Yesterday, I was hyperbolic when I wrote that the 71 percent of Americans rooting against raising the debt ceiling were rooting for a default in U.S. debt. A frozen debt limit would not, as Stan Collender and Bruce Bartlett have explained, necessarily result in a literal default on U.S. debt, because even without the means to borrow, the United States government wouldn't collapse into a black hole and stop paying back its lenders. We could still spend the money Treasury receives in taxes; we could lease government property to add to the cash flow; and we could defer payments to government contractors to avoid deferring more critical payments -- like, say, Social Security checks.
In fighting back hyperbolic language about the debt ceiling, Stan Collender buries his lede in his smart new piece Don't Believe The Scary Words You Hear About The Debt Ceiling -- which I would have retitled Be Scared about the Debt Ceiling (But for More Sophisticated Reasons).
"If a standoff on raising the debt ceiling lasts for a significant amount of time, the alternatives to borrowing eventually may not be enough to provide the government with the cash it needs to meet its obligations," he acknowledges. "Uncertainty in the schedule for auctioning Treasury securities will upset the bond market and it may express its unhappiness both rhetorically and with higher interest rates."
Whether a debt ceiling stand-off results in a technical default of U.S. debt owed to foreigners, or an unofficial default on promised payments to seniors, or merely billions in deferred payments to government employees and contractors, the bottom line is that the prospect of a debt ceiling stand-off is worth the use of scary words*. Without the means to borrow, government activity would be severely disrupted, stocks would probably fall, and the bond market would probably react the way bond markets tend to react when unforeseen and unprecedented negative events happen -- very, very badly.