Will US Default Without Raising Debt Limit?

The US has reached the $14 trillion debt mark, which means we're nearing the current limit on how much we can borrow. Some Republicans are threatening to vote against raising the limit, while others are saying they'll only vote for the increase if spending cuts are included. In my opinion, don't count on either happening... most Republicans will cheerfully approve raising the amount we can borrow, thus continuing business as usual.

"Common knowledge" says that if we do NOT raise the debt limit so that the country can continue to borrow more money and go deeper into debt, then we will default on our obligations and the resultant chaos will destroy the world's financial stability.

That's a bunch of malarkey. Let's look at it.


What actually happens if Congress decides NOT to raise the debt limit? Essentially, Congress says the government cannot hold an outstanding debt of more than the current limit, which is $14.3 trillion. Once the debt hits that level, no more borrowing can be done. Note that, at this point, default has not occurred. All that has happened is that the US government loses the ability to borrow more money.

Now, defaulting means they can't pay the interest on the debt instruments. By prioritizing payments, the Treasury can still make those payments, while delaying others. In the interim, Congress would have to pass severe spending cuts that would allow the government to operate at a greatly reduced level of spending. Forget the Republicans' much ballyhooed "$100 billion in cuts"... Congress would have to immediately move to slash spending by a trillion dollars or more.

It would be the equivalent of tossing a kid into the deep end of the pool to teach him how to swim. Harsh, but it usually works.

It would be the equivalent of quitting smoking cold turkey, all at once. Debt spending would STOP, in one explosive instant.

Default is not necessary in this scenario, and if it occurred, then it would happen because Congress couldn't get their act together to avoid it. Make no mistake, defaulting on our debt would happen because spending was too high and Congress was too incompetent to adjust spending levels to avoid it.

Let me reiterate at this point, though, that I don't believe this will actually occur. I think the Republicans will roll over and happily approve the debt increase, and we'll continue digging ourselves deeper and deeper into eventual bankruptcy.

But assuming that the average temperatures in the regions of Hell should suddenly drop into arctic ranges, defaulting on the debt would still be avoidable, assuming Congress could actually act effectively. Of course, too many liberals would respond by ignoring spending and instead trying repeatedly to raise the limit, so the result of this idiocy would likely be dire. But it needn't NECESSARILY happen...