It is either ignorance or a lie.
Originally posted by semar_mendem
Schiff explains things well in this video:
It is true that without raising the ceiling and borrowing more, the U.S. cannot continue its high rate of spending. Spending would have to be reduced to within actual tax revenues. Some spending would have to be cut (back to 2003-level spending).
Default on the other hand means they stop paying (or delay paying) some or all of the interest on the debt. But this would not be necessary. Servicing the debt costs well less than tax revenues. So they could avoid default and still have plenty tax money to spend on other stuff. In fact, I have read that within revenues, they could continue servicing the debt + pay the troops + pay Social Security + Medicare. They just would not be able to spend as much as they've been spending.
So with the ceiling, they can avoid default by cutting other spending. The only reason they would default is if they CHOOSE to do that: to stop paying interest instead of cutting other spending.
Schiff points out that by claiming the ceiling will result in default, they are either lying or are really saying that they will CHOOSE to default on the debt rather than cut other spending. And thus admitting that avoiding default is not their priority. (So then why do they keep talking about it? They are lying either way.)
"We are saying to the whole world. 'This is a gigantic Ponzi scheme.'" Saying to China, if you stop lending to the US, then the US will choose to default.
"What the President & Congress should be saying is 'We will honor our debts, don't worry at all, there is no chance of default; we will make cuts in other spending.' But that's not what we're saying. We're telling our creditors that they are less important than other spending." This creates a drop in confidence in Treasuries.
"This is very dangerous, for the President to admit how weak the position is for our foreign creditors--that we will cast them aside the minute interest on the debt conflicts with other spending."