Headscratcher (9)

Writing in the Wall Street Journal, newly seated Senator Pat Toomey (R-PA) suggests that the there would be few problems if the Congress declined to increase the U.S. Government's statutory debt limit. His position is that, since the interest due on the national debt is less than ten per cent of tax revenues, all that needs to be done is to pass a law to ensure that the Treasury gives priority to debt service.

Senator Toomey does mention that there will be some consequences:

"If we do not raise [the debt ceiling], the government's tax revenue will enable us to fund roughly two thirds of projected expenditures, including interest payments. Without the ability to borrow the other third, spending cuts would be sudden and severe: Projects would be postponed, some vendor payments would be delayed, certain programs would be suspended, and many government employees might be furloughed."

What he does not say, however, suggests a level of ignorance and intellectual dishonesty that makes him entirely unqualified to serve in the United States Senate.

At the moment, one third of what the government spends is borrowed, so, what would really happen if the debt limit was not increased - even if the Treasury managed to avoid an default on the national debt?

Here are some examples:

• Salaries for Federal Employees - including serving members of the military - would have to be reduced by at least one third. Probably more for those not covered by collective bargaining agreements.
• Pensions (military and civilian) as well as Social Security payments would be reduced by a similar amount
• Medicare payments to doctors and hospitals would be delayed for a month and then only paid at sixty cents on the dollar.
• Payments to States for Medicaid, reduced below their already low level,will result in extreme financial stress as former recipients descend on hospital emergency rooms which are required to provide care regardless of whether they have any prospect of receiving payment.
• Withholding of funds due to government contractors will result in cessation of work, massive lay offs, and suits filed against the government for breach of contract. Many of these contractors will go bankrupt.

Senator Toomey's so-called solution will, almost certainly, result in a stock market collapse. That the bond market will treat us no better than Greece is a given. As a result, the cost of refinancing maturing debt - if it can be done - will rise to exorbitant levels.

We will not likely find ourselves in a double dip version of the current recession. Instead, we will be looking at a reprise of the Great Depression. Nor is a second American Revolution unthinkable. Except that this time it will more resemble the French Revolution with armed mobs besieging the Capitol and politicians hanged by the neck from convenient lamp posts.

While Senator Toomey is correct in noting that we have a spending problem, it is not something that can be solved by April of this year. Nor can it be solved by defaulting on the government's obligations to its employees, contractors and retirees.

Your correspondent has two questions:

1. What planet is this man from?

2. Why did the Wall Street Journal provide space on its editorial pages for the Senator to peddle such arrant nonsense?

A headscratcher indeed!