Virtually alone among major world economies, the United States has a debt ceiling which limits how much money the government can borrow to pay the bills it has already incurred. From the time Congress created the debt limit in 1917 to simply the massive borrowing need to fund the U.S effort in World War I until 2010, raising Uncle Sam’s borrowing authority was a routine, bipartisan exercise regardless of which party controlled Congress or the White House. Since 1960, Congress raised the debt ceiling 29 times for Democratic presidents and 49 times for Republicans. That included 17 times as Ronald Reagan was tripling the national debt, 7 more as George W. Bush nearly doubled it again and on three more occasions for Donald Trump as he hemorrhaged $7 trillion in red ink over just four years. (It was candidate Trump who during the 2016 election famously promised to eliminate the entire U.S. national debt “over a period of 8 years.”)

Until the Tea Party Republicans rolled to a massive majority the 2010 midterms, no American political party ever had both the intent and the votes to block a debt ceiling increase and thus trigger a sovereign default by the United States. Before January 2011, the very idea of holding the debt limit hostage in order to foist steep and unpopular spending cuts on a president of the opposing party was unthinkable. Why? “You can’t not raise the debt ceiling” because that “would be a financial disaster, not only for our country but for the worldwide economy.”

You don’t have to take my word for it or even Treasury Secretary Janet Yellen’s. Those are the words of Reps. Paul Ryan (R-WI) and John Boehner (R-OH), last two Republican House Speakers.

Earlier this month, the New York Times described what could happen if the United States, the lynchpin of the global economy, failed to pay its bills. “The far-reaching effects are hard to fully predict,” Joe Rennison wrote on May 18, warning of “shock waves in financial markets to bankruptcies, recession and potentially irreversible damage to the nation’s long-held role at the center of the global economy.” Moody Analytics economist Mark Zandi, who has previously advised both Republican and Democratic presidential candidates, forecast what the resulting pain for the American people could look like. Even a short breach of the debt limit lasting only a week would have grave consequences for the American financial system akin to the initial rejection of the Troubled Asset Relief Program (TARP) in the fall of 2008:

A similar crisis, characterized by spiking interest rates and plunging equity prices, would be ignited. Short-term funding markets, essential to the flow of credit that helps finance the economy’s day-to-day activities, likely would freeze up as well. It was a matter of days before Congress reversed itself and voted for TARP, which is about the amount of time we assume is needed to convince this Congress to reverse itself and vote for a debt limit increase.

If the United States escaped a downgrade of its credit rating following a “short” breach of the debt limit, Uncle Sam would have no such luck if the nation’s default extended for several weeks throughout the summer of 2023. According to Zandi, a prolonged GOP taking of what Congressman Matt Gaetz (R-FL) today branded its debt ceiling “hostage” would be catastrophic:

The economic downturn that would ensue would be comparable to that suffered during the global financial crisis. That means real GDP would decline during the second half of this year and into 2024, falling 4.6% peak to trough, costing the economy more than 7.8 million jobs, and pushing the unemployment rate to 8%. Stock prices would fall by almost a fifth at the worst of the selloff, wiping out $10 trillion in household wealth. Treasury yields, mortgage rates, and other consumer and corporate borrowing rates would spike until the debt limit is resolved. They would decline during the subsequent deep recession, but ultimately remain elevated as investors demand compensation for the risk of a future breach (see Chart 6). The economy’s long-term growth prospects are also weakened. A decade from now, real GDP is almost 1 percentage point lower, there are 1.2 million fewer jobs, and the full-employment, or structural, unemployment rate is close to 0.2 percentage point higher.

Now, if this nightmare sounds familiar, it should. That’s because in the spring of 2011, the new House Republican majority blackmailed President Obama over the debt ceiling in exchange for what became the automatic spending reductions (so-called “sequestration”) of the Budget Control Act signed that August. Writing in Slate that April, Annie Lowrey described the dystopian hellscape that the American financial system would become even if the GOP released its hostage after just a three-day default:

Treasury starts issuing new bonds and making all payments on existing ones. But the market panic requires the Federal Reserve to reboot its emergency programs, disrupts the housing market, permanently raises the United States' borrowing costs, reshapes the world bond market, and shaves more than a percentage point off GDP growth—enough to throw the economy back into recession. Globally, investors no longer consider the dollar the reserve currency of choice.

