Toomey Brushes Off Debt Default Danger

Senator Pat Toomey claims that he doesn’t want the US to face a default, but he is definitely interested in the arguments made by conservative op-ed writers who think a technical default is not the end of the world.

At an event at AEI today, Senator Toomey spoke about the current debt-default situation, making his case for raising the debt ceiling by tying it to significant spending cuts and without major tax increases.

FrumForum asked Senator Toomey whether or not he agreed with Paul Ryan’s recent comments that the U.S. could afford to default on its debt for a few days.

I’m not sure, that’s Stanley Druckenmiller’s view though, and I would be very cautious before I would second-guess the judgment of Stanley Druckenmiller about the bond market... It’s certainly a legitimate opinion.

During his main speech, Toomey gave his own views on the ‘legitimacy’ of this opinion. “The bond market knows the difference between some payment obligations and defaulting on our debt” he said, and was confident that the bond market would not react negatively to the government paying off its debts through furloughs or delayed procurement orders.

He also holds that since incoming tax revenue will be on the order of $2.2 trillion, and the U.S. will have nearly $200 billion in interest to pay, that it should be perfectly easy for the U.S. to pay for its debts on an ongoing basis if it needed to. “There is no danger of a shortage of cash to pay the interest of our debt”. This is why Toomey says it is irresponsible of the administration to even implicitly “threaten” a default.

His historical example to back up this view was that the bond market did not seem to react negatively to the prospect of a government shutdown earlier in the year.

Today’s event at AEI took place in a post debt-ceiling world, and while Toomey doesn’t know how long it would drag out, he hinted that it could extend longer. He joked with reporters after the event about Geithner’s warning that he would not be able to avoid default after August 2nd: “What are the coincidences that the drop dead date is right before the August break?”

Republicans like Toomey believe that if negotiations fail, that as long as the debt can keep getting paid, it’s a fully acceptable outcome, despite any disruptions this would cause. When discussing the options the Treasury had to keep paying debt without a raised debt ceiling, Toomey stated: “A disruptive series of events are not a catastrophe.”

Follow Noah on Twitter: @noahkgreen

Tweet