Listening to Tea Partiers describe how we can hit the debt limit without default is like listening to a broke gambler describe his “system.” It all hinges on a belief that it’s possible to game the house and come out ahead, no matter what the odds are.
The truth is that we don’t know what will happen if America defaults on its debts because no Congress has ever been dumb enough to find out. The only technical default since the Great Depression was the result of a computer glitch in 1979. But until 2011, no one had ever come close to hitting the debt ceiling on purpose.
The Treasury Department reports that America will run out of authority to borrow more money on October 17. At that point, since the spending is higher than the amount of taxes it takes in, it will not be able to pay all its bills. Legally and practically, this would eventually lead to default on the interest payments on our debt. The last debt limit crisis — when Congress came dangerously close to the debt limit — cost the government $1.3 billion and erased billions of dollars in value from the stock market.
What would an actual default look like? Bloomberg‘s Yalman Onaran explains:
Failure by the world’s largest borrower to pay its debt — unprecedented in modern history — will devastate stock markets from Brazil to Zurich, halt a $5 trillion lending mechanism for investors who rely on Treasuries, blow up borrowing costs for billions of people and companies, ravage the dollar and throw the U.S. and world economies into a recession that probably would become a depression. Among the dozens of money managers, economists, bankers, traders and former government officials interviewed for this story, few view a U.S. default as anything but a financial apocalypse.
But Onaran’s article isn’t being forwarded to Tea Partiers. Instead, the word is being passed around from one Tea Party expert to the next that the debt limit is like climate change, the benefits of early childhood education or the female orgasm — a hoax, a fraud, a scam.
More and more Republican congressmembers — including leaders of the party — are coming forward to say that Congress doesn’t need to raise the debt limit in the next week or so, or possibly ever. They nearly all point out that President Obama voted against raising the debt limit, when he was in the Senate minority and knew the bill would pass. Of course, testing their hypothesis would literally put millions of Americans’ jobs and homes at risk as we struggle to recover from a financial crisis.
And there’s already evidence that the markets’ reaction to anything close to default would be “scary.”
Here’s how seven Republican debt limit truthers explain why they don’t believe potentially releasing a financial apocalypse is a big deal.
Photo: cometstarmoon via Flickr