Would a Failure to Raise the Debt Limit Mean National Default and Economic Calamity?

A NJ Star-Ledger editorial excoriating the "GOP crazies" said this of a failure to raise the debt limit:

If we don’t make sure the United States has enough money to pay its bills, it could cause big problems for our economy and the global financial markets. All the major countries and banks own Treasury bills, and if they don’t think we’re good for the money and can pay them back on time, “there’s going to be a huge global crisis of confidence,” said CNBC’s lead economist, Andrew Ross Sorkin.

I responded this way:

Big government apologists have always peddled the myth that government taxing and spending is good for the economy, but the same money spent by the people who earned it is not. This Keynesian snake-oil is logically absurd on its face, and proven time and again in practice to be utterly false—e.g., the aftermath of WW II and today's weak economy. 

And why must freezing the debt ceiling lead to default, unless the Obama Administration would allow it for political reasons? Existing debt could be rolled over, and existing tax receipts used to pay the interest on the existing debt. Spending could be cut elsewhere. There would be no "huge global crisis of confidence" if the Obama Administration announced immediately that America would not default on its debt under any circumstances.

The Star-Ledger also said: 

Goldman Sachs estimates spending cuts would come to about 4.2 percent of GDP — a more severe drop than the sequestration budget cuts or furloughs caused by the government shutdown.

I left these comments:

"Goldman Sachs estimates spending cuts would come to about 4.2 percent of GDP": Yes, and that's 4.2% left in private hands! 

The government is not some giant tooth fairy that brings wealth miraculously into existence by spending money. Every dollar of spending cuts is one more dollar left in the hands of productive individuals who earned it to spend and invest as THEY choose. 

Yes, let's "Think about what that could do to our fragile economy." A sudden end to government borrowing may cause a short-term economic contraction but would be a boon to the economy longer term—PROVIDED the government cuts spending wisely. There need be no default. The government can continue paying interest on the existing national debt and funding rights-protecting functions like the military and the court system. 

Where to cut? Tax receipts currently equal 70% of current spending. Immediately cut corporate and personal welfare across the board. Shut down cabinet-level departments like Education, Energy, Agriculture, and all of the unproductive jobs and subsidies that go with them. There is so much redistributionist spending ripe for rolling back that bringing spending into line with tax receipts would be easy if we recognize that forced redistribution is immoral. 


Related Reading:

Whose Money is it, Anyway?

The American Right, the Purpose of Government, and the Future of Liberty—Craig Biddle