Why the Republican Congress Will Drive the US into Default
by John Lawrence
Simply put it's in their interests to do so. They themselves will profit politically and financially. They will blame Biden for the default, and they will sell short their stock portfolios so that, when the stock market crashes, they will make money. Default doesn't mean that the US will not pay its debts. It means that going forward seniors on social security will not get their monthly checks. Neither will Federal workers or active duty military. However, since the US Treasury still has some money and money coming in from taxes, it will prioritize paying interest on Treasury bonds. So rich people that hold financial obligations of the US government will be paid while everyday average slobs will be left to suffer. This is exactly the type of solution Republicans have always sought. It fits in nicely with their modus operandi: cater to the rich and starve the poor and working class. Millionaires and billionaores will not suffer. Smart people who sell stocks short will not suffer. They will prosper. Financial wizards and private equity corporations will snap up distressed properties like a shark snapping up a school of fish.
The financial obligations of the US, money that has supposedly already been spent, is a misnomer. They represent money that has already been allocated by the previous Democratic controlled Congress. If Republicans had controlled the previous Congress instead, the money would never have been allocated. So it's not money that's already been spent, it's money that's already been allocated. The spending is in the future. The allocation was in the past. If Democrats controlled the present Congress, there would be no problem. Since it's up to the Congress both to allocate spending and to raise the debt limit, there is a whiplash if one party allocates the money and the other party is supposed to preside over the spending of the money. In a sense the Republican Congress is rebelling over the fact that, although they didn't allocate the money, they are supposed to preside over the spending of it.
Now Joe Biden could preempt the Congressional decision not to raise the debt limit by using unconventional but completely legal means, something that has never been done before. The Federal Reserve Act gives the power to print money to the Fed, However, the Coinage Act grants the Secretary of the Treasury rather broad coin seigniorage authority. The debt ceiling could be side stepped by ordering the West Point Mint to coin a 1 oz. $ 1 trillion coin. Treasury can then present the jumbo coin at the NY Fed to buy back $1 trillion in Fed-held debt (the Fed has to accept it, a creditor can’t refuse legal tender paid in to settle a debt). Or I see no reason why the Treasury couldn't simply deposit it in its account at the Fed thereby giving the US government the wherewithal to pay its bills. Esteemed economist Paul Krugman is all for the minting of the trillion dollar coin: "So go ahead, Democrats, and do whatever it takes to get through this. Gimmickry in the defense of sanity — and, in an important sense, democracy — is no vice."
Republicans would have you believe that spending is out of control. No, undertaxation is out of control especially undertaxing the rich. Economic inequality has soared reaching unprecedented new heights not seen even in the Gilded Age. As Joe Biden has proposed, the budget could easily be balanced and the debt paid down by taxing the rich. Republicans would have you believe that raising taxes is a policy that would have to be enforced on everyone including the poor and the middle class, but that, unfortunately for them, is not the case. It is not written in stone that raising taxes would have to apply to everyone. As Bernie Sanders, Elizabeth Warren, AOC and others have pointed out, raising taxes on the rich could not only balance the budget, but could solve the problem of social security shortfalls. Republicans are in the unenviable position of wanting to screw the working class while catering to the rich while holding on to their MAGA supporters, a large portion of whom are the working class.
So given the fact that Republicans don't care about social security or Medicare recipients, there is a good chance that they will not vote to raise the archaic debt ceiling and force the US into default not on its debt but on its ongoing payments to Federal workers, who they hate anyway, social security recipients, who they will cheerfully throw under the bus and active duty military who as MAGA supporters will cheer them on at their own expense. Meanwhile, Congressional Republicans, private equity corporations and billionaires will short the market and salivate over the cheap assets they will be able to snap up. In other words they will profit from a default.
