RE: Another Dumb Right-Wing Idea: Default on the Debt
Bruce's excellent post on Glenn Reynolds dumb idea of having the U.S. default on its debt as a way to force spending cuts began to generate a good deal of buzz in the blogosphere almost as soon as it was up for all to see. Here's Matthew Yglesias' and Mark Thoma's take, for example.
Let me add two things to Bruce's analysis.
First, interest on the national debt is paid as a result of a permanent appropriation and is the most mandatory of all mandatory parts of the federal budget. It was enacted at the insistence of Alexander Hamilton (yes, THAT Alexander Hamilton), who convinced Congress that no one would lend the new United States government money unless they were sure that they would get it back when the time came. Hamilton wanted to make it clear to the would be lenders (as I recall, it was mostly the Dutch at the time), that a future president and Congress couldn't refuse to pay because there were new priorities such as making sure that Saddam Hussein was out of Iraq, that no child was left behind, or that taxes were cut.
Because of this permanent appropriation, the only way a default could occur would be if Congress passed and the president signed legislation repealing it and making the interest payments discretionary. While that's technically possible, the political likelihood of members of Congress voting for legislation that would be characterized as the "Let The United States Default And Instantly Become A Banana Republic Act" is relatively small. This especially would be the case because of the virtually immediate increase in interest rates that would occur.
Second, there's no guarantee that spending would be cut as Reynolds is assuming if the U.S. defaulted on its current debt and found itself unable to borrow. Tax increases would be at least as likely.