Stop the Fear-Mongering About Default: Op-Ed by Professor Weiss

Harvard Business Review

Prof. Lawrence Weiss

Stop, stop it now. Don’t ever say it again.  Do not mention U.S. government debt and the word default in the same sentence.   The correct statement is that the U.S. government will not default on its debt, not now, not in the foreseeable future, not ever.

A Congressional refusal to raise the debt ceiling is analogous to cutting up your credit cards.  It would force the U.S. government to stop additional borrowing and limit spending to the revenue it takes in. The government would be forced to live within its means, something that many states and individuals currently do.

Note, for fiscal 2013 the U.S. government will have collected approximately $2.8 trillion and spent about $3.5 trillion.  Going forward without an increase in the debt ceiling means cutting expenditures back by 20% (or somehow generating 25% more revenue).  Clearly this would be a major event.  Maturing debt could be repaid by issuing new debt in the same amount — so this would not change the total debt outstanding and not affect the debt ceiling.  Thus there should be no risk that debt won’t be paid upon maturity. ...

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