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May 12, 2011

GAO: Yes, We Stand By Our Prior Ruling That, To Avoid a Default, the Government May Prioritize Interest Payments on Debt Over Current Government Spending

This is what the GOP keeps saying-- that if the debt ceiling is not raised, it does not mean a default, because the government will have plenty of money coming in. Just not enough to pay interest on old debt and maintain current spending.

So, if we don't raise the debt ceiling, it just forces the government to cut spending.

Of course Obama could also choose to not cut spending, and just default. But that would be his choice. He cannot say he was forced to do that, or the GOP demanded he do that.

The GAO (Government Accounting Office) had previously ruled it in-bounds for the Treasury to priortize debt service (and avoiding a default) over current spending plans.

There was some question as to whether that ruling still held; Business Insider says they "hear" the GAO just reaffirmed it still applied in a letter to Congress.

Not so much a huge victory for the GOP but the avoidance of a loss -- if the GAO had said the opposite, the Democrats would have the ammunition to claim that no debt ceiling hike = automatic default.

They can't say that now.

Wait, what am I talking about. Of course they can and will say that.

It just won't be true.

In case that matters.

Which it doesn't.

Update: Via Vic -- on Monday, fresh Treasury bill auctions should take us over the limit. So the deadline is upon us.


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posted by Ace at 12:48 PM

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