Toomey: Default Not Necessary

Andrew Stiles from "The Corner" [National Review Online] summarizes Toomey here on the matter of the debt ceiling and the hysteria and fear mongering around it:


As part of his continued effort to dispel the conventional wisdom regarding the debt limit (i.e., hysteria over imminent default), freshman Sen. Pat Toomey (R., Pa.) stopped by the American Enterprise Institute on Wednesday to set the record straight.

It’s not that Toomey opposes any increase to the debt ceiling — he’d support one if meaningful spending cuts and reforms are attached — but he insists that it is “absolutely false” for the Obama administration to “rhetorically equate” failure to raise the debt limit with a national default. Indeed, Democrats have repeatedly accused Republicans “playing chicken” with the full faith and credit of the United States.

Toomey argues this is bunk for two simple reasons: 1) next year’s projected tax revenue (approx. $2.2 trillion) is more than enough to service the roughly $200 billion in interest payment the U.S. owes on its debt, and good for about 75 percent of all government expenditures like Medicare, Social Security, defense, etc.  – “There is no danger of a shortage of cash to pay the debt,” Toomey said. And 2) Treasury has the authority to prioritize payments to ensure the country doesn’t default.

In other words, a default is certainly a possibility, but it wouldn’t be the result of Congress’s failure to raise the debt ceiling, but rather a failure of the White House to take measures necessary to prevent it. For this reason, Toomey introduced legislation earlier this year that would instruct Treasury to take these measures and prioritize payment on the debt in order to “take the specter of default off the table.” His goal being to simply put an end to concerns that are being fueled by dishonest and inflammatory rhetoric in order to have a sober conversation about the (spending) problems that we face. Democrats, however, seem to prefer to keep the American public good and scared. Toomey’s bill – the Full Faith and Credit Act – failed on a party line vote in the Senate.

Not raising the limit would be “disruptive,” Toomey acknowledged, but far from the “catastrophic default” the White House has been warning of.

He cited a recent interview in the Wall Street Journal with Stanley Druckenmiller in which the legendary investor (who owns a substantial amount of U.S. Treasury bills) suggested that doing nothing to address country’s unsustainable debt problem would do far greater damage to the U.S. economy than a technical or temporary default, saying: “People aren’t going to wonder whether 20 years ago we delayed an interest payment for six days. They’re going to wonder whether we got our house in order.” Toomey, a former bond trader himself, said he had been hearing these concerns from many in the financial community.

That is why it is vital that Congress work together on a deal to significantly cut spending and reform the spending process to ensure history doesn’t repeat itself. “The most irresponsible thing Congress could do is not insist on a change of course,” Toomey said. “I’m confident that it’s not too late, but my intuition is that the window of opportunity is closing. We need to move now.”

Otherwise, the U.S. risks suffering the same fate as Greece, a country whose economic collapse came on swiftly and unexpectedly. As it stands, Treasury bill rates remain low, an indication that markets believe the U.S. government will resolve the issue, but that could easily change, and rapidly, especially in the event of some unforeseen event like a terrorist attack or natural disaster.

In exchange for an increase in debt, Toomey would like Congress to approve a Balanced Budget Amendment, strict spending caps and significant cuts in next year’s budget. When a family spends too much and maxes out their credit cards, he said, the answer in not to simply “throw them another credit card.” As for any increase he taxes, he is firmly opposed – higher revenue must come through economic growth. “And it’s going to be hard to see how [a deal] will pass the House if they raise taxes,” he added. But the two parties may be able to find common ground on tax reform that lowers rates by closing loopholes.

Toomey said he was hopeful that Democrats would “come around” because the American people are demanding that their government get serious about addressing the problem. Freshman Senators like himself, not to mention the new class in the House, Toomey argued, ought to have the keenest sense of where the public stands. The stakes are certainly high, but so are his hopes for the country. “If we make the right decisions now, the 21st century can be another great America century,” he said.