"Don't Believe What's Said About the Debt Ceiling"

Posted by Ian Cooper - Wednesday, January 12th, 2011

From Economist's View:

"First, not raising the current federal debt limit absolutely will not immediately shut down the federal government. ... Government shutdowns occur when the appropriation that funds a department or agency isn’t enacted. ...
Second, and again contrary to what some have stated as gospel, reaching the debt ceiling will not automatically lead to a federal default on the nation’s existing debt. That will only stop the government from borrowing more than the current limit and force it to rely on other ways to finance its activities.
Although the comparison isn’t perfect, the situation is similar to what happens when individuals max out credit cards. They don’t stay home with the lights off, gently rocking back and forth in a corner; they find other sources of money or change their activities to match the cash available. That could mean delaying paying a bill, taking cash from a savings account, getting a loan from a family member or friend, waiting for the next paycheck, or selling a car or some other possession. ...
In a letter last week to Speaker John Boehner ... about the debt ceiling, Treasury Secretary Timothy Geithner mentioned that the federal government has an equivalent to each of these things. What Geithner didn’t mention is that the federal government also has a number of other tactics, such as leasing an asset..."
Read more here.

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