Consider this for a moment. Treasury Secretary Tim Geithner recently received a letter from Republican Senator Pat Toomey. In the last week of January, Senator Toomey (a member of the Tea Party caucus) introduced into Congress what he called the Full Faith And Credit Act. It has since come to be known in US media circles as the Debt Doomsday Act. Here is the gist of it:
“In the event that the debt of the United States Government, as defined in section 3101 of title 31, United States Code, reaches the statutory limit, the authority of the Department of the Treasury provided in section 3123 of title 31, United States Code, to pay with legal tender the principal and interest on debt held by the public shall take priority over all other obligations incurred by the Government of the US.”
Pretty straightforward stuff, we would have thought. This is, of course, what holders of US Treasury debt are counting on the US government to do and always have. Yet in his reply to Mr Toomey’s letter which outlined his proposed legislation, Mr Geithner dismissed it by saying that it was “unworkable”. Mr Geithner went on to say that stopping payments on other US government obligations would be the “first ever failure” of the US to meet its commitments. But Mr Toomey did not suggest that the US Treasury stop payments on “other US government obligations”. He merely said that principal and interest on the public debt should get first consideration in future government spending made possible by an increase in the Treasury’s debt limit – up for “revision” between now and early May this year.
Mandatory For Some – Unworkable For Others:
It would be interesting to see the reaction of a typical bank manager if an American walked into his office to inform him that giving priority to the payment of principal and interest on the money which he owed the bank was “unworkable”. Somehow, we cannot see the bank manager increasing that individual’s line of credit in such circumstances. Yet that is precisely what Mr Geithner expects the US Congress to do.
If you are not a government but a working stiff, whatever you earn has two mandatory drains on it before you ever see any money yourself. First, you must pay your taxes to the government. They have FIRST CLAIM on your earnings. After that, you must service – with principal and interest payments – any and all debts you may have incurred. What happens if either of these things are “unworkable”? In the first instance, you may well find yourself in jail. In the second case, your “discretionary spending” is curtailed or eliminated, your house is foreclosed, your credit rating is savaged and you may end up on the street.
You might go to Mr Bernanke and ask him nicely to “monetise” your debts, but he’s got bigger fish to fry.