Photo: Courtesy of American Enterprise Institute
Forget the birthers, the latest conspiracy theorists to sweep Washington are the “default deniers,” a growing group of conservatives who think the prospect of a U.S. default is a hoax.Leading the charge is U.S. Sen. Pat Toomey (R-PA), a Tea Party-backed freshman who claims the Obama administration has greatly exaggerated the threat of the U.S. defaulting on its debt to scare Congress into raising the debt ceiling.
As the debt ceiling debate heats up, Toomey’s theory has gained surprising acceptance among some Republican lawmakers. Politico reports that nearly 100 House members and 22 senators have signed Toomey’s Full Faith And Credit Act, which would require the Treasury to first make debt payments.
In a speech at the American Enterprise Institute yesterday, Toomey dismissed the notion that the U.S. risks default if Congress doesn’t raise the debt limit by August 2.
He argued that the government can easily cover its debt payments with the $2.2 trillion of expected tax revenues. Postponing other government obligations – like salaries, contractor bills and tax refunds – “are not the same things as failure to reach obligation on our debts,” he said.
What Toomey fails to mention is that his solution would mean cutting the 2012 budget by $1.5 trillion. Dana Milbank at the Washington Post points out that even if the U.S. shut down the military and stopped paying Social Security, the budget would still be short by about $200 billion.
Even if the U.S. does default, Toomey argued, the result wouldn’t be as terrible as U.S. Treasury Secretary Timothy Geithner (and many others) warn. He points to a recent WSJ interview with hedge fund manager Stanley Druckenmiller:
“He has said he would actually accept even a delay in interest payments on the Treasuries that he holds and would prefer that if it meant that Congress would right this ship, address this fiscal imbalance, and put us on a sustainable path, and that the bond market would rally if it saw we were making real progress towards this.”
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