Rep. Ron Paul (R-Texas) recently urged his Republican colleagues to stop pulling a "stunt" by "Saying no to the debt ceiling," since they will probably raise the national debt ceiling anyway to avoid severe financial disruption. He would like them to, instead, focus on the important issues facing the economy including real cuts to this year's budget, not over the next 10-15 years. He said the U.S. is, in effect, defaulting on its $14 trillion debt by allowing the dollar to decline, making debt held by foreigners less valuable every year.
An important area Paul would like to see cut is military spending. Paul said, "Let's start with the military industrial complex and these useless, very damaging wars" in Iraq and Afghanistan, he said. He would also like to cut subsidies to agribusiness. Although he didn't vote for Paul Ryan's Road Map, he does want to see entitlement programs, such as Medicare and Social Security, cut. Furthermore, he called for a return to the gold standard as a way to restore the integrity of the U.S. monetary system.
What Happens If They "Just Say No to the Debt Ceiling"?
Once the debt ceiling is reached, Treasury cannot auction new Treasury notes. It must rely on incoming revenue to pay ongoing Federal government expenses. This happened in 1996, and Treasury announced it could not send out Social Security checks.
Competing Federal regulations make it unclear how Treasury could decide which bills to pay,and which to delay. The uncertainty would raise the yields on Treasury notes sold on the secondary market, causing some mortgage rates to rise. If Treasury defaulted on its interest payments, foreigners would dump their holdings. The dollar would plummet and, Voila! the euro or yen or even yuan might become the world's the dollar's status as a global reserve currency. Think it couldn't happen? Not much demand for the British Sterling anymore.
What It Means to You
- Ron Paul 2012 Economic Platform
- Demand a Balanced Budget When You Vote
- Why the U.S. Can't Return to the Gold Standard
Representative Ron Paul (R-Texas) (Photo Credit: David McNew/Getty Images)