George Rebane

Just for the record, I don’t want any RR reader to be bamboozled by the bilge water that the administration and Dems are trying to float on raising of the debt limit issue.  The word from the progressives, abetted by Bernanke and Geithner, is that if the debt limit is not raised this May, then America will default on its debt service, and the world will sink into financial chaos.  This is absolute bull crap floating in bilge water.

1. The feds pull in over two trillion a year in taxes, etc.
2. The US currently owes north of $14T which requires around $450B in annual debt service costs.
3. With the current authorized debt limit of about $14.3T, we can still roll over debt and borrow to that level.
4. Instead of defaulting on debt (and causing all that “chaos”) we can always pay our debt service out of current federal receipts – how?  By reducing the size of government along with the entitlement payments we make to our own citizens.
5. No foreign/private lender needs to be stiffed, they will continue to get their interest payments regular as clockwork.  The overdue pain we cause ourselves will not concern our foreign or domestic creditors.
6. Given the demonstrated discipline of NOT increasing the debt limit, foreign lenders will feel more, not less, confident in continuing to lend at our current debt limit.  The chances of getting their principal back would just go through the roof, instead of sinking into the mud.
7. The politicians who have been lying to the voters about being able to afford current entitlement programs and solving the problem with taxing the bejeezus out of the ‘rich’ will be out on their collective butts, and have to get real jobs or sign up for transfer payments.

So in the coming weeks, when we hear the socialists scream about ‘playing Russian roulette with the nation’s future’ and ‘putting the debt burden on the backs of the poor’, stand up and tell your electeds that you too know how to do the arithmetic of debt service and debt financing the country.  Defaulting on our debt service is not tied to what we do on raising the debt limit or not.  But it is tied to a certain political class hoping that you’ll drink the bilge water that they are serving up while you’re too busy to pay attention.

PS.  For the aficionados, listen very carefully to what Bernanke and Geithner say about debt limit and defaulting.  Neither claims that refusing to raise the debt limit will cause problems.  Each only states a likely result of financial turmoil IF the US doesn’t make its debt service payments.  Both are counting that you will unthinkingly connect the wrong dots, and conclude that chaos is automatically linked to what Congress does on the debt limit in May.  But then, you all knew that.

[update]  As if we rehearsed it, Standard & Poor’s this morning changed its outlook to “negative” on America’s ability to repay its debts (WSJ report here).  It isn’t so much that our economy still can support such repayments, it’s that we will not get our political act together in time to save the economy from its inevitable fate as we continue to borrow in the trillions into the indefinite future.  S&P simply says that it sees no evidence that we will make meaningful progress toward solving our fiscal crisis, and therefore advises us to standby for having our AAA credit rating reduced – and that’s only the first step.

RR readers know when this happens our debt service costs will start soaring as interest rates go up.  For some time now someone around here has been musing about shorting government debt instruments – oh yes, c’est moi.