Tags: Wesbury | default | scare | tactic

Economist Wesbury: Talk of Default a 'Scare Tactic'

Tuesday, 08 Oct 2013 08:11 AM

By Dan Weil

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Failure by Congress and the White House to agree on a debt ceiling increase won't cause the government to default on its debt payments, says Brian Wesbury, chief economist at First Trust Advisors.

"This idea of default is a scare tactic," he told Yahoo.

"In October we will take in $200 billion in tax receipts, and we only owe $25 billion in interest payments. . . . As long as the Treasury targets the revenues that are coming in to pay interest, we will never default on a bond the U.S. has outstanding," Wesbury added.

Editor’s Note:
Obama’s Budget Takes Aim at Retired Americans

"We're not going to default on our debt. In fact, if the Treasury defaulted on the debt it would be a dereliction of duty because they have way more resources than they need to pay the interest when it comes due on every single bond that's outstanding."

To be sure, the government wouldn't be able to fund all its obligations. "He [President Obama] is going to have to make hard choices," Wesbury said.

"Do you pay the military, Social Security, Medicare and Medicaid, the Agriculture Department? If you can't borrow, there's a lot of the government that would have to shut down because you can't afford it."

The government borrows 30 to 40 cents out of every dollar it spends, Wesbury says.

As for the government shutdown, "this thing could easily last a month or two or three without any major impact on the economy," he said.

But former Federal Reserve Governor Laurence Meyer is concerned about a long-term closing.

"I don't want to get into a couple of quarters, but if it lasts a longer period of time, we could have the worst recession in the post-war period," he told CNBC.

"This could lead to the unemployment rate getting to 15 percent."

Editor’s Note: Obama’s Budget Takes Aim at Retired Americans

Related Stories:

Bove: US Debt Default Would Spark 'Devastating' Depression

US Default Seen as Catastrophe Dwarfing Lehman's Demise

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