Again, as anyone who’s had credit problems can tell you (and this is 21st Century America, so who hasn’t?), as long as you’re making payments and aren’t adding on new debt, you’re creditors won’t sick their dogs on you.
We believe the government would continue to pay interest and principal on its debt even in the event that the debt limit is not raised, leaving its creditworthiness intact. The debt limit restricts government expenditures to the amount of its incoming revenues; it does not prohibit the government from servicing its debt. There is no direct connection between the debt limit (actually the exhaustion of the Treasury’s extraordinary measures to raise funds) and a default.
But, but, all the money we owe? The Chinese? The Markets?
Yes, those are important, but if we actually got spending under control, they won’t come calling.
Is the situation worse now than it was in 2011, the last time that the debt limit was an issue? No. The budget deficit was considerably larger in 2011 than it is currently, so the magnitude of the necessary spending cuts needed after 17 October is lower now than it was then.
The real question going forward now is this: Will we keep adding to our debt, or will we finally do something (entitlement reform?) to stop it from growing?
Another blank check isn’t the answer, and D.C. needs to start figuring that out soon, or we’re all living in a Banana Republic in 30 years…