Debt Limit

By Andy Sullivan
WASHINGTON | Tue Oct 8, 2013 10:35am EDT

(Reuters) – The Obama administration says a U.S. default would be “catastrophic.” Economists say it could plunge the country into recession and prompt a global financial meltdown.

To many Republicans, however, the prospect of the world’s lone superpower juggling its bills doesn’t seem so bad. The government could muddle through without a debt-ceiling increase as long as it kept up with interest payments and a few other priorities, they argue.

“We are not going to default on the public debt. That doesn’t mean that we have to pay every bill the day it comes in,” Republican Representative Joe Barton of Texas said on CNBC on Monday.

Barton’s position could reflect a genuine disagreement with warnings by Wall Street and Washington analysts or he could be downplaying the default to gain tactical advantage in negotiations with President Barack Obama. But Barton isn’t an outlier.

Nearly every Republican in the House of Representatives voted for a bill in May that would direct the Treasury Department to prioritize bond payments and Social Security retiree benefits over other obligations if Congress failed to extend its borrowing authority. In the Senate, 29 of the chamber’s 44 Republicans have signed on to the idea.

Republicans say that approach would minimize the fallout if Congress fails to raise the debt ceiling before the Treasury Department exhausts its borrowing authority on October 17.

Past and present Treasury officials and Wall Street analysts reject that view out of hand as naive at best.

In order to make sure bond payments and Social Security checks went out on time, the government would have to delay other payments by days or weeks. That would send a massive economic shockwave through military contractors, hospitals, and other entities farther down the priority list.

The plan also may not be workable in a practical sense. The U.S. Treasury handles 4 million transactions a day, and separating some of them out would be practically impossible.

“It’s mind-boggling. I don’t know what to say,” said Tony Fratto, a Republican and a former Treasury Department official under President George W. Bush. “Every member of Congress should know this. These aren’t complicated concepts.”

That may not be the point. By presenting a plan to deal with a possible default, Republican lawmakers can show voters they are taking steps to minimize any potential fallout.

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