If you’re running short of $$$ this month, will you (a) pay your mortgage or (b) buy a new big screen TV?

Interesting point raised by new Senator Pat Toomey in the WSJ regarding the debate on raising the national debt limit:

For months, some political leaders have argued that failure to raise the debt ceiling would necessarily cause the U.S. to default on its debt.

President Obama’s Council of Economic Advisors chairman, Austan Goolsbee, recently warned, “If we get to the point where you’ve damaged the full faith and credit of the United States, that would be the first default in history caused purely by insanity. I don’t see why anybody’s talking about playing chicken with the debt ceiling.”

In fact, if Congress refuses to raise the debt ceiling, the federal government will still have far more than enough money to fully service our debt.

Next year, for instance, about 6.5% of all projected federal government expenditures will go to interest on our debt.  Why would we ever default?

To make absolutely sure (we don’t), I intend to introduce legislation that would require the Treasury to make interest payments on our debt its first priority in the event that the debt ceiling is not raised.

This would not only ensure the continued confidence of investors at home and abroad, but would enable us to have an honest debate about the consequences of our eventual decision about the debt ceiling.

WSJ, How to Freeze the Debt Ceiling Without Risking Default, Jan. 19, 2011

In rough numbers, the U.S. is paying about about 1.5% in annual interest to service the $13 billion national debt … that’s about $200 billion.

Tax collections are a tad over $2 billion annually; spending is running about $3.5 billion … for an annual deficit of $1.5 billion.

In other words, $3.3 billion – almost 95% of total expenditures are for stuff other than interest on the debt.

Why not follow Toomey’s advice?  Pay the interest, and shave 6% off the rest of the spending.

Makes sense to me

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For numbers galore:

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