As Dr. Kenneth McFarland said many years ago, people should write a column only when they have something to say. Unfortunately, Dr. Paul Krugman has to meet a deadline and therefore must write an article even if he doesn’t have anything to say. Sometimes it’s worse: he says something that’s provably false.
He is ranting about the threat that some in the House are making about not raising the debt ceiling unless and until the president initiates some spending cuts. He makes three points, two of which are accurate:
1. Raising the debt ceiling wouldn’t give the president any new powers. He can’t spend anything that Congress hasn’t already approved.
2. If the debt ceiling isn’t raised Obama will be forced to break the law: pay the bills in defiance of Congress, or not, which also defies Congress.
But then we get to number 3:
If we were to hit the debt ceiling, the U.S. government would end up defaulting on many of its obligations. This would have disastrous effects on financial markets, the economy, and our standing in the world.
Let’s look at this. The government’s tax revenues are about $2.5 trillion a year, or about $200 billion a month. The national debt is $16+ trillion. Interest on that debt is approximately 3% a year. 3% of $16 trillion is $480 billion a year, or about $40 billion a month. So Krugman is saying that even though revenues are $200 billion a month and interest is $40 billion a month, the government will be forced to default by not paying the interest on its debt.
Of course the Treasury will pay the interest. It has to. It’s a contractual obligation. Besides, it has to continue to borrow and so it needs to keep its lenders happy. So where does Krugman get this idea that the government will default on its bonds?
It’s a scare tactic. It’s a falsehood, a canard. Krugman either knows this, and isn’t telling the truth. Or else he is a fool. I vote for fool.