Republicans, would you please do me a favor and capitulate now? You’re trying to do the right thing, even though for some strange reason, responsible fiscal policy was not too high on the Republican priority list with Mr. Trump as President. Admittedly, the recent fiscal insanity has left us with close to $32T in debt, so someone needs to do something. The problem is in that picking a fight you don’t have the will to win is worse than doing nothing at all: You’ll make a weak President Biden look strong and get nothing for it. You could fight and win this battle, if you have the courage to take the incredible heat of the entire establishment as the government shuts down and the markets get a little scared (especially when they’re still crazy overvalued given the monetary headwinds) and make Mr. Biden blink first. But the reality is that since the entire media complex is against you, and the party of government will be in lockstep against you, you know you won’t be able to hold 218 votes. Mr. Biden only has to hold one–his own. That’s why these battles always favor the Executive branch. And when you add the fact that every institutional apparatus is on his side, it’s a giant uphill climb. So I’d love you to fight, but only if you win–and the disparate votes within the Republican Party do not have enough political spine to win. Possibly because many of them in their hearts don’t really believe in cutting spending, if enough of that spending is on their constituents. So what are the three big lies you’ll hear repeatedly? Even sometimes foolishly by the Republicans, thereby playing into the Democrats’ plans?

Lie #1: If we don’t extend the debt limit the United States will default. This is complete nonsense, yet is treated as received wisdom by the press. The interest on the debt this year is ~ $400B, and we get ~$4T in tax revenues. If we default on our debt, that is a choice the Biden administration chooses to do, and will be based on the premise that a default will be politically more damaging to Republicans than Democrats. It’s true that the alternative to defaulting in that scenario is cutting spending that has already been promised, but planned future spending is nothing sacred (certainly not the bloated omnibus just passed). That would be like if you as an individual were expecting to make $150k this year, and based on that, you were going to take two $10k vacations. And then your firm declined to give you as big a bonus, so you’ll only make $140k. No American will say, we’ll I guess I’ll just default on my mortgage so I can take both my vacations. This is sheer idiocy, but no one challenges the President on this.

Lie #2: We have never defaulted on our debt and the Republicans are threatening a default now. As #1 shows, there is nothing in the Republican desires that remotely suggests the Republicans want to cut 92% of federal spending (interest is only ~8% of our budget). But more on point is that the US defaulted twice in the last century, in 1933 and 1971, when we left the gold standard. We’ve had no particular problem stiffing others on our defaults; as Secretary of the Treasury John Connelly was reported to have told other countries, “it’s our currency but it’s your problem.” Now I’m not discounting how much turmoil it would cause if we defaulted, and it would be incredibly harmful for Mr. Biden to deliberately default to preserve all his cherished spending on interest groups, but it is factually incorrect to say we never defaulted. When you agree (Bretton Woods 1944) to redeem $35 for an ounce of gold on demand, and then close the gold window to other countries, that’s a default.

Lie #3: If the politicians don’t do a debt deal, our credit rating will be downgraded and we’ll have significantly higher interest rates. While this is sound logic for an individual or firm in the private sector, it is irrelevant to a country that has the world’s reserve currency and has a central bank ready to manipulate interest rates at all times. When the U.S. was downgraded in 2011, the 10 year treasury interest yield was basically unaffected, and we subsequently saw much lower interest rates courtesy of Fed policy (see below). It may cause market instability for a few days, but this is really much ado about nothing.

Finally, while not a lie, consider Mr. Biden’s seeming belief that once a law appropriating spending has been passed that it can’t be changed–somehow it’s sacred. Notice that Mr. Biden had no scruples of reversing almost everything he could that Mr. Trump did on day one of his presidency–elections do have consequences. Well Mr. Biden, elections do have consequences, and contra your spokesperson, the House is not constitutionally required to extend the debt limit, but they are constitutionally given the power of the purse. And right now they have the purse. Let’s hope they use it wisely.

Edit Update: I was able to get to my Lie #1 in a local television interview last week; doing my small part to stop the disinformation.

Edit Update #2: NR makes my point about how difficult it will be to hold the Republican caucus.