Last week, Sen. Pat Toomey, R-Penn., introduced the "Full Faith and Credit Act." At one level, it was an attempt to shift the debate over the coming debt ceiling vote. That's how Toomey explained it at the Tea Party Caucus's meeting on Thursday -- the argument that failure to raise the debt ceiling would lead the U.S. to default would be taken out behind the barn and dealt with. That's how Republicans interpret it.
"I think we need to take the Armageddon scenario off the table when it comes to the debt ceiling," Sen. Ron Johnson, R-Wisc. "So I would support Sen. Toomey's legislation, which would basically remove that so we'd have a little more time to work this through and attach real strong spending restraint -- a spending cap."
At another level, the legislation is quite daring. It would alter the U.S. code to require the Treasury to pay interest on debt first when the debt ceiling is hit. Deputy Treasury Secretary Neil Wolin
responded to this:
This idea is unworkable. It would not actually prevent default, since it would seek to protect only principal and interest payments, and not other legal obligations of the U.S., from non-payment. Adopting a policy that payments to investors should take precedence over other U.S. legal obligations would merely be default by another name, since the world would recognize it as a failure by the U.S. to stand behind its commitments.
I caught up with Toomey and asked about this criticism, as well as the Democratic criticism that the bill amounted to "paying China first" before taking care of domestic priorities.
"Maybe there are some people who think it's okay to have a default, but the administration themselves have discussed how disastrous defaulting on our debt would be," he said. "They're right about that. That's why in the past when we've reached the debt ceiling, and it's happened several times, the Treasury secretary has made sure we don't default on our obligations on Treasury securities. All I'm saying is let's codify that because the catastrophic consequences to senior citizens, to savers, to small business owners, to people seeking mortgage, to our entire economy, would be endangered if we had a default on our debt. It's not necessary. It would be incredibly imprudent and irresponsible, so I'm just saying, let's not do that. Frankly, I'm a little baffled by people who think we should default."
He rejected the argument that the new requirement on what Treasury could do would send the wrong signal to investors.
"Interest is the real obligation because principal payments that are due can be funded by rolling over debt," he explained. "It's interesting, what we're talking about, as a practical matter."