Pat Toomey’s Slow Motion Default Plan a Non-Starter in Senate

Brian Beutler says Pat Toomey’s plan to default on non-bond, non-military obligations is going nowhere:

Since there’s no precedent for the government running out of borrowing authority, some leading Republicans even want to revisit an idea first proposed by Sen. Pat Toomey (R-PA) during the 2011 debt limit fight, to require the Treasury to prioritize debt service over other federal obligations.

“We should pass a bill out of the House saying there will be certain priorities attached to certain things, namely payment of debt services and payment of our military,” Toomey said on Laura Ingraham’s radio show last week.

That creates an opening for Democrats to remind the public how extreme the consequences of a debt limit breach would be, and how prioritizing creditors would make the crunch for ordinary Americans even worse.

“This proposal to prioritize payments to foreign creditors over those to seniors, families, and veterans is the wrong way to go and it’s an absolute nonstarter in the Senate,” said Senate Budget Committee Chairman Patty Murray (D-WA) in a statement to TPM. “Anyone concerned about the devastating impact hitting the debt ceiling would have on our economy and our credit rating should work with Democrats to do the responsible thing and raise the debt limit so the government can pay the bills we’ve already accrued.”

But as experts at the Bipartisan Policy Center have noted, prioritization isn’t technically straightforward, and may not even be possible, if debt service obligations exceed revenues on any given day.

Comments

  1. GDub says:

    There are a couple interesting things in this post.

    1. All sides seem to acknowledge that ordering a priority of payments is in theory possible, just that some disagree with it. Patty Murray doesn’t think its “right” to order debt repayment over, say, Social Security–which is disagreeing with practice, not principle. The Treasury IG is saying they have to go to slow-payment because there is no guidance from Congress–which seems to be exactly what Pat Toomey’s bill wants to give.

    2. I would be interested to hear from Senator Murray how future borrowing is what pays back the debts we have already accrued. Is this a “refinance”? I guess it depends on the meaning of “debts” and “accrued”

    • Jon Geeting says:

      Patty Murray is disagreeing with Pat Toomey’s principle that we have to choose between things to pay for. We can and should pay for all of the spending that we’ve passed.

  2. GDub says:

    She really says no such thing. Toomey says, if there is such a situation, there should be rules on how to handle it. Murray says, the best way to solve the situation is not to have the situation. Both could be “right”–but she’s really not responding to his premise, so she’s not disagreeing with him.

    • Jon Geeting says:

      His premise is ridiculous. There should never ever be a situation where Congress mandates spending, but then witholds the legally authority to release payments.

      • John says:

        Jon the whole point of good planning is to be prepared for every contingency. Excluding planning points because “there should never be a situation…” is a poor excuse for not planning.

        Following that example, we shouldn’t plan for an accident at a nuclear plant because “it should never happen…”

        You don’t like what Toomey is bringing up and that’s fine – you’re not making a case that we shouldn’t plan for it, in fact you’re making a great case that we should.

        • Jon Geeting says:

          I don’t think that we should have to plan for a situation where opposition politicians tank the country’s credit rating, because the law should not give anyone the power to do that. There is not a situation other than this that would leave us unable to pay our bills on time.

  3. GDub says:

    I don’t disagree. However, for political parties to say things that are overblown or misleading does a disservice to public debate.

    Default is the result of some deliberate political/fiscal choices (what to pay and when) and serendipity (not earning enough, other unforeseen external factors). There are plenty of bad things other than default that may well happen as a result of this. Win the debate by hammering at the obvious and true.

    • Jon Geeting says:

      What is misleading? If we don’t release payments to any of the people who are legally owed money by us, the markets will freak the fuck out. I don’t think you are denying this. So on to the next point – the only reason we would miss any of the payments to anyone who is legally owed money is if the Republican Party does not raise the statutory debt ceiling. There is no chance that we would miss payments because of “not earning enough” because we pay with borrowed money. I really do not understand what you think the Republicans’ point is supposed to be.

