Debt or Default: A False Choice

It's not in the way you look
Or the things that you say that you'll do
--Toto

There is chatter that Congressional Republicans are warming to the idea of letting the US default on bond payments and/or shutting down federal government operations rather than raise the debt ceiling without substantial spending concessions from Democrats and the Obama administration.

Of course, we have heard this before. In summer of 2011 Republicans vowed to hold a similar line...before they caved.

Make sure you understand that 'the debt ceiling or default' drama as staged by the administration and the media is a classic false choice. Per OMB, Interest expense in 2012 amounted to about $225 billion, or about 6% of outlays and 9% of revenues. If the debt ceiling is not raised and the federal government could only operate with the ~$2.5 trillion that it collects in revenues (imagine that!), then paying interest on outstanding debt is quite doable.

We should also note that the US has defaulted multiple times in the past 100 years. In fact, if the definition of default involves paying back debt with currency that has been devalued (a.k.a. inflation), thereby reducing the economic resources promised to lenders in the initial contract, then we are already in default and have been for years.