DEFAULT? BULL$HIT!

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Today's WSJ Review & Outlook notes...

First sponsored in 2011 by California Republican Tom McClintock and Pennsylvania Senator Pat Toomey, the Full Faith and Credit Act is essentially an insurance policy against miscalculation. Their bill certifies that U.S. sovereign debt will always be repaid, on time and in full.

If Congress fails to authorize a statutory increase in the debt limit — during a period of, say, intense political conflict over the fisc like the one now — the bill stipulates that Treasury can continue making contractual interest and principal payments to bond holders and rolling over debt with incoming tax payments. Debt service gets the first call on revenue.

* CAN CONTINUE...??? IS THAT A TYPO? NOT MUST CONTINUE...??? (IF NOT... WHY NOT...???)

The McClintock-Toomey bill replicates the guarantees that state constitutions have had for hundreds of years to strengthen investor confidence. It gives the Treasury Secretary discretion to prioritize among other federal obligations until the political deadlock ends, tempers cool and the parties can reach a deal. But it makes his first priority to protect the full faith and credit of the U.S.

* OK. SUPREME COURT JUSTICE IN WAITING BARKER WOULD VIEW "MUST PRIORITIZE DEBT PAYMENTS ABOVE ALL OTHER EXPENDITURES," BUT BEYOND THAT... LEAVING PRIORITIZATION OF THE BUDGET AS A WHOLE - THAT'S A CONSTITUTIONAL BRIDGE TOO FAR. IT WOULD BE AN UNCONSTITUTIONAL DELEGATION OF CONGRESSIONAL POWER WHEREAS THE LIMITED - STAND ALONE - PRIORITY INSTRUCTION IS JUST THAT... A PRIORITY INSTRUCTION AND THEREFORE CONSTITUTIONAL.

Yet instead of embracing this insurance against default, Democrats have voted to kill it even as they cry havoc about the risk of default.

The House passed McClintock-Toomey in May, but only on a 221 to 207 party-line vote after a raucous debate. The White House issued a formal veto threat, calling it "unwise, unworkable and unacceptably risky."

* SO... BOTH PARTIES HAVE BEEN PLAYING GAMES.

House Republicans have continued to press the measure, attaching it to a continuing resolution last week. But Mr. Reid moved to strip it out, and his motion passed the Senate 54 to 44. The Majority Leader denounced McClintock-Toomey as the "Pay China First Act."

* IN ANY CASE... THERE'S THE 14TH AMENDMENT... SECTION 4 OF THE 14TH AMENDMENT TO BE PRECISE.

Mr. Reid may think that is clever xenophobic political cover, but someone should tell him that millions of Americans have a stake in Treasurys through pension funds, 401(k)s, savings accounts and as individual investors. Two-thirds of U.S. debt is held domestically and the Chinese own roughly 7% to 10%, though who cares who U.S. creditors are if the goal is for the U.S. to reassure its creditors?

In the May debate, Democrat after Democrat made the argument that the provision would make school lunch programs, student loans, unemployment insurance and the rest second-class.

* AGAIN... THE 14TH AMENDMENT ALREADY DOES THIS! (AND THANK GOD IT DOES!)

"The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned..."

* SHALL... NOT... BE... QUESTIONED! (NOTE... IT DOESN'T SAY "EXPENDITURES FOR SCHOOL LUNCH PROGRAMS, STUDENT LOANS, AND UNEMPLOYMENT INSURANCE SHALL NOT BE QUESTIONED!)

So Democrats are denouncing Republicans for putting U.S. credit at risk...

(*SCRATCHING MY HEAD*)

...even as they are denouncing Republicans for putting U.S. credit first.

Which is it?

(*HEADACHE*)

A more serious objection to the bill is that investors might still interpret such a funding shortfall as a reason to panic about U.S. finances. Investors and bond vigilantes might read a failure to make prompt Medicare payments as tantamount to default. But this would still be better than an actual default that would mean breaking legal and financial contracts.

(Markets can tell the difference between a failure to pay contractually obligated interest on time and a need to delay some government bills due to a political impasse.)

Let's be clear: We aren't recommending either outcome. The U.S. should meet all of its obligations.

* ACTUALLY THE U.S. SHOULD SHED AS MANY ARTIFICIAL "OBLIGATIONS" AS IT CAN! (MEANING LOTS!) HEY... FOLKS... DEBT TAKES PRIORITY OVER DISTRIBUTING OBAMAPHONES! IN THE REAL WORLD... YOU TIGHTEN YOUR BELT WHEN YOU NEED TO. IF YOU'RE SHORT ON YOUR MORTGAGE BY $100/mo. YOU EITHER MAKE AN ADDITIONAL $100/mo. OR ELSE YOU CUT $100/mo. ELSEWHERE. IT AIN'T ROCKET SCIENCE.

A President who really wants to limit the chance of default would take the GOP up on its Full Faith and Credit offer.

Mr. Obama's refusal suggests that his real goal is to go to the edge of default, gambling that he can then either coerce total surrender or blame a default on Republicans and use it to take back control of the House in 2014. This isn't how leaders looking out for the interests of all Americans behave.