Jim Nussle, former director of the Office of Management and Budget, explains on CNBC’s “Squawk Box” why the Obama administration’s threats of imminent and catastrophic default if the debt ceiling isn’t raised promptly are complete bunk:
Q: We’re not going to default, right?
NUSSLE: No, I don’t think there’s any reason why the government needs to default. In fact, there’s more and more talk as a result of Secretary Geithner’s extending the deadline basically and some of the tools in his toolbox all the way till August 2nd, which was kind of a troublesome issue for the legislators who need pressure in order to come to a deal. But on the back end it proved to people that the revenue that’s coming in, while growing, will be enough to carry about 60 to 70 percent of the spending that will continue to happen, and so when you hit the quote-on-quote debt ceiling, let’s say it’s on the second of August the way Secretary Geithner suggests, the next day, if there is a cliff, the only cliff is about 30 or 40 percent of the government. So what they’re suggesting now is that the worst that would is some kind of a rolling government shutdown rather than a default. No one’s going to default, so that I think has change a little bit of the dynamic in Washington.
Q: It doesn’t mean the cost of borrowing can’t go up for the government?
NUSSLE: Oh, clearly, that’s always a peril, but what it means is that the secretary is going to have to make a decision; the government is going to have to make a decision about what spending is a priority versus what spending is not. And that’s either going to happen in an agreement before the debt ceiling or it’s going to happen the day after they hit the debt ceiling because they can’t pay the bills.