The Obama administration’s scare tactics are getting old. Unfortunately, they keep on getting away with this and aren’t held accountable when their scare stories prove false.
Take the warning Treasury Secretary Timothy Geithner made on January 6th. He wrote Congress a letter asserting: “the debt limit will be reached as early as March 31, 2011, and most likely sometime between that date and May 16, 2011. . . . it is strongly in our national interest for Congress to act well before the debt limit is reached” (italics added). Failure to act before this deadline would lead to “default on legal obligations,” “catastrophic damage to the economy, potentially much more harmful than the effects of the financial crisis of 2008 and 2009.” Spending will be “discontinued [or] limited” on everything from Social Security and Medicare, U.S. military salaries, Medicaid payments to states, to “forced default on legal [interest] obligations.”
The federal government still has large revenues. Hitting the limit means that the federal government is prevented from borrowing more. But it can still spend the revenue that is coming in.
For the 2012 budget, no borrowing means that spending will have to be cut by about 29.5%. The immediate effect of not increasing the debt limit requires somewhat more painful cuts of about 36 percent.