The latest absurdity to migrate from the fever swamps to the slightly more respectable Heritage Foundation and on to Congressional Republicans is that not raising the debt ceiling would be no big deal.
Freshman Tea Partier Ted Yoho ventured furthest down this cul-de-sac when he said it would be salutary and "bring stability to world markets." But even Republicans like Tom Coburn have rushed headlong into this intellectual quagmire. As you can see below, Coburn doesn't think there's any chance that breaching the debt ceiling could mean a debt default, because he thinks that even then the Treasury could always pay the interest on the debt. This is not a minority position on the right: 64 percent of Tea Partiers and 54 percent of Republicans overall think there wouldn't be "any major problems" if Congress doesn't raise the debt ceiling in time. Call them the default deniers.
It's touching how much faith Republicans have in the government's ability to seamlessly pick-and-choose which of its 100 million monthly payments to make. But Republicans should perhaps be a bit more skeptical about how much government could solve this problem. See, we don't know if the Treasury can legally or logistically prioritize payments. And if it can't (or markets just think it can't) a debt ceiling breach could go from disaster to historic calamity.
Is prioritization even legal? One of the many legacies of Nixon's criminality is that presidents are legally required to carry out all of the spending that Congress authorizes. A Democratic president can't unilaterally withhold funds from the Pentagon, nor can a Republican president do so from the Environmental Protection Agency. Like them or not, the president has to execute all of the laws. Well, unless Congress won't let them. Suppose, for instance, that Congress won't let the president borrow more money to pay for the spending that Congress has already authorized. Could the president then decide who and who not to pay? Back in 1985, the Government Accountability Office ruled that the Treasury could indeed prioritize during a debt ceiling standoff -- but that's it. There's no other legal basis for it. That's not much to go on if it did get challenged in court.
Is prioritization even logistically possible? The government will have to cut roughly 32 percent of its spending overnight if the debt ceiling isn't raised. That's because the Treasury wouldn't be allowed to take out new debt to pay for already authorized spending, but would rather have to pay what we owe out of incoming tax revenue and rolled-over debt. But why should that mean there's any chance of default? Shouldn't the Treasury be able to rather easily cover the interest on the debt out of incoming revenue? That's what conservative politicians and some conservative economists have told themselves at least. Harvard professor and former Reagan adviser Marty Feldstein, for one, thinks "there is really no need for a default" if the debt limit isn't increased.
Maybe. But maybe not. The truth is we don't know. As Cardiff Garcia of FT Alphaville points out, the Treasury's payment systems are a bit convoluted. In theory, it shouldn't be too hard to make sure we pay the interest on the debt on time and in full before all else. But in practice, we know that theory doesn't always pan out.