Here’s Why the U.S. Can’t Default

Tick-tock, the debt ceiling deadline is fast approaching, leading, as ever, to the fevered warnings of default from the advocates of endless spending in and around the Beltway. It can’t be said often enough: default on the national debt isn’t going to happen. In fact, it’s all but impossible.

To see why, first take a look at this table from last month’s report of the United States Treasury.

You can see that in September, 2015, the Treasury received about $365 billion in receipts from various sources. Interest payments on the debt, on the other hand, were only about $21 billion. The Treasury continues to receive inflowing cash all year long, and given that interest payments are only a small fraction of receipts, there is no danger of running out of the necessary funds to keep the creditors from our collective door.

But wait! What if all that money is used for something else, with nothing left over for debt service? It’s a fair question, and the Treasury is quick to insist that this is a real danger, but in fact, it’s not.

Section 4 of the 14th Amendment to the U.S. Constitution states:

The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any state shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

In a 1935 Supreme Court case, Perry v. United States, the Court ruled that, under the 14th Amendment, voiding a government bond was beyond the authority of Congress, and constitutional scholars believe that this ruling requires the Treasury to prioritize debt payments above all else.

So not only does the Treasury have the money to pay for interest on the debt, they are legally required to do so. Realizing that a failure to immediately raise the debt ceiling is not the end of the world, it’s important that Congress start to stake out some solid ground on demanding real reforms in exchange for more spending and more debt, with a good place to start being FreedomWorks Senior Economic Contributor Stephen Moore’s proposal to rein in the growth of government.