he consciously, and probably illegally, makes a decision not to send them out.
You see, as John Hinderaker has noted, Social Security doesn’t affect the debt ceiling (at least until 2038 or so).
The Social Security trust fund holds about $2.4 trillion in U.S. Treasury bonds, which its trustees are legally entitled to redeem whenever Social Security is running a current account deficit. Thus, if we reach the debt ceiling (which I continue to think is a remote prospect, even if less remote than it seemed a week ago), this is what will happen. The Social Security trust fund will go to Treasury and cash in some of its securities, using the proceeds to send checks to recipients. Each dollar of debt that is redeemed will lower the outstanding public debt by a dollar. That enables the Treasury to borrow another dollar, without violating the debt ceiling. The debt ceiling is not a prohibition on borrowing new money; it is a prohibition on increasing the total level of public indebtedness. If Social Security cashes in some of its bonds, the Treasury can borrow that same amount of money from someone else.
I also find President Obama’s insistence that the debt ceiling be raised to a level that will get him through the next election cycle or he’ll veto it to be nothing less than insane. It’s easy to understand why Obama would want to do that politically, but to put his political wishes first and letting a government shutdown to occur is nothing less than insane. He won’t do it.
In 1995, President Bill Clinton could get away with pinning the government shutdown on the GOP, precipitated by his veto of a funding bill because of a collaborationist media. The media landscape has changed. Talk radio, the blogosphere and Fox News won’t let a similar narrative go unchallenged this time around.
It’s important to raise the debt ceiling in the short term. But it’s also important to get federal spending on a path towards sanity. President Obama originally said that these spending levels were temporary—a result of the financial crisis. He lied. He has done everything possible to ensure that these massive spending levels become the new normal.
While in recent weeks, the media has portrayed President Obama as the “adult” in the room, the truth is he submitted a joke of a budget to Congress that was eventually voted down 97-0 in the Senate. He then came out with a “framework” that is so non-specific that the CBO can’t score it. (“We don’t score speeches,” was the comment made by the CBO head in a congressional hearing.) The media has repeatedly reported that the President has offered this or that behind closed doors, but he apparently hasn’t deigned to give the people he’s negotiating with, let alone the American people, a look at any of the specifics.
It got so ridiculous last week that reporter-turned-flack Tim Carney actually said that “leadership is not proposing a plan.”
It’s beginning to look like Hoover is a best-case scenario (there are similarities, you know).