There was a lot of scare declarations about the disastrous effects of the US defaulting on its debt if it congress didn’t raise the debt ceiling. Virtually all of it was wrong. We were told that the country had never defaulted on its debt. It’s done so several times, the last was in 1979. As we’ll see the country was never in danger of a debt default.
Let’s start with a definition. According to Investopedia “default is the failure to repay a debt, including interest or principal, on a loan or security. A default can occur when a borrower is unable to make timely payments, misses payments, or avoids or stops making payments. Individuals, businesses, and even countries can default if they cannot keep up their debt obligations.” Would this occur if the debt ceiling were not raised? Not according to the data published by the US Treasury As you can see in the figure below total US government receipts in August of this year were $268 billion. Interest on the debt was $43 billion. There was also enough income to fund Social Security and Medicare. The deficit is enormous and will eventually bring down the country. But for now default on the debt was not going to happen irrespective of what congress did.
If the deficit limit were not breached, a lot of programs dear to the hearts of politicians, voters, and other residents would have to be cut. Much pain would endured, but default would not be among them. Terrorizing the public seems to be today’s raison d’etre for the existence of the government and the media. What we should really fear is what awaits us around the fiscal corner. Our current financial policy is akin to treating cancer with big doses of morphine. It’ll work for a while, but everyone know what soon follows.
