Tamny: Get Over It, The U.S. Has Already Defaulted

THE ANSWER TO THE DEBT-CEILING QUESTION SEEMS OBVIOUS: DO NOTHING

GOVERNMENTS CAN DEFAULT by suspending or delaying payments on debt owed, or by simply devaluing their currency. As evidenced by the dollar's decline over the last 40 years, the U.S. has been a serial defaulter. What's apparent from his hysterical television comments is that Tim Geithner will not allow the traditional kind of default, which means the Republicans are fools for negotiating a boost in the debt ceiling at all....

In short, the U.S. defaulted in 1933, and as evidenced by the dollar's stupendous decline in value from 1/35th of an ounce of gold in 1971 to 1/1550th today, the U.S. has been in default for most of the last 40 years.....

Of course if what Geithner says is true, the answer is very simple. Geithner's Treasury collects far more than enough each month to stay current on Treasury interest obligations, so if default really would be the catastrophe he says, he should make sure to put the U.S.'s creditors first in line for monies available, after which a Congress that's really never cut spending (thanks to Larry Kudlow for clarifying this) in nominal dollar terms would have to find a way to make do with less money to spread around.

The above naturally begs the question why the Republicans are even negotiating at all. They talk an awful lot about the importance of smaller government, they've been handed a legal barrier that will necessarily make it small as interest costs on Treasury debt rises, so if they truly believe their own rhetoric, they ought to hold firm.

A government that borrows less tautologically means more credit will remain in the private economy, and with investment an essential driver of economic progress, the alleged party of growth could achieve a smaller government alongside more investment in the private sector in one fell swoop. The answer to the debt ceiling question seems obvious. Do nothing.


Read Tamny's whole article.