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The approach of the debt ceiling by late February, when the US supposedly can’t pay its bills, has brought the “man bites dog” attention seekers out of the woodwork. Former government lawyers write in the Wall Street Journal that concern is silly because the law mandates that revenues be used to pay interest on the debt first. True, but that means that most other programs are drastically cut — no social security checks, etc — while the economy, deprived of a quick $300 billion per MONTH (over 2% of GDP) goes into cardiac arrest.
How about having the Treasury mint a trillion-dollar platinum coin? Like just paying interest on the debt, it’s legal but silly. The Treasury could deposit the coin at the Fed and create a trillion-dollar credit in its account there against which it could write checks to pay its bills. If the Fed offsets the Treasury draw on its “platinum” account by selling assets from its $2.8 trillion balance sheet, as it probably would do to avoid inflation, the platinum coin caper becomes a gimmick to have the Fed drain funds from households and businesses to provide funds to the Treasury to pay its bills. That’s no different from a direct tax increase on households and businesses to finance government spending.
The fact that there exist silly gimmicks to get around the silly debt ceiling, whereby the federal government can pay its bills but won’t do so, shouldn’t distract from confronting the basic reality.
The Congress needs to undertake, and the president needs to support, a major fiscal initiative like the one spelled out over two years ago by the Simpson-Bowles bipartisan debt commission that was created by the president: Fund tax rate reductions by phasing out tax expenditures (loopholes) and make structural adjustments on outlays, especially entitlements, that reduce deficits to a level consistent with a gradual stabilization and eventual reduction of the ratio of federal debt to GDP. That ratio is currently 73% and it can be kept there and put on an eventual downward glide path by halving the budget deficit to $500 billion per year and keeping it there.
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