The United States is again approaching its debt limit, though an improving economy and new revenues have pushed the deadline for when it will need to be raised as far back as October. And yet again, Republicans are pushing legislation that amounts to nothing more than a phony fix to the issue, a bill known as the Full Faith and Credit Act that will prioritize debt payments in a way that House Speaker John Boehner (R-OH) says “makes it clear to our bondholders that we’re going to meet our obligations.”
But such a plan makes it clear that the U.S. will meet only some of its obligations, leaving many Americans, including troops, veterans, and the elderly, out in the cold. Boehner doesn’t see that as a problem, he told Bloomberg TV last night:
COOK (Host): Doesn’t it mean as Democrats have suggested you’re basically choosing to pay China before U.S. troops?
BOEHNER: Listen. Those who have loaned us money, like in any other proceeding, if you will — court proceeding — the boldholders usually get paid first. Same thing here.
Worse yet, the Republican plan doesn’t allow the nation to avoid default. If the U.S. services its debt payments but still misses others, it is still defaulting on payments it is required to make. Since the bill only allows Treasury to make payments as it receives revenues, and the bulk of its payments are made at the beginning of the month even though revenues don’t come in until later, it would almost certainly be unable to meet at least some of its obligations.
When the GOP has considered similar plans before, Treasury officials have called it “unworkable.” Bipartisan analysts said it was “essentially impossible.” Failing to fulfill spending obligations would be “the first step to becoming a banana republic,” a Bush-era Treasury official said. Instead of inspiring confidence among investors, bondholders, and the American people, the legislation would zap it.
Far from preventing default, the Full Faith and Credit Act would essentially ensure it. That wouldn’t just put paying China ahead of senior citizens and members of the military — it would also hammer economic growth both in the United States and across the world. (HT Huffington Post)