Could the U.S. Survive a Default? Debt Ceiling and Continuing Resolutions

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Smaller Government The Answer?

President Obama’s signature health care legislation, intended in part to help lower the cost curve, could instead do the exact opposite.

The last point cuts to the heart of the Tea Party’s willingness to vote against increasing the debt ceiling. To wit: the U.S. government, already too big and unwieldy, will be even bigger with the advent of Obamacare.

Instead of endless debt ceiling bumps and interminable bickering over raising taxes versus cutting spending, holding firm to the debt ceiling would force the government to immediately shrink to avoid default. Initially, debt repayment would be prioritized, with some obligations still being paid in full, others partially paid, and still others delayed while the government sought solutions.

Ultimately, if no solutions were forthcoming, the government would have to reduce to the point where income was exactly aligned with expenses. The budget would be forced into balance.

Opponents argue moderate reforms to entitlements and slow, measured cuts are preferable to a massive shock like the scenario described above. As has happened in Europe, sudden austerity in the U.S. could thrust the country into another deep recession. If so, tax revenues would shrink, and without the ability to borrow, spending would be further reduced. A vicious cycle might begin that, in theory, could dwarf the Great Recession.

Of course, this is all conjecture, as nobody seriously believed that the United States would go over the edge of the default cliff. The legislation passed by Congress buys about 90 days for legislators to negotiate a long-term solution. With the partisan divides as deep as they are, the odds of another default crisis occurring in about 89 days are incalculably high.

America’s Debt Crisis: What’s The Solution?

Although virtually everyone agrees something must be done, almost nobody agrees how to do it. Passions are high on all sides, as evidenced by the seemingly-permanent management-by-crisis dysfunction currently gripping Congress. Thus, the following quote by Susan Sontag seems particularly apropos in this day and age of American politics: “The truth is balance. However, the opposite of truth, which is imbalance, may not be a lie.”

Indeed.

Resources

McSherry, Mark. Week Ahead: What if $16.7 Trillion Debt Climbs to $25 Trillion? (2013). Forbes. Accessed October 17, 2013.

Trading Economics. United States Government Debt to GDP(2013). Accessed October 17, 2013.

Plumer, Brad. Hitting the debt ceiling would be terrible even if we didn’t default. (2013). Washington Post. Accessed October 17, 2013.

U.S. Government Revenue. Federal Budgeted 2013 Government Revenue(2013). Accessed October 17, 2013.

Brainy Quote. Balance Quotes. (2013). Accessed on October 17, 2013.

Brainy Quote. Mike Lee Quotes(2013). Accessed  October 17, 2013.

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