  4. GDub says:

    I guess its the difference between solid policy writing and just more talking points. Using words in a precise way is one of the key differences in the first.

    I don’t blame the President for trying to backfoot the opposition. Tactically, I guess that’s what happens. Some might ask about paying back debt with more borrowed money, and if that’s the best way to utilize borrowed money, but that’s neither here nor there.

    The writers you cite say that without an increase in the debt limit, there will be a DEFAULT. Not bad things, not rises in interest rates. A DEFAULT. By the proper definition of this word, this does not have to be true, so why say it? DEFAULT does not mean “bad.”

    Here’s the line of reasoning in this article

    1. Treasury (executive branch rep) says–there is no statutory guidance on what to do without debt authority, so we say we’ll just pay people in order. There’s nothing that says we can’t do that.
    2. Congress guy says–ok, we propose statutory guidance that says you’ll pay the bills that keep us out of default first, and pay the rest later.
    3. Congress person 2 says–I don’t like your proposed statutory guidance on philosophical grounds–its not right to pay China before Grandma. So we’re not going to have statutory guidance–in fact, the only way to prevent DEFAULT is to do what we want.

    Now, assuming the Republican tactic is dumb, how can what person 1 and 3 be true at the same time about default. Neither refute the point of #2 that in lieu of executive branch unilateral decisions, statutory guidance to pay financial creditors–strictly defined, not just “people who will get a check in the future–would go a long way to preventing (or at least deferring) default.

    Here’s the problem for public policy. I’m a concerned citizen with a grad degree and a smattering of economics. I don’t have all day to read this stuff, but if basic logical fallacy can be pointed out IN A PARTISAN ARTICLE, it makes me say that Senator Murray is full of it and I’m not going to waste my time anymore.

    Democrats should stick to the truth, make a case, and don’t make stuff up. The truth is bad enough.

    • Jon Geeting says:

      I just don’t accept your narrow definition of default. Default is not paying the bills on time, to anyone. And the reason to define it that way is that markets will treat both the same. Maybe borrowing costs will be higher if we miss a coupon payment versus a Social Security payment, but if we miss either one, borrowing costs are going up. Why disaggregate the two? The appropriate response to the hostage taking is not to give the hostage takers some more leeway, by handing them a talking point along the lines of “it’s Treasury’s fault they’re paying China before grandma”. The appropriate response is to keep it all tied together in one package, and force the hostage takers to raise the debt ceiling well before anything like this could happen.

  5. GDub says:

    It’s not “my” definition of default. It is actually the definition. Defaults relate to debts and loans, not policy choices. If the government doesn’t pay back your savings bond, it is in default, if it doesn’t pay your social security check, it might be other things, but it isn’t in default.

    Here’s the line of argument that could be used in a logically coherent way. I’m not a pro at this, of course:

    “Senator Toomey’s plan deals only with one small aspect–legal default–of the huge range of negative and destructive effects Republican policies would impose on the U.S. economy and Americans of all ways of life.

    While Senator Toomey’s plan would ensure that lenders in China remain satisfied with America’s repayment of foreign-held debt, a failure to properly fund normal, everyday government functions would likely cause enormous financial hardship to the most vulnerable Americans, to include the old, the sick, and children; lead to disruptions in our nation’s support for our military forces; and massively raise borrowing costs– all of which would disrupt our efforts to rebuild our infrastructure and other important projects and impose an enormous burden on this and future generations.

    The Republican Party, in an effort to score short-term political points, is putting 200 years of confidence in and the good credit of the United States of America at mortal risk. A narrow policy to avoid one small aspect of the range of financial challenges caused by their policy would leave everyday Americans and the way of life we and prior generations have worked so hard to establish greatly endangered.

    The right answer to this is to raise the debt limit now and work together to establish an additional 1.4 trillion in deficit reduction over ten years–an achievable goal–to stabilize the debt and preserve opportunities for growth and success for our children and future generations.”

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