Congress must shun a self-imposed downgrade.Delaney
WaPo
With the United States fast approaching its debt limit, Congress has again begun to grapple with complex questions about whether and how to raise the cap on borrowing. There is no perfect answer, but proposals such as the Full Faith and Credit Act (H.R. 807) won’t fix the problem. The legislation has 105 co-sponsors in the House, which is likely to vote on it this week. This bill purports to prevent the federal government from defaulting, but it would undermine the nation’s credit standing and make matters worse in the short term and potentially much worse in the long term.
The reason is simple: It’s not rooted in the reality of how finance works.
Rather than raising the federal debt ceiling, the bill would “prioritize” the payment of debt. The federal government would rank its various obligations — monies owed to the owners of Treasury bills, benefits to veterans, payments to contractors, etc. — and pay them accordingly. Debts that ranked lowest would be paid last and would have the highest likelihood of not being paid at all.
This seemingly technical matter would have stark implications that anyone with even a basic background in finance should understand.
http://www.washingtonpost.com/opinions/full-faith-and-credit-act-amounts-to-a-self-imposed-downgrade/2013/05/06/95c092c2-b407-11e2-bbf2-a6f9e9d79e19_print.html
