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Geithner has obviously amended his prediction, and the current wisdom, backed up by the U.S. Treasury, is that Aug. 2 is the absolute final date after which the U.S. would be unable to meet its “obligations.” Obligations which have only been met for the time being, according to the Obama administration, by using “accounting maneuvers.”
Has the United States exhausted all of its “accounting maneuvers?” If Rand Paul is correct, the answer is no. He explained that the government currently takes in $200 billion per month, and that current interest on the debt amounts to $20 billion per month. If he is correct, then “default” would have to be consciously implemented by the Treasury Secretary, as opposed to something that would happen automatically. In other words, Geithner would have to prioritize America’s financial obligations.
The reality that this is within the scope of Geithner’s capabilities was revealed in a 1985 exchange between then-Senator Bob Packwood, chairman of the Senate Finance Committee, who asked the Government Accountability Office (GAO) whether such prioritization was possible. “It is our conclusion that the Secretary of the Treasury does have the authority to choose the order in which to pay obligations of the United States,” offered the GAO, further noting that the Treasury “is free to liquidate obligations in any order it finds will best serve the interests of the United States.”
There is also the possibility of additional accounting maneuvers which center around America’s gold supply. An act of Congress would allow the value of America’s gold, currently held at the Fed and set at $42.22 per ounce under the Par Value Modification Act, to be reset at market prices. This would push the value of the Treasury’s deposits at the Federal Reserve to nearly a half trillion dollars, which the Treasury could use to settle debts without selling the gold itself.
Sen. Jim DeMint (R-SC) indicated what he thought of the well-publicized hard deadline versus Mr. Geithner’s ability to give Congress more time to reach a deal. “Secretary Geithner’s approach to dealing with the looming debt crisis is to take his hands off the wheel and let the car careen over the cliff,” DeMint said in a statement. “He has numerous tools at his disposal to avoid default, but his refusal to explore all options and just play chicken with the federal debt is deeply irresponsible.”
So what is the current reality? There is no question that the overall argument has swung in favor of the Republicans. For the first time in a very long time, Democrats are talking about serious cuts to federal spending. How large those cuts are depends on whether Congress hammers out a long-term deal, which Reuters reports is around $2 trillion in spending cuts, or whether law-makers do indeed “kick the can down the road,” forcing more negotiations closer to the 2012 election.
Yet it remains to be seen if Republicans are pushing too hard. Ostensibly conservative New York Times columnist David Brooks contends the Republicans have achieved the deal he called the “mother of all no-brainers” even if they allow some taxes to be raised. Brooks warns that if debt ceiling talks fail, “independents [sic] voters will see that Democrats were willing to compromise but Republicans were not.” Perhaps, but it is equally possible that voters, as indicated by the Republican landslide in the 2010 election, have already made up their minds who the more fiscally irresponsible party is.
The bet here is that any deal will come down to two simple realities. First, despite the president’s ostensible desire that both parties abandon ultimatums and political rhetoric, members of neither party will accept a deal in which key concessions can be defined as a major “loss” for their side and a “victory” for their opponents. Second, while any “compromise” will undoubtedly engender the wrath of each party’s faithful followers, both parties can live with that reality — if they can convince themselves they have earned the respect of the crucial independent vote heading into the 2012 election.
Arnold Ahlert is a contributing columnist to the conservative website JewishWorldReview.
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