Obama and Geithner Misleading the Public on Credit Default

Open letter to Rep. Neugebauer:

Randy,

Your question of the week was, "The debate between the White House and Congressional leadership over the debt ceiling limit continues. Should raising taxes, as the President has asked, be part of the solution to reach an agreement and not let our government default on its credit?".

Once again, your readers were very astute in being able to properly interpret this poorly worded question. 83% said "no".

Under normal conditions it's not possible to default on credit. The first stage is usually default on paying the interest on a loan. Subsequently, the default may be extended into bankruptcy. Private insurance is available for "credit default" on government loans, presumably bonds. The insurance company pays off only if the government goes bankrupt.

In spite of the highly emotional rhetoric of Pres. Obama and Sec. Geithner, I can't find any data which would indicate that not extending the federal debt limit would cause the government to go bankrupt. In fact, the implication from other knowledgeable people is that we can expect to continue paying interest. If the various obligation holders decided to call their loans, the government could go bankrupt, but that is very unlikely to happen. This would be similar to a mortgage company calling for immediate payment of the outstanding principal on a mortgage loan. It just doesn't happen.

The net result is that Pres. Obama and Sec. Geithner have no clue on basic finances, or they are out and out lying, in their claim of government bankruptcy if the debt limit is not raised.