President Obama has been using the threat of a “default” to persuade House Republicans to fund his newly implemented health-care law and the rest of the heavily indebted federal bureaucracy, as well as end the government shutdown.
“If there’s a way to solve this, it has to include reopening the government and saying America’s not going to default and we’re going to pay our bills,” he stated at a rare White House news conference Tuesday, the eighth day of the partial shutdown.
Throwing an appeal directly to the American people, he said into the television cameras: “We’ve got to stop repeating this pattern. I know the American people are tired of it. I apologize you have to go through this stuff every three months, it seems like. And Lord knows, I’m tired of it.
“At some point we’ve got to break these habits.”
Obama even tried to stir up antagonism and international furor over the debt debate in Washington, telling CNBC in a White House interview “Wall Street should be concerned.”
“When you have a situation in which a faction is willing to default on U.S. obligations, then we are in trouble,” he said.
He called any talk of “default” on America’s debts “insane,” “catastrophic” and “chaotic.”
Senate Majority Leader Harry Reid and House Minority Leader Nancy Pelosi both have followed the party talking points, encouraging Americans to “avoid default” by having the GOP give the president what he wants.
The problem, however, is that the Democrats’ threat of default is not reality, according to leading economists.
Steven Hess of Moody’s, writes Michael Aneiro at Barron’s, explains that the debt limit does not have a direct relationship to a default.
“We believe the government would continue to pay interest and principal on its debt even in the event that the debt limit is not raised, leaving its creditworthiness intact,” Hess said.
He explained that the debt limit restricts government from expenditures to the amount of its incoming revenues and does not prohibit the government from servicing its debt.
“There is no direct connection between the debt limit (actually the exhaustion of the Treasury’s extraordinary measures to raise funds) and a default,” he said.
The New York Times noted: “Wall Street is showing few signs so far that it is fearing the financial panic it has been predicting should the government default on its debt.”
The Times cited Alec Phillips, an economist with Goldman Sachs, who wrote recently that the government will still have enough cash on hand Oct. 17 to get it through at least a few more days of payments.
“We need to go back and redefine ‘default,’” said Rep. Steve King, R-Iowa. “Default would be if you couldn’t pay the interest and couldn’t manage the principle on our national debt. And that’s not going to happen. The resources are there. The cash flow is easily there to pay the interest on our debt.”
Sen. Tom Coburn, R-Okla., agreed: “I would dispel the rumor that is going around that you hear on every newscast that if we don’t raise the debt ceiling we will default on our debt. We won’t.”
The Chicago Tribune acknowledged Obama’s fretting may be based more on politics than reality.
After spending hundreds of words explaining how Obama wants the House to respond to his proposals, the newspaper cited Rep. Justin Amash, R-Mich.
“There’s no way to default. There is enough money coming into the Treasury to pay interest and roll over principle,” Amash said.
The congressman said doomsayers are spreading their alarm like a religion.
“I say it’s patently not true what they are saying,” Amash said.
In 2011, when the same debt ceiling-default-spending controversy arose, investment guru Kurt Brouwer tried to put the issue to rest.
He noted then that the U.S. Treasury owed about $20 billion a month on its interest payments, but the federal government took in about $200 billion a month.
Both figures are likely to have risen somewhat, given 2013 is on track to generate more revenue for the federal government than ever before. Also, additional borrowing under the Obama administration likely has caused interest payments to rise, although they are at historic lows.
Brouwer concluded the likelihood of not paying interest on the nation’s debt was zero. Anyone telling the American people the U.S. government automatically would default if the debt ceiling wasn’t raised was lying, he insisted.
Analysts, however, point out that there is no constitutional guarantee that all federal programs that ever existed, no matter how bloated, will continue to get federal funding forever.
Thus comes into play the various White House threats that Social Security checks won’t be distributed and that other necessary services will be left unfunded.
Case in point is the current attack on the American public by the National Park Service, which one ranger admitted was told by the Obama administration to make life as difficult as possible for the American public amid the federal government’s partial shutdown.
Rangers at Yellowstone, for example, threatened tourists with arrest if they didn’t go to their hotel and stay there.
Even Obama, when it was a Republican president wanting a debt ceiling increase, took a far different view of raising the debt ceiling.
He said in 2006, when George W. Bush was in office: “The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. government can’t pay its own bills. … I therefore intend to oppose the effort to increase America’s debt limit.”
Now it is the president who is saying his vote then was “a political vote,” and Congress needs now, for him, to raise the debt limit unconditionally.
But in 2006, Obama, who over the last five years has run the national debt from $10 trillion to $17 trillion, provided details that would undermine his current argument.
For example, he said the federal government was spending $220 billion a year on interest. That’s even lower that the estimate of $20 billion a month and hardly provides an insurmountable obstacle when the government is taking in $200 billion a month.
He also warned then that borrowing actually increases the threat to America.
“Increasing America’s debt weakens us domestically and internationally. Leadership means that ‘the buck stops here.’ Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better,” he warned then.
Republicans in the House have said they are willing to raise the debt ceiling, but they want discussed at the same time how to cut down on Obama’s profligate spending. Hundreds of millions of dollars, for example, have been spent on failing green corporations, political cronies and all sorts of special privileges under his signature Obamacare for friends and political allies.
At his own news conference Tuesday, House Speaker John Boehner said he agrees with Obama that the nation should pay its bills.
But the House speaker explained that 27 times over the last 40 years the debt ceiling increase legislation has been used to set new policy and spending directions for the nation.
That includes in 2011 when negotiations were between Obama and Boehner.
“The long and short of it is there’s going to be a negotiation here,” Boehner said. “We can’t raise the debt ceiling without doing something about that which drives us to … live beyond our means.”
“Default is only a possibility if Obama chooses to default,” said Joseph Farah, WND editor and founder of the “No More Red Ink Campaign,” designed to pressure Republicans not to raise the debt limit.
“But Obama gives all indications he might just do that. It’s clear he doesn’t put the economy first. It’s clear he doesn’t put the best interests of America first. It’s clear he only thinks about getting his way while blaming others. That’s what his shutdown tactics reveal,” he said.
“The American people need to understand that Obama is the architect of this mess. Republicans have given him countless opportunities to avoid shutdown and avoid a showdown over the debt limit. They have been too conciliatory. Their thanks is constant vilification and lies about their motives by Obama. There is only one way to bring America back to responsible governance in Washington and that is for the Republicans to stand firm against another debt limit increase – exactly what Obama himself called for just seven years ago as a U.S. senator.”
A new poll indicates that instead of a “tea party minority” of the Republican Party trying to force its will on Washington, it’s actually a “minority” standing behind the president’s position of unlimited and unrestricted borrowing authority.
After being showered with warnings about the debt ceiling, credit problems and the borrowing issues, a full 58 percent of respondents said to a Fox News poll they would vote against raising the debt limit if they were in Congress. Only 37 percent said they would.
According to the poll, 62 percent of all respondents, including a plurality of Democrats, said they would favor a debt-ceiling increase only if tied to major cuts in government spending.
Only 27 percent said the limit should be raised unconditionally, as President Obama has demanded.
Read today’s related columns about the government shutdown: