It remains to be seen whether President Obama signs onto the House GOP's plan to raise the debt ceiling for an additional six weeks – the details of the plan are still unclear. Barring an agreement, the country is a week away from defaulting (regardless of what the debt ceiling deniers might claim). What would this mean?
Jason Furman, the chairman of President Obama's Council of Economic Advisers, gave a pretty good description of one aspect of the crisis this morning. He noted that November is usually the second worst month of the year in terms of the deficit between what the government spends and what it takes in. In November 2012, for example, the government had $172 billion more in expenditures than it did in revenue. So using that figure as an example, you would have to cut spending by $172 billion in a single month.
As a point of comparison, he said, the sequester only required $40 billion in real spending be reduced over seven months. And while many on the right and in the short-attention-span-media think that the sequester has been harmless, the facts show otherwise, as Pat ably demonstrated yesterday. So failing to raise the debt ceiling by October 17 would be, Furman said, "just a vast, vast, vast fiscal contraction compared to anything we've ever done."
And that, keep in mind, is just the austerity effect and doesn't even touch on the question of default. Some on the right have argued that in the worst case scenario the Treasury Department could prioritize its payments and, for example, pay the interest due on the money the government has borrowed. But even if that was the case – and at best it's an open question – the U.S. would still be failing to pay its other bills. "We think it's a default if you're not paying Social Security, if you're not paying small businesses, if you're not paying veterans," Furman said. In fact as the American Enterprise Institute's Stan Veuger (not exactly an Obama-ite liberal) writes today, the prospect of default is already having negative impacts on the interest rates the Treasury Department is dealing with when selling Treasury Bills.
The reason that we're the world's reserve currency is because there's no doubt that we'll pay our bills. If we start failing to do that – even if we were to somehow make interest payments on loans – it would be knocking out that key lynchpin of the global economy. This would be bad.
As the GOP's modern patron saint, Ronald Reagan, once said of the debt ceiling: "The United States has a special responsibility to itself and the world to meet its obligations. It means we have a well-earned reputation for reliability and credibility – two things that set us apart from much of the world."
Conservatives would do well to not squander that well-earned reputation.