With the debt-ceiling negotiations apparently at something like a practical impasse, Congress should act now to pass a very narrowly tailored bill that would permit the issuance of new debt — but only for the purpose of financing current debt service. Such a measure was suggested by David Rivkin and Lee Casey back in May, and this would be an excellent time to advance it.
Why pass such a bill?
First, because we have something on the order of $500 billion of debt to roll over in August. That doesn’t mean adding $500 billion to the national debt, but it does mean paying off old bonds and issuing new ones. If borrowing costs rise, which they very well may, that will mean adding modestly to the national debt. But it will take the possibility of a default entirely off the table. Talk of a pending U.S. default is mostly irresponsible grandstanding, but ensuring that we will meet our debt-service obligations removes a source of uncertainty from the markets and takes a powerful rhetorical tool away from the Democrats.
Second, passing legislation specific to debt refinancing forecloses on the possibility that the Obama administration will invoke the (questionable, to say the least) argument that the Fourteenth Amendment empowers the president to act unilaterally to prevent default.
Third, such legislation would act as a practical spending cap until a long-term deal can be worked out. The national debt no doubt will rise, but only by as much as it costs to refinance current obligations.
Passing such legislation is good politics and necessary policy. If the Democrats were to take a stand against it, they would be in effect dragging the nation toward the possibility of default — a possibility I still regard as remote, but one that you don’t really want to take a single step toward.