The only effective weapon the Tea Party folks have so far is the power of the purse. Tim Geithner is being a good soldier and shouting that if the U.S. House doesn’t allow him to sell more debt to the Federal Reserve, the U.S. will be in default. That’s nonsense.
All it means is that when the Treasury opens its next sale of debt, the only thing for sale will be maturing debt that has to be refinanced. US Treasuries will start to get scarce. People with dollars will have to buy something else.
Every day, the U.S. Treasury has massive amounts of money coming in – it’s just that the money coming in will be less than the obligations the government has to pay out. If a business goes from paying its suppliers from 30 days to 60 days, that doesn’t make them in default. The only way the Treasury defaults in the short term is if they don’t keep paying the interest as the #1 thing that gets paid.
Geithner says that massive spending cuts would only put off this day of reckoning by 2 weeks. That assumes that taxes are the only source of revenue to the government. The government can earn money from selling off assets – like selling offshore oil leases. The government owns 660,000,000 acres of land. They could sell off land out west – or at least the mineral rights. The government owns post offices and office buildings – they could sell them and then lease them back. The government owns military housing on-base. The government owns golf courses on prime development land in Washington DC.
Government accounting does not work the way all businesses work. Governments only look at two things – Revenue and Expenditures. They have no concept of a balance sheet – that the government makes money if things they’ve bought in the past go up in value. The also don’t look at the cost of their actions causing things the government owns to lose value. One of the things Reagan did was use asset sales to raise money and get the government out of businesses it shouldn’t have been involved with in the first place.
I’m “all in” for using the debt ceiling to maximum effect. Vote today that they won’t raise the ceiling in March – let the markets react. See if Moody’s downgrades US Treasuries. See if the global economy folds. See what happens to the dollar. Call the bluff. See if Mr Boehner breaks down in uncontrollable sobbing and then get his ass out of the way.
When the world doesn’t end, use the control of the debt ceiling to strongarm the President. Treat him like he is a naughty child and put him on an allowance. “Okay, you can have $20 billion for next month if you agree to repeal A,B and C – and then we will talk about what we want next month”.
It’s plausible this WILL cause the collapse that people are warning about – but hiding the fact a person has cancer from them doesn’t mean they don’t have cancer. It’s also likely that when we reach that point, Tim Geithner and Ben Bernanke will develop some new creative strategy exposing that the Federal Reserve runs the U.S. Government, not the other way around. Turn Ron Paul loose and see what’s left.
The Framers of the Constitution put the power of the purse in the hands of the “People’s House” for a reason. It’s the ultimate power. But know that a significant part of the Republican Party will not be on your side.
