On Default, Obama Is Not Lying

People think Obama is lying about the disastrous impact a debt default would have. They're wrong.

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As the nation is approaching its debt limit, views as to what constitutes default, whether default can be avoided through payment prioritization and what the consequences of default would be are still diverging along partisan lines. The administration, as well as many outside observers, has painted doomsday scenarios; many conservatives, most prominently represented by Rep. Ted Yoho, R-Fla., have begged to differ.

I am personally in the first camp, and certain financial-market indicators suggest that those with money at stake are as well. For example, the interest rates faced by the Treasury Department when selling Treasury Bills have started soaring (see the graph below; data comes from the Treasury Department), indicating concerns that a U.S. default on its sovereign debt is a real possibility.

[See a collection of political cartoons on the economy.]

That said, the president did the non-Yohoistas no favor yesterday, when he implicitly acknowledged that payment prioritization, which many conservatives have lauded as an acceptable path forward, is indeed possible. This flies in the face of earlier claims that such a thing was legally and logistically undoable.

Of course, moving from obfuscation to clarification constitutes progress in and of itself. The problem here is that this new stance will strengthen the convictions of conservatives who have never trusted the administration's broader claims to begin with. Their reasoning may now well be that after lying about the impact of the sequester, lying about the IRS' targeting of tea party groups, lying about Fast and Furious and lying about Benghazi, the administration is now lying about the risks of not raising the debt limit, just to get its way. That inference is not entirely unreasonable.

But this time, the administration is not lying. This time, those conservatives who see no downside risk are wrong. Let us hope they realize that soon, in spite of President Obama's lack of leadership turning any and all budget fights into almost insurmountable obstacles on the road to full recovery.

Stan Veuger is an economist at the American Enterprise Institute.

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