False Prophets of Debt Ceiling Doom

As the debt ceiling deadline of August 2 draws closer, the demagoguery and fear-mongering of government officials has ramped up. This is not surprising given Washington’s spending addiction. Despite their harsh words and prophecies of Armageddon, I explain in The Orange County Register that these fears are no more than political theater and that the real threat is continued unsustainable spending financed through a debt limit increase.

Contrary to what spendthrift politicians have been saying, reaching the federal debt ceiling does not automatically trigger default. The debt limit simply caps the amount of debt that the U.S. Treasury may issue. The Treasury has the ability to prioritize its payments to bondholders and sell off assets (like TARP funds and gold) to avoid a default situation. Debt interest payments total $214 billion for 2011 – that’s less than 10 percent of $2.2 trillion in expected tax revenue this fiscal year.

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Raising the ceiling for the 11th time since the start of the new millennium tells investors that the U.S. government is not serious about controlling its spending addiction. Instead, curbing the issuing of more debt and cutting spending will signal to bondholders that the government is finally trying to address the problem that created a debt crisis in the first place.

Read the whole article here.