Debt Ceiling Bondage
One has to appreciate the hypocrisy of the Obama White House. They ignore the Constitution and any laws previously established, yet work to have new laws written as if we must follow their laws and not laws written by others. A perfect example is the current debate on the national debt.
Written law, long established by statute, court rulings, and societal acceptance, held that bondholders have a primary claim against corporate assets in the case of bankruptcy. Stockholders, being technical owners of the company are the last paid sellers of services and products secondary and bondholders first. However, the current White House, led by President Obama, when faced with the automakers insolvency, ignored this law and dismissed the bondholders and sent them packing. It was a decision based on the politics of favoritism to the unions and the government. President Obama and Treasury Secretary Timothy Geithner saw no problem with this usurpation of established law, nor did they seem concerned about what might happen to the bond market.
Fast forward to now. The United States is approaching a statutory debt limit. President Obama and Timothy Geithner are warning of major catastrophes if the debt limit is not increased. They warn of unpaid bonds and the financial horror those will entail. Why the change of attitude? Here is hypocrisy at its best. The answer, as often true of hypocrites, is because this time there is no political advantage to the Obama White House in ignoring the law and taking advantage of the bondholders.
But let us go further and examine the scare tactics. Why, if there were no increase in the debt limit, would bonds go unpaid? That happening would be from a choice the government makes in which bills to pay. A simple comparison is this. If you use your credit card to spend more than you make, what do you do when you max out your credit card? You stop spending more than you make. If the bond holders are compared to the rent/house payment, you don’t stop paying that simply because your credit card is maxed out. You stop spending. All a debt limit does is limit the amount borrowed. Like the maximum on a credit card. If we are borrowing to pay debt then that would be a problem. But we’re not borrowing to pay debt; we’re borrowing, which creates new debt, to pay for new government spending. Why could we not stop spending on some programs? We wouldn’t need to borrow any more and the debt limit would cease to be a problem. That was easy.
In fact President Obama, he who voted present so many times while a Senator, doesn’t want to be involved in this debate. So what he says is the debt limit must be raised or the sky will fall. But he didn’t worry about the sky when the GM bondholders were not getting paid. And the sky didn’t fall.
And what if we decided not to pay the bondholders. What if the government decided to wipe out the debt and say: we’re not paying anyone. We’re starting over from scratch on a pay as you go basis. Now there’s an interesting thought. $14,000,000,000 in debt gone. We could lower our tax rates. Our children wouldn’t be in hock before they are born. In fact it would be a curious exercise, if economically distressful. Which brings us to the reason it is not going to happen and thus puts the lie in Timothy Geithner’s scare stories. It would change the power structure of the government and those who are getting rich through government service and relationships would be pushed away from the trough. Our bureaucrats and many elected representatives are very involved with this group and are not going to do that to themselves intentionally, so the debt will get paid. Something else will have to go, because the debt ceiling limitation has to do with new borrowing. It has nothing to do with prioritizing payments. So Congress, with Sue Myrick leading the way, will pay itself first, bondholders second, military third, some parts of government fourth, and then the going gets rough. Medicare, Medicaid, Social Security, the EPA, agriculture department, National Endowment for the Arts, etc.
This then is why our Republican House can avoid raising the debt ceiling until Obama finds some cuts he is willing to make. Because if he doesn’t find those cuts, he will have to make them anyway. President Obama, he who voted present so much, is going to have to make a few political decisions he doesn’t like, and the hypocrite in him is having conniptions.
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