The back-and-forth on Pat Toomey's debt proposal continues, this time with Treasury Secretary Tim Geithner replying to the senator's missive a day earlier.
“We understand that you define default narrowly in this context to apply only to debt service payments,” Geithner writes Toomey, “But the term is equally applicable to the broad failure contemplated in your legislation to meet other important U.S. obligations. That is how it would be regarded by global markets.”
“A simple analogy may help illustrate the problem” the secretary writes, suggesting the tone of a teacher addressing a confused pupil.
“A homeowner could decide to ‘prioritize’ and continue paying monthly mortgage payments, while opting to cease paying other obligations, such as car payments, insurance premiums, student loan and credit card payments, utilities and so forth. Although the mortgage would be paid, the damage to that homeowner’s creditworthiness would be severe.”