The dumb and dumber debt ceiling fight

Sen. Pat Toomey's brilliant plan: Blame the White House for Republican-induced economic and political chaos

Topics: Budget Showdown, How the World Works, Debt ceiling, Pat Toomey, Timothy Geithner,

The dumb and dumber debt ceiling fightTreasury Secretary Timothy Geithner testifies on Capitol Hill in Washington, Tuesday, March 15, 2011, before the Senate Banking Committee hearing on the housing finance market. (AP Photo/Harry Hamburg) (Credit: Harry Hamburg)

Senator Pat Toomey, R-Pa., proposed an interesting theory on Friday: It’s Treasury Secretary Tim Geithner’s fault if a failure to raise the debt ceiling results in the U.S. defaulting on its bond obligations.

Toomey reasons that Geithner has the freedom to pick and choose what debts the U.S. should pay. Since just about everyone agrees that defaulting on bond payments would precipitate a major international economic crisis, possibly kicking of another recession, and end the dollar’s preeminent status as the world’s preferred reserve currency, Toomey believes that Geithner should simply choose to pay those debts first and stiff other creditors, like, for example, Americans getting unemployment benefits or Social Security checks.

From The Hill:

“… the Treasury secretary himself has the discretion to decide which bills to pay first in the event that a cash flow shortage occurs. Thus, it is he who would have to consciously, and needlessly, choose to default on our debt if the debt ceiling is not promptly raised upon reaching it. It takes a lot of chutzpah to preemptively blame congressional Republicans for a default only he could cause,”Toomey said.

He said that Geithner has argued foolishly that failing to pay welfare payments or furloughing workers would send bad market signals that are equivalent to a default.

Foolish? Here’s what Deputy Secretary Treasury Secretary Neal Wolin said in a statement in January, in response to Toomey’s announcement that he planned to introduce legislation which would require Treasury to make interest payments on its debt the first priority in the event of a failure to raise the debt ceiling.

“[T]his idea is unworkable. It would not actually prevent default, since it would seek to protect only principal and interest payments, and not other legal obligations of the U.S., from non-payment. Adopting a policy that payments to investors should take precedence over other U.S. legal obligations would merely be default by another name, since the world would recognize it as a failure by the U.S. to stand behind its commitments.”

Doesn’t sound all that foolish to me. As explicitly suggested by the recent decision by Standard & Poor’s to change the U.S. credit outlook from “stable” to “negative,” financial markets are nervous that political gridlock might prevent Washington from taking the necessary action to address its long-term fiscal situation. If a failure to raise the debt ceiling results in the United States failing to make Social Security payments — or any other statutorily required payments to U.S. citizens, the markets are unlikely to respond favorably.

And that doesn’t remotely take into account the political chaos that will break out if the Treasury privileges paying interest payments on debt owned by the Federal Reserve, China, and Japan over the social safety net. It’s really hard to imagine a stupider strategy: Stop paying unemployment benefits while doing everything you can to start another recession.

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

More Related Stories

Featured Slide Shows

  • Share on Twitter
  • Share on Facebook
  • 1 of 10
  • Close
  • Fullscreen
  • Thumbnails

    Romance novels need a canon

    "Bet Me" by Jennifer Crusie

    A contemporary romantic comedy set to Elvis Costello and lots of luxurious and sinful sugary treats.   Read the whole essay.

    Romance novels need a canon

    "Welcome to Temptation" by Jennifer Crusie

    Another of Crusie's romantic comedies, this one in the shadow of an ostentatiously phallic water tower.   Read the whole essay.

    Romance novels need a canon

    "A Gentleman Undone" by Cecilia Grant

    A Regency romance with beautifully broken people and some seriously steamy sex.   Read the whole essay.

    Romance novels need a canon

    "Black Silk" by Judith Ivory

    A beautifully written, exquisitely slow-building Regency; the plot is centered on a box with some very curious images, as Edward Gorey might say.   Read the whole essay.

    Romance novels need a canon

    "For My Lady's Heart" by Laura Kinsale

    A medieval romance, the period piece functions much like a dystopia, with the courageous lady and noble knight struggling to find happiness despite the authoritarian society.   Read the whole essay.

    Romance novels need a canon

    "Sweet Disorder" by Rose Lerner

    A Regency that uses the limitations on women of the time to good effect; the main character is poor and needs to sell her vote ... or rather her husband's vote. But to sell it, she needs to get a husband first ...   Read the whole essay.

    Romance novels need a canon

    "Frenemy of the People" by Nora Olsen

    Clarissa is sitting at an awards banquet when she suddenly realizes she likes pictures of Kimye for both Kim and Kanye and she is totally bi. So she texts to all her friends, "I am totally bi!" Drama and romance ensue ... but not quite with who she expects. I got an advanced copy of this YA lesbian romance, and I’d urge folks to reserve a copy; it’s a delight.   Read the whole essay.

    Romance novels need a canon

    "The Slightest Provocation" by Pam Rosenthal

    A separated couple works to reconcile against a background of political intrigue; sort of "His Gal Friday" as a spy novel set in the Regency.   Read the whole essay.

    Romance novels need a canon

    "Again" by Kathleen Gilles Seidel

    Set among workers on a period soap opera, it manages to be contemporary and historical both at the same time.   Read the whole essay.

  • Recent Slide Shows



Comment Preview

Your name will appear as username ( settings | log out )

You may use these HTML tags and attributes: <a href=""> <b> <em> <strong> <i> <blockquote>