It has come to this in the week ahead: the world’s largest, most innovative and complex economy is locked in a stalemate over a single word: default. Leave it to a group of tone-deaf, professional legislators to debate what is a simple concept any borrower can understand.
Since the last dance with debt default in August 2011 there has been a growing chorus of people rejecting the commonly held belief that not raising the legal borrowing limit for America when that limit is reached constitutes a debt default. Supporters of the effort not to raise the debt ceiling make this comparison: If a homeowner has a job and continues to pay his mortgage but gets his credit card cut up, he still pays their mortgage … and credit card bill. He just can’t make any new purchases on credit.
They argue (rightly) the 14th Amendment to the U.S. Constitution provides that Treasury debt “shall not be questioned” — though no one is quite sure what that means for today’s sophisticated and global bond and stock markets. It’s never been tested.
They point out bills will continue to be paid even if Congress does not increase the legal borrowing limit it sets for the federal government. These “default deniers” make a subtle but significant distinction between paying what is already owed (which will continue, though at a slower pace if the debt ceiling is not raised by Thursday) and borrowing more to continue the same rate of overspending (which can not continue beyond Thursday without raising the ceiling).
For investors, consumers and job seekers it may be a distinction with no difference.
Tom Hudson is a financial journalist. He hosts The Sunshine Economy o n WLRN-FM in Miami. He is the former co-anchor and managing editor of Nightly Business Report on public television. Follow him on Twitter @HudsonsView.