What happens if we default on our debt?
Yesterday, this site challenged republican leaders to consider not raising the debt ceiling until after March, when Obama will finally be ready to deal.
It is important for our side to articulate why this is not only a good idea politically for republicans, but good for the American people.
Tim Geithner says that we have until March before the U.S. government will have to borrow money above and beyond our legal limit, in order to meet our obligations.
If we allow ourselves to default on our debt, we are certainly playing with fire. Confidence in our markets and the dollar could be shaken. Our credit rating could take another dip and we could even be playing with another recession.
But there are a few reasons it won’t come to this.
First, a default doesn’t stop money from coming into the treasury; it only stops borrowed funds from flowing in. This means that the government will still be running at about 2/3rds strength. Thus, most of the government will remain funded.
Now, the President will do what he did last time – he’ll spread panic. He’ll say, “if Republicans don’t raise the ceiling, then I can’t guarantee folks will receive social security checks.” Even though, he alone can guarantee that they get their checks. He’ll deal in fear as he normally does.
National panic is going to set in as the date nears to raise the ceiling and nothing happens. But Rs really will have the leverage here. Obama has everything to lose and can’t afford to wait more than a few days past the deadline to raise the ceiling. As I mentioned yesterday, the Congress won’t take the hit for social security checks or any other failure of government. Americans will quickly learn that Obama can make sure they get their money.
Republicans are losing the messaging war on debt because we are talking about how dangerous the waters ahead are, while helping to row the boat into the eye of the storm. We need to take drastic measures to let the American people know that this is serious.
Republicans can bend Obama to their will on this point, it won’t be easy but they can. They should not consider throwing the debt ceiling debate into the December negotiations over taxes. This is the issue that R’s should use to bring Obama in line next year. They should do it, but we are going to have to reestablish some backbone right now over the so-called fiscal cliff by voting for tax cuts for everyone. We can’t allow Obama to smell blood in the water. Holding tax rates down is the first test.