Not raising the debt ceiling doesn't necessarily mean default...

America's debt
The debt ceiling and default
Jan 13th 2011, 17:48 by G.I. | WASHINGTON, DC

ALMOST everyone takes it for granted that a failure to raise the debt ceiling will eventually force the United States to default on its Treasury debt. This notion is superficially puzzling. The question is addressed in this week’s issue of The Economist. I’ll dig into it a bit more here.

A default would result from failure to pay principal or interest. The debt ceiling doesn’t bar either. Treasury can roll over maturing issues so long as the overall stock of outstanding debt doesn’t rise. (A caveat: Treasury must invest surplus Social Security and Medicare taxes by issuing non-marketable debt to the plans’ trust funds, which erodes the remaining capacity for marketable debt.) As for interest, even in today’s straightened circumstances, revenue is more than enough to cover interest charges. The helpful table below from Lou Crandall of Wrightson ICAP shows that in every month this year, projected cash receipts comfortably exceed interest payments; the narrowest margin comes in November, when receipts exceed interest by $131 billion.

What this clearly means is that Treasury can easily remain current on existing debt, provided it is willing to suspend some non-interest outlays. Does it have the authority to do so? What is the relative seniority of creditors of the United States government? States often specify the relative seniority of their bondholders either in their constitution or statute; in California, for example, bond holders stand ahead of all creditors except schools. Illinois has remained current on its bond debt while racking up some $6 billion in unpaid bills to other creditors.

I have yet to find a similar ranking for the federal government. This should not be surprising; the United States has never defaulted. There is the fourteenth amendment to the constitution which says: “The validity of the public debt of the United States… shall not be questioned.” The purpose of this section was to forbid the United States from honouring Confederate debts. The Supreme Court has apparently ruled that it also bars Congress from voiding a government bond, although not from abrogating the gold clause as it did in 1934.

I’ve poked around on this, and it seems to be a legal black hole. A bond is in essence a contract; does a contractual obligation rank ahead or behind a statutory obligation such as Social Security cheques? This is a matter of interpretation that, I am told, is largely up to the federal government itself. Without explicit guidance otherwise, Treasury would pay obligations in the order that they come due, which could clearly mean missing an interest payment.

http://www.economist.com/blogs/freeexchange/2011/01/americas_debt

It is up to the House to pass the bill, not the President. It is up to John Boehner and the House to give a bill to the Senate that they can agree to. There should be no Medicare on the table, no Social Security on the table, no Medicaid on the table, no programs that help the needy should be cut so we can continue to give huge taxcuts to the wealthy. There it is. Call or fold.