Government's Borrowing Limit Reached

This is a rush transcript from "Special Report," May 16, 2011. This copy may not be in its final form and may be updated.

BRET BAIER, ANCHOR: As we take a look at the debt clock in New York, $14.5 trillion, the national debt, and rising every minute. Officially, statutorily the government reached the debt ceiling today, but the Treasury Department has done a number of things to be able to pay the bills and not default.

Is default even an option? Some are saying no. What about this back and forth about the vote to increase the debt ceiling? We're back with our panel. Charles, there is not a chance that the government is going to default, is there?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: No. There is no chance. And one factor in all of this is that interest on the debt which if you don't pay leads you into default, it is default, it's six percent of the federal budget. So there is a lot of money sloshing around elsewhere that would sustain that indefinitely.

I think the Republicans have a strong hand here to play. Public opinion is strongly against raising the debt ceiling even if there are cuts. Second, McConnell in the Senate has an excellent idea of getting real cuts now for the next year or two which then in future years by lowering the baseline of spending essentially are repeated every year, so it's real money into the future.

And lastly, I think Boehner had a brilliant idea of this matching every dollar of debt ceiling increase with a dollar of spending decrease. It's understandable. It's a good demand that everybody will accept as reasonable one.

And it puts Obama in a box. If he wants a small -- if he is only going to agree to small cut in spending, is he only going to get a small debt ceiling increase, which means he'll have to vote on it again between now and Election Day, which is the last thing he wants to do.

BAIER: So Chuck, is there some element of disingenuous when either the administration or top Democrats in Congress talk about this default crisis? That the country as a whole is going to default on paying our bills?

CHARLES LANE, EDITORIAL WRITER, THE WASHINGTON POST: Well yes and no. In other words, I think there was hype about it early on. They were predicting the April and May. And I don't think they've enhanced their credibility by pushing it back to August.

But the fact is at some point, you exhaust all the shuffling around that they are doing and you have to start putting interest payments ahead of other government programs which might include things that are popular. That people would rather have paid for. And that is the moment - - it's not --

(CELL PHONE RING)

LANE: -- it's not an actual default, but that is the moment at which the politics get rough.

BAIER: That was a good catch by the way. The cell phone.

LANE: Yeah thank you. That was Rudy Giuliani (INAUDIBLE) --

(CROSSTALK)

KRAUTHAMMER: Through the jacket --

BAIER: Through the jacket, that was nice.

MARA LIASSON, NATIONAL PUBLIC RADIO: Ya know, I don't know if -- I think Republicans reduced their leverage by announcing to everyone that they were going to raise the debt ceiling. They have been reassuring their allies on Wall Street and their donors that they are not going to let the country go into default.

Now they are saying, we're not going to raise the debt ceiling without cuts, but Obama agrees with that, too. What John Boehner didn't say is over what period of time he wants those trillions of dollars of cuts? He left that kind of fuzzy because he wants to give himself some negotiating room.

BAIER: But if it's a long time, essentially, people at home could realize that that is a negotiation that perhaps Republicans have conceded on.

LIASSON: That is true. Also, if you passed the Ryan budget today, you would have to raise the debt ceiling I think until 2030. I mean in other words, it's not as simple as a lot of Republicans are saying. The debt ceiling would have to be raised over and over again even under the Ryan plan.

BAIER: That's true.

LIASSON: Now granted the trend line would be in the right direction on the deficit. But the debt ceiling is always demagogued. But we are in these negotiations, and from I hear from people who are in them, they're kind of serious and they're not full of grand standing. And they really are trying to find some kind of middle ground for something with cuts now, a process to make more cuts later, including any mandatory programs that could get them a deal.

KRAUTHAMMER: The difference is this. The Ryan plan is real cuts over time, which means we are not going to go over a cliff. Yes, in the next couple of years we're gonna have to raise the debt ceiling, but eventually we're going to save ourselves.

Obama has not presented anywhere a serious plan of cuts. In the state of the union address and the budget he presented it (INAUDIBLE) or anywhere, which means there is a huge difference about raising ceiling when you have trajectory that is sustainable and a trajectory that is not sustainable. That's a big difference.

BAIER: And quickly, Chuck, for the people who say you are going to pay your bills the taxes coming in are going to pay the debts we owe. Why not get to the table and start working on the back of an envelope?

LANE: Well, I would say I agree with Mara in the sense that they are in the early stages of that. But I've always been skeptical that this would not go down to the wire. These are politicians, they are going to wait until the last possible moment where they actually have to act and cut a deal. From their point politically it is way too early. They will want to wait to see what all the signals are with public opinion, et cetera, et cetera, before they cut a deal, although I think they will.

LIASSON: The markets won't let them go to August 2.

BAIER: That is it for the panel, but stay tuned for some thoughts on Al Qaeda's succession process.

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