Besides default, 4 arguments against the debt ceiling
Even if the United States doesn't default on its debt when it runs out of money to pay all its bills, it could still face other calamities, a new paper from the Brookings Institution says.
Philip Wallach, a Brookings fellow, notes in the paper (.pdf) that the Treasury Department may be able to prioritize certain payments, including the interest on the national debt, if the legal debt limit isn't raised. But the sudden drop in other government spending could send the economy into another recession.
The president would also get to decide which programs to continue or end, Wallach says, even though Congress is supposed to make spending decisions under the Constitution. The president could ignore Congress' priorities and even choose to "punish recalcitrant members' constituents" in his spending decisions, Wallach writes.
He also notes that it's important simply for the government to honor its promises to make payments. Even for those who want to shrink government, "reneging on our commitments just because, as a sovereign government, we can" would be wrong, he writes.
Lastly, Wallach says, since those who'd like to increase the debt ceiling believe their opponents' threats are empty, the debt ceiling doesn't even work as leverage to reduce the debt.
It's unclear if the debt ceiling has actually exerted downward pressure on budget deficits. The 2011 standoff over the debt ceiling appeared to result in massive spending cuts, but Congress and the president agreed to postpone much of them, and as part of the recent fiscal cliff deal, they postponed them again.
If there is a link between the debt ceiling and less debt, it's sporadic at best, Wallach says.
As an alternative to the debt ceiling, Wallach says, Congress could pass automatic spending controls that only go into effect when unemployment falls below a certain level. He also notes a proposal in Congress that would suspend pay for members of Congress until they pass a budget.
- download the paper, "Mr. Boehner, Tear Down This Ceiling!"