Another Reason To Raise The Debt Ceiling

myRA and the Debt Ceiling.

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The state is that great fiction by which everyone tries to live at the expense of everyone else.” ― Frédéric Bastiat

United States Treasury Secretary Jack Lew warned again today that the United States is at risk of default if Congress doesn’t raise the debt ceiling by the end of the month. Last October, Mr. Lew also warned that not raising the debt ceiling would lead to “a default that would be unprecedented and have the potential to be catastrophic.”

Mr. Lew’s statement calls into question an assertion the President made during his State of the Union address last week in respect of his myRA savings retirement plan that he created by executive order: “MyRA guarantees a decent return with no risk of losing what you put in.” That guarantee, of course, would be dependent upon Congress raising the debt ceiling when necessary in order to avoid a default so that timely interest payments could be made on the U.S. government bonds that would be held in the myRA retirement plans.

We suspect that myRA has been designed to set up the frame work to collect U.S. citizens’ retirement funds when the need arises. For now in order for a voluntary myRA scheme to work, however, potential bond purchasers would need to feel comfortable that the U.S. would never default on its obligations and if need be, in the words of former Federal Reserve Chairman Alan Greenspan: “would pay any debt it has and always print money to do that.” Avoiding a debt ceiling debate and just raising it as a matter of course would go along way towards giving potential myRA participants comfort that they will always be paid.

Once substantial numbers of U.S. citizens hold Treasury Bonds through myRA or other government programs designed to convert retirement plans to government debt obligations, the prospect of default would fall to almost nill as no Congressman would vote not to raise the debt ceiling and be held responsible for his constituents not getting their monthly interest payments.

If increasing numbers of U.S. citizens lend money to the United States, the government will be able to fund its deficit spending so that it can continue to pay benefits, like Social Security and Medicare, to them.

What could go wrong?

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Further Reading:

U.S. Department of Treasury Warn Value of Dollar at Risk

Obama Announces myRA Retirement Savings Plans

Mandatory Retirement Accounts

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