Federal Reserve Chairman Ben Bernanke quoted Herbert Stein “if something can’t go on forever, it will stop.” Our projected deficit and debt levels “cannot actually happen,” said Bernanke. New Pennsylvania Senator Pat Toomey has introduced a bill to bring about honest spending cuts and create structural reforms to put our nation’s finances on a “sustainable path,” and he says hitting the debt ceiling does not mean instant default. Bernanke agrees.
[Speaking at the Press Club] But Bernanke’s citation of $9.5 trillion in national debt didn’t include the $4.6 trillion owed by the government to trust funds for things such as Social Security and Medicare, which have paid out cash to the Treasury in exchange for promissory notes. The full national debt – when both forms of debt are included – is already just under 100 percent of GDP, which is currently around $14.6 trillion.
As a vote on raising the debt limit, or not, looms, Republicans are insisting that spending cuts to equal the increase in debt should be the only way the debt limit is raised.
Senator Toomey (R-PA) has introduced a bill to layout a plan to avoid government default:
“We need to take the default scare tactics off the table so both sides can sit down at the table and have a serious and honest conversation about cutting spending and instituting structural reforms to put our country’s finances on a sustainable path,” said Toomey, a newly elected Republican from Pennsylvania.
“The Full Faith and Credit Act will allow us to have that conversation by eliminating the possibility for default in case the debt ceiling is not raised,” he said.
The text of Toomey’s bill is only 98 words long. It is co-sponsored by 16 other Republican senators, including six out of his 13 members from the current freshman class. It is intended to give the Treasury Department instructions on prioritizing the use of taxpayer funds in the event that government debt, which is closing in on $14.1 trillion, hits the debt limit, which is $14.3 trillion.
Did you get that? A piece of legislation with only 98 words! Hurrah for Senator Toomey. Bernake supported the idea of the bill:
“Under current law, if the debt limit is not extended, for a time, the Treasury has various resources that it can use to make payments on our national debt,” he said.
Republicans are divided over the legitimacy of Toomey’s idea, which is to “require that the government prioritize all obligations on the debt held by the public in the event that the debt limit is reached.” Here’s how that would work:
“In the event that the debt of the United States Government, as defined in section 3101 of title 31, United States Code, reaches the statutory limit, the authority of the Department of the Treasury provided in section 3123 of title 31, United States Code, to pay with legal tender the principal and interest on debt held by the public shall take priority over all other obligations incurred by the Government of the United States,” the bill says.
That means the Treasury would prioritize interest payments on government debt, ensuring that there is no default, and then pay for whatever else in the federal budget it could. Someone or some programs would likely be shortchanged, whether it was contractors due payment, or Social Security recipients, or government employees.
“If we do not raise it, the government’s tax revenue will enable us to fund roughly two-thirds of projected expenditures, including interest payments,” Toomey wrote. “Without the ability to borrow the other third, spending cuts would be sudden and severe: Projects would be postponed, some vendor payments would be delayed, certain programs would be suspended, and many government employees might be furloughed. Default would easily be avoided, but these cuts would certainly be disruptive. That’s why I hope we can avoid this scenario.”
Among the staunch Republican conservatives supporting Toomey’s 98-word bill are Senator Jim DeMint (NC), Jim Inhofe (OK), Tom Coburn (OK), John Barrasso (WY), Marco Rubio (FL), David Vitter (LA) and Rand Paul (KY). See the entire list at the Daily Caller.