The Obama administration desperately wants a raise in the debt ceiling. But its warnings of what will happen if Congress does not raise it are filled with contradictions.
According to Politico, Reuters, and The Denver Post, Treasury Secretary Tim Geithner sent a letter yesterday to Senator Michael Bennet (D-CO), saying that if Congress does not raise the debt ceiling by August 2 at the outside, the country will slide into recession again. That argument assumes that the country is not still in recession. Geithner said that, unless the government can borrow more money, it would go into default, with “catastrophic” results.
A default, says Geithner, would cause holders of the country’s debt to sell it at a loss, and refuse to buy any more. The Treasury would then have to sell new bonds at a deep discount. Interest rates would rise, businesses could not grow as easily, and consumers could no longer afford to buy as many goods, especially the “big-ticket items” like cars and houses.
Neither Geithner, nor his boss, nor anyone else has produced one scintilla of proof that default would occur. Colorado Representative Doug Lamborn refuses to believe it:
We’re getting money in every day and only a fool would not to continue to pay our obligations. There is no connection between not raising the debt ceiling and defaulting on bonds. [Emphasis added]
The worst that would happen, according to investor Stanley Druckenmiller (who shared his thoughts with The Wall Street Journal), is that some US bondholders would have to wait a few days to get their interest payments. That alone should not panic anyone. The reason: the very idea of a delay would force the White House to negotiate massive cuts in the federal budget. These are the only things that can save those debt instruments from total default, and those who trade Treasury bonds, notes and bills for a living would know it.
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And if Congress does raise the debt ceiling, with no concession from the White House, then those same traders would realize that the government was not serious about straightening out its finances. They then would sell their bonds, thus bringing about the very dire results that Geithner is warning about.
And even if the bond traders did not sell, the Arabs might. Or they might do what the Iranians are already doing: insist that the world pay them in euros, or gold, and not dollars, for their oil. Or maybe they will demand even more favors from America, favors that will bring shame and disgrace on the country—like more pressure on Israel to re-divide Jerusalem.
Three-fourths of the American public do not want Congress to raise the debt ceiling. For once they agree with at least some of the experts: either Geithner and his boss are lying, or, if they are telling the truth, the public would rather see the bondholders have to wait a few days than to see their children have any more debt to service. Or to see America have to do someone else’s bidding.
Terry A. Hurlbut has been a student of politics, philosophy, and science for more than 35 years. He is a graduate of Yale College and has served as a physician-level laboratory administrator in a 250-bed community hospital. He also is a serious student of the Bible, is conversant in its two primary original languages, and has followed the creation-science movement closely since 1993.
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