"Technical" Default

This morning I drove up to Cheboygan, about an hour north of Presque Isle, for an information session with Congressman Dan Benishek MD, Republican Representative for Michigan's First District.  About a dozen people showed up at the Cheboygan Library.  Rep. Benishek made some comments about life in the District of Columbia, and then offered a brief Power Point presentation on the budget.

In both formats his point was that while spending has gone up and down over the past century, it is dwarfed by spending by President Obama.  His Power Point charts showed "Obama spending" rising at an astronomical rate for the next several decades, while spending under the budget devised by Rep. Paul Ryan shows a gradual decline ending in a balanced budget some 40 years hence.  He noted that discussions re: the debt ceiling collapsed last week because "Democrats refused to negotiate."

Benishek's comments were greeted favorably by most of his audience.  When a couple of us challenged certain aspects of his argument, our comments were met with either silence or strong objections.  For my part, I asked about converting Medicaid to a block grant program, as the Ryan budget provides.  A large part of Medicaid is devoted to paying nursing home expenses for seniors who have exhausted their assets.  What happens to "Granny" if, say,  Michigan's governor wants to use his/her Medicaid block grant for something other than keeping the elderly in full nursing?  Rep. Benishek, who thinks Medicaid decisions should be made at the state level, responded by saying that "you can elect new state leaders."  True, but easier said than done.  And he doesn't explain what happens to "Granny."

I also asked what would happen if the debt ceiling is not raised.  Rep. Benishek does not believe failure to approve an increase in the debt ceiling would be troublesome.  A "technical" default, lasting a week or two, would do no damage.  The U.S. would pay its important bills, such as the troops and Social Security, but the government could go without paying interest on its debts.   Frankly, I found his off-hand attitude about default deeply disturbing.  I'm convinced that if the U.S. decides not to pay its debts, whether owed to U.S. citizens or to foreign investors, the economic impact will be swift and severe. •••