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As we approach the next artificially constructed, politically motivated, intentionally promoted national crisis, we should keep one thing in mind: though we speak of a national debt, there is no single national debt.
The debts the government owes are real enough, and a source of national shame, totalling as they do over $16 trillion. But those debts are owed to millions of holders of the various Treasury notes, bills, and bonds, each of whom may own multiple securities of various maturities. Sold weekly, the securities come due and, as people get around to it, are either rolled over or redeemed every business day.
That is important because as we run up against the debt ceiling, the fear mongers will claim that failure to raise the ceiling will cause us to default on the debt, as if it is one single sum owed to a single debt holder. Defaulting on it is made to sound like the sky is falling, as if it would be the end of the nation itself.
Another category of securities are those held by government agencies, such as the Social Security "Trust Fund" and the federal pension funds. Failure to redeem one of these securities would be politically explosive, exposing the duplicitous nature of the generational theft caused by runaway spending.
In fact, defaulting on one of these debts, as stupid and irresponsible as that would be, would merely cause people to reconsider the soundness of tying up their money in Treasury securities. That would cost the government more in interest payments in the future, which would probably lead to a chain reaction of inflation. On the other hand, it might lead people and institutions to invest in more productive ways, such as in the stock market.
A debt default is not the end of America, but it would be the end of one kind of easy money for the big spenders in its government, and make balancing the budget all the less likely. It would be a very bad thing, all the more so because it is so unnecessary.
The federal government takes in hundreds of billions per month from its various sources, such as payroll taxes and federal income withholding. The income is enough to meet interest payments and notably to pay off the principal on maturing securities.
As Peter Ferrara says, we must correct the debt dishonesty to win the debate:
Federal individual and corporate income taxes, and excise taxes, are more than 6 times greater each year than the interest on the national debt. So if President Obama wants to focus on paying the bills we have already racked up, he doesn’t need to borrow still more to do that. That would only rack up still more bills.
The only chance of default, therefor, is if the Treasury Department decides to prioritize above debt service the payment of some other government obligation -- such as the President's greens fees or the power bill at the Department of Energy.
There are probably as many of these other federal expenditures as there are federal debts. We must begin making decisions now to decide which of the federal expenditures has lowest priority, so paying it can be delayed or eliminated in the event of a debt limit freeze.
The bad news: the federal government borrows about 40% of what it spends. I refuse to spend a single minute figuring out if that 40% figure is accurate. Whether the actual figure is 25%, 40%, or 60%, the effect is the same: smart cuts must be made to prioritize debt service over other spending.
The natioanl debts are trillions of dollars that could be put to productive use in the economy, but are instead loaned to the federal government in what are thought to be low risk loans. The risk is indeed low that the President and his Treasury Department, for all their bluster, would foolishly fail to service the nations's debts.