Debt Ceiling: Default Not at Issue, Federal Spending Is

J.D. Foster, Ph.D.January 14, 2013 

  

President Obama is expected to make his case for a debt ceiling increase at a press conference this morning. The development comes as House Republicans are reportedly weighing “default” and “government shutdown.” While it’s encouraging that conservatives are gearing up for a fight, it’s important that policymakers and the public keep those two terms straight.

Default. The only way the federal government would default on its debt in the event the debt ceiling remains unchanged is for the Treasury to choose to default—…... Suggestions to the contrary in the press and elsewhere are simply inaccurate and shameful.  The amount of debt the federal government is allowed to issue is set by statute. Federal spending is similarly established by law. Treasury is at once prohibited by law from issuing additional debt above the limit and obligated by law to spend certain amounts for designated purposes. …..If the federal government exhausted its financial management tools, then government spending would be limited to incoming receipts. At that point, the law setting a debt limit and the laws in place directing government spending would conflict—something would have to give…... Very simply, reaching the debt limit means spending is limited by revenue arriving at the Treasury and is guided by prioritization among the government’s obligations. How the government would decide to meet these obligations under the circumstances is a matter of some conjecture…To Read More…..