Many of the Republicans’ “default deniers” including White House hopeful Michele Bachmann (R-MN) refused to believe these dire circumstances could come to pass. But new Speaker of the House John Boehner was under no such delusions. He was clear-eyed about what would happen if President Obama did not pay the ransom he was demanding. “That would be a financial disaster not only for our country, but for the worldwide economy," he said. "You can't create jobs if you default on the federal debt.” When he was asked in a private meeting with 25 Tea Party leaders from his district on April 25, 2011 if Republicans would raise the debt ceiling, Speaker Boehner answered, “yes.” But that’s not all he said:

"And we're going to have to raise it again in the future," he added. With the mass retirement of America's Baby Boomers, he explained, it would take 20 years to balance the U.S. budget and 30 years after that to erase the nation's huge fiscal deficit.

That rare moment of candor was not shared by Rep. Paul Ryan (R-WI), the man who would succeed Boehner in the Speaker’s chair. Ryan made clear that the debt ceiling would have to be raised. But Republicans, he promised, would not give President Obama a “clean” debt ceiling bill as they had done for Dubya.

Does it have to be raised? Yes, you can’t not raise the debt ceiling. Default is the unworkable solution, or the alternative, I guess I’d say — the unworkable alternative. But we do not want to just have some naked debt ceiling increase. We want to have real fiscal controls, real spending cuts, in order to do that.

Ryan was certainly right that “you can’t not raise the debt ceiling.” But ironically it was President Ronald Reagan—the man who presided over the national debt’s explosion from $700 billion to $2.8 trillion in just four years—who darkly warned that even the threat of default could do severe damage to the American economy:

The full consequences of a default -- or even the serious prospect of default -- by the United States are impossible to predict and awesome to contemplate. Denigration of the full faith and credit of the United States would have substantial effects on the domestic financial markets and the value of the dollar.

In the summer of 2011, the United States experienced the pain resulting from “the serious prospect of default.”

The near-breaching of the debt ceiling didn’t just lead Standard & Poor’s to downgrade America’s credit rating.  The cloud of uncertainty which hung over the American economy that summer drove down consumer confidence and drove up unemployment. As Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, put it, “The extreme uncertainty over the outcome of the debt-ceiling debate probably did extra damage to the August (job) figures.” The Christian Science Monitor echoed that conclusion:

Why has the job market cooled so much? An important factor, many economists say, is that signals from government lately have been hurting rather than helping confidence. The protracted talks over the nation's debt ceiling this summer appeared to dampen the spirits of consumers and businesses alike.

For its part, S&P made clear that its denigration of the American credit rating was in fact a “Tea Party downgrade”:

A Standard & Poor’s director said for the first time Thursday that one reason the United States lost its triple-A credit rating was that several lawmakers expressed skepticism about the serious consequences of a credit default — a position put forth by some Republicans.

Without specifically mentioning Republicans, S&P senior director Joydeep Mukherji said the stability and effectiveness of American political institutions were undermined by the fact that “people in the political arena were even talking about a potential default,” Mukherji said.

“That a country even has such voices, albeit a minority, is something notable,” he added. “This kind of rhetoric is not common amongst AAA sovereigns.”

Uncommon, indeed. As the United States entered 2013, the leading credit rating agencies hoped that the Republicans in Congress had learned their lesson. That January, Fitch announced it had decided not to downgrade U.S. credit after all:

Nevertheless, Fitch warned that the United States could still face a debt downgrade if policymakers don’t pull together a “credible” plan to reduce the country’s massive deficit over the medium term, which it defines as six to 12 months.

Fitch is not alone in still harboring concerns.

Moody’s Investors Service has a negative outlook on its U.S. rating, which it still has at a top AAA. And Standard & Poor’s has left its rating at AA-plus since downgrading it from triple-A after Washington’s debt standoff of August 2011, albeit also with a negative outlook.

Fitch, Moody’s and S&P (which raised its outlook later in 2013) were correct that chastened Republicans would not repeat their debt ceiling extortion that fall. But in the back of their minds, they should have remembered to be prepared for more hostage-taking the next time a Democrat entered the White House and faced GOP control of either chamber of Congress. As Mitch McConnell boasted to CNBC host and future Trump economic adviser Larry Kudlow, Republicans had established their “template” for all future debt ceiling clashes with Democratic presidents. “It will not be clean anymore.” Why?

“I think some of our members may have thought the default issue was a hostage you might take a chance at shooting," he said. "Most of us didn't think that. What we did learn is this -- it's a hostage that's worth ransoming.”

Of course, many Tea Party Republicans and their MAGA successors seem to have no problem with shooting that hostage. And as former Bush Treasury Secretary Paul O’Neill lamented 12 years ago, that makes these Republican extortionists something else altogether: terrorists.

The people who are threatening not to pass the debt ceiling are our version of al Qaeda terrorists. Really. They're really putting our whole society at risk by threatening to round up 50 percent of the members of the Congress, who are loony, who would put our credit at risk.

Now as then, O’Neill had it exactly right.