On default, President Obama is not lying

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President Obama delivers a statement and answers questions from the press on the government shutdown and the upcoming debt ceiling increase in the Brady Press Briefing Room at the White House.

Article Highlights

  • On debt ceiling, Obama's not lying -@stanveuger

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  • Not raising the debt ceiling would have large negative consequences

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  • Those who think they can not raise the debt limit and be ok are wrong

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As the nation is approaching its debt limit, views as to what constitutes default, whether default can be avoided through payment prioritization and what the consequences of default would be are still diverging along partisan lines. The administration, as well as many outside observers, has painted doomsday scenarios; many conservatives, most prominently represented by Rep. Ted Yoho, R-Fla., have begged to differ.

I am personally in the first camp, and certain financial-market indicators suggest that those with money at stake are as well. For example, the interest rates faced by the Treasury Department when selling Treasury Bills have started soaring (see the graph below; data comes from the Treasury Department), indicating concerns that a U.S. default on its sovereign debt is a real possibility.

That said, the president did the non-Yohoistas no favor yesterday, when he implicitly acknowledged that payment prioritization, which many conservatives have lauded as an acceptable path forward, is indeed possible. This flies in the face of earlier claims that such a thing was legally and logistically undoable.

Of course, moving from obfuscation to clarification constitutes progress in and of itself. The problem here is that this new stance will strengthen the convictions of conservatives who have never trusted the administration's broader claims to begin with. Their reasoning may now well be that after lying about the impact of the sequester, lying about the IRS' targeting of tea party groups, lying about Fast and Furious and lying about Benghazi, the administration is now lying about the risks of not raising the debt limit, just to get its way. That inference is not entirely unreasonable.

But this time, the administration is not lying. This time, those conservatives who see no downside risk are wrong. Let us hope they realize that soon, in spite of President Obama's lack of leadership turning any and all budget fights into almost insurmountable obstacles on the road to full recovery.

Stan Veuger is an economist at the American Enterprise Institute.

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About the Author

 

Stan
Veuger

  • Stan Veuger is a resident scholar at AEI.  His academic research focuses on political economy, and has been published in The Quarterly Journal of Economics. He writes frequently for popular audiences on a variety of topics, including health and tax policy. He is a regular contributor to The Hill, The National Interest, U.S. News & World Report, and AEIdeas, AEI’s policy blog. Before joining AEI, Dr. Veuger was a teaching fellow at Harvard University and Universitat Pompeu Fabra. He is a board member of the Netherland-American Foundation in Washington and at The Bulwark, a quarterly public policy journal, and was a National Review Institute Washington Fellow. He is a graduate of Utrecht University and Erasmus University Rotterdam, and holds an M.Sc. in Economics from Universitat Pompeu Fabra, as well as A.M. and Ph.D. degrees, also in Economics, from Harvard University. His academic research website can be found here.


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