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.
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“I think we need to have that moment where we realize [we’re] going broke,” Rep. Ted Yoho (R-FL) said last weekend when asked about the debt limit. “I think, personally, it would bring stability to the world markets.”
This isn’t a new thought for Yoho. In August he said a default would likely help America’s credit rating.
Though this idea isn’t popular with economists, the congressman points out that the constituents at his town halls overwhelmingly agree with him, which isn’t surprising given that Tea Partiers are consistently saying they’re in favor of default.
Photo: Gage Skidmore via Flickr
“We have in my household budget some bills that have to be paid and some bills that are only paid partially,’ Rep. Joe Barton (R-TX) told CNBC on Monday. “I think paying interest on the debt has to be paid. I think paying Social Security payments have to be paid. I don’t think paying the secretary of energy’s travel expenses have to be paid 100 cents on the dollar.”
The government pays out an estimated $68 billion a month in Social Security benefits. You’d need to cancel a lot of flights to cover that nut.
“This talk about default by the U.S. Treasury is nonsense,” he insisted. “The president can be smart or the president can be stupid. And I would assume as smart as President Obama is when push comes to shove, he’ll be smart.”
Photo: Gage Skidmore via Flickr
Senator Tom Coburn (R-OK) has caught whatever Senator John McCain (R-AZ) has that causes both men to veer from sanity to insanity as the clock ticks.
Coburn warned his fellow Republicans that their “Defund Obamacare” scheme would never work, then he said President Obama was “perilously close” to being impeached.
Now he doesn’t believe the debt limit “exists.”
“There’s no such thing as a debt ceiling in this country because it’s never been not increased, and that’s why we’re $17 trillion in debt,” he said on CBS This Morning on Monday. “And I would dispel the rumor that’s going around that you hear on every newscast that if we don’t raise the debt ceiling, we’ll default on our debt — we won’t. We’ll continue to pay our interest, we’ll continue to redeem bonds, and we’ll issue new bonds to replace those.”
This is just not true.
Slate‘s Matt Yglesias explains that there are four reasons debt payments cannot be “prioritized.” It’s illegal, it’s impossible, it won’t work and it wouldn’t solve the problem because “nobody in the future could seriously treat U.S. government debt as a risk-free information-insensitive asset.” Default would forever shake the world’s confidence that the United States can be counted on to overcome political difficulties to pay its debts.
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Tea Party senator Ron Johnson (R-WI) thinks President Obama is irresponsible for even mentioning the debt limit.
“There is absolutely no reason at all for this type of government to default even if we don’t increase the debt ceiling,” he told Salon‘s Josh Eidelson on Tuesday. So I think it’s highly irresponsible of this administration to be doing the type of scaremongering they’re doing on this issue.
Johnson rejects the idea that hitting the debt limit would trigger an “economic calamity,” unless the president wants it:
What we should be doing is responsibly addressing the primary drivers of our debt and deficit issues. And that’s something this administration has utterly refused to do. That is what is causing the uncertainty. That is in the end what will decrease our debt rating if we don’t start grappling with it. It’s not just a momentary event one way or the other, whether we increase the debt ceiling at this particular moment in time. There’s no reason that not increasing the debt ceiling at a particular date should cause any kind of economic calamity. There’s no reason for that whatsoever, if it’s handled responsibly, which it doesn’t sound like the administration’s willing to do – which in itself is irresponsible.
Senator Rand Paul (R-KY) echoes Johnson’s belief that a default can be “prioritized” away, especially if the president would sign the bill the House passed to prepare for a default.
“Why would you be late on your Social Security payments?” he asked on CNN over the weekend. “We have a bill that is called the full faith and credit bill. And we passed it in the House before. We have introduced it in the Senate. And it says you pay Social Security, you pay Medicare, you pay your soldiers’ salaries and you pay with interest on the debt. We have money for all of that.”
That bill hasn’t become law, of course. But that doesn’t stop the man Rand Paul imagines will be the next president — Rand Paul — from creating a fictional outcome for how a managed default looks.
“We should pay our interest and we shouldn’t scare the markets, so if I were in charge – I’ll say, absolutely we will never default,” he said. “I would pass a law saying that the first revenue every month has to go to pay the interest.”
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Rep. Justin Amash (R-MI) has become a mini-Rand Paul in the House. so of course he doesn’t think hitting the debt limit would be that bad.
“There’s always revenue coming into the Treasury, certainly enough revenue to pay interest,” he said. “Democrats have a different definition of ‘default’ than what we understand it to be. What I hear from them is, ‘If you’re not paying everything on time, that’s a default.’ And that’s not the traditionally understood definition.”
Not “traditionally understood” by people who listen to Rand Paul, at least.
Rep. Mick Mulvaney (R-SC) is the best. He doesn’t even believe “default” exists.
“We’re not going to default; there is no default,” he said. “There’s an [Office of Management and Budget] directive from the 1980s, the last time we got fairly close to not raising the debt ceiling, that clearly lays out the process by which the Treasury secretary prioritizes interest payments. Tim Geithner understood that, because the last weekend in July of 2011 he was in New York City telling the primary dealers that we were not going to default on our debt.”
That’s why the Dow Jones Industrial Average only lost 2,000 points after Geithner’s speech.