Matthew O’Brien spells out the possible consequences of not raising the debt ceiling. He addresses the idea that the Treasury can prioritize debt payments, noting that even if it works it will impose severe economic costs:
Even in the relatively happy case where the Treasury can prioritize payments and we avoid an outright debt default, there would still be immediate austerity of about 4 percent of GDP on an annualized basis [bold mine-DL]. That much austerity would maim the recovery and send the economy back into recession if it lasted for very long.
This amounts to giving shock therapy to someone just recovering from a long and serious illness. It would inflict some needless, avoidable economic harm on the country as a whole, and it could cause much more depending on how long this charade lasts. Then again, that is the best-case scenario. If the Treasury isn’t able to prioritize debt payments perfectly, things could be much worse. I don’t have confidence that a government department, no matter how well-prepared, could do what the Treasury would be asked to do without any glitches or missed payments, and I doubt that anyone promoting this idea has that much confidence in the flawless competence of the government to do something it has never attempted before. The risk of what could happen even if things went perfectly is substantial, and there is nothing that the House GOP could get that would justify taking that risk.
O’Brien notes that even perfect execution by the Treasury wouldn’t be enough to guarantee that no debt payments are missed:
But even if the government is completely competent [bold mine-DL], the Treasury could still miss a debt payment. Why? Well, payments and revenues are lumpy. We owe more on some days, and we have more cash come in on some days. More importantly, we owe bondholders more on some days. So the question is whether there could ever be a particular day when we owe more in interest than we have in cash on hand. And there is [bold mine-DL].
So the Republican members of Congress telling the public that they don’t need to worry about the danger of default if the debt ceiling isn’t raised are simply wrong. They are misinformed, and they are misinforming the public. They need to stop, but unfortunately many of the sources that they rely on for their news and analysis are recycling the same bad information.