Default Deniers or How the GOP Learned to Love Uncertainty
When it comes to perpetuating the Bush tax cut windfall for the wealthy, Republicans have long been the party which cried "uncertainty." ""We're calling for an end to the threat of tax hikes," as Speaker John Boehner put it in one formulation, "to provide certainty to those in our country who create jobs." While the record shows small increases in upper income tax rates don't impact America's so-called job creators, defaulting on the nation's debt obligations would produce an economic calamity of biblical proportions. But with economists, business leaders, think tanks and international financial bodies now warning of those dire consequences, more and more Republicans hell-bent on gutting spending and preserving gilded class tax breaks are having no qualms at all about the economic uncertainty they alone are responsible for producing.
On Tuesday, John Boehner joined the ranks of Tim Pawlenty, Michele Bachmann, Pat Toomey, RNC Chairman Reince Preibus and other GOP "default deniers" by proclaiming the Treasury Department's early August deadline to raise the nation's $14.3 trillion debt ceiling "artificial." That's a far cry from January, when newly installed Speaker Boehner fretted about failure to raise the federal government's borrowing authority:
"That would be a financial disaster, not only for our country but for the worldwide economy. Remember, the American people on Election Day said, 'we want to cut spending and we want to create jobs.' And you can't create jobs if you default on the federal debt."
Just in case Boehner forgot his earlier statement, over the past 24 hours a chorus of voices has chimed in to remind him. A new analysis by the Bipartisan Policy Center concluded that failure to boost the debt ceiling by the August drop-dead window would force the U.S. Treasury to immediately slash spending by 44%. As The Hill reported, "On an annualized basis, the cut in spending alone is a 10 percent cut in GDP, BPC scholar Jay Powell told reporters." While the IMF similarly cautioned that "the debt ceiling should be raised as soon as possible to avoid damage to the economy and world financial markets," former McCain economic adviser Mark Zandi this week painted a grim portrait of just what that damage would look like. Even a brief default, as TPM reported, would be cataclysmic:
If Congress fails to raise the national debt limit by early August, the Obama Treasury Department will have to choose between defaulting on obligations to the country's creditors -- triggering higher interest rates and perhaps damaging the country's credit rating for months and years to come -- or freezing outlays to contractors, entitlement beneficiaries and others who are also expecting prompt payment as well. In either case, the macroeconomic impact will be staggering, according to Zandi.
"I think we go into recession and my forecast would be blown out of the water," he said. "I think if we get to August 2nd and there is no debt ceiling [increase] and there has to be significant spending cuts, I think even if Congress and the administration reverse themselves days later, I think the damage will have been serious and we'll probably be thrown into a recession."
Yet the default deniers like freshman Pennsylvania Senator Pat Toomey insist "there is no danger of a shortage of cash to pay the interest on our debt and to avoid a default" and claim it is "irresponsible for the administration to even implicitly threaten the possibility of a default." Pretending that with a little budgetary sleight of hand, the cataclysm that would be a U.S. default need not be so, well, cataclysmic, Toomey criticized Geithner for "doomsday predictions that could only materialize at his own hand." Instead, Toomey claims, the Obama administration should back his bill which "would require the Treasury to prioritize payments on our debt in the event the debt ceiling is not raised, thus ensuring the U.S. government does not default." White House hopeful Michele Bachmann (R-MN) similarly declared we don't raise the debt ceiling, but we use the revenue still coming in to pay off creditors first and whatever we think most important second. That way, we "don't violate our credit rating" and "prioritize our spending." Later, Bachmann accused Secretary Geithner of "outright blatant lies" and "scare tactics."
Ezra Klein described Bachmann's fantasy as "the scariest thing I've ever heard on television."
It makes perfect sense unless you, like me, had spent the previous few days talking to economists, investors and economic policymakers about what could happen if we start playing games with the debt ceiling. Their answers were across-the-board apocalyptic. If the U.S. government is so incapable of solving its political problems that it can't come to an agreement on the debt ceiling, they said, that's basically the end of the United States as the world's reserve currency. We won't be considered safe enough to serve as the investment of last resort. We would lose the most important advantage our economy has in the global financial system -- and we'd probably lose it forever. Skyrocketing interest rates would slow our economy and, in real terms, make it even harder to pay back our debt, which would in turn send interest rates going even higher. It's an economic death spiral we associate with third-world countries, not with the United States.
Writing in Slate, Annie Lowrey paints a similarly disturbing picture of the aftermath of the Republicans' debt ceiling terrorism when the Treasury's borrowing options come to an end this summer:
Within 72 hours, Congress has a deal on President Obama's desk, raising the ceiling to $16 trillion in exchange for balanced budgets to take effect in fiscal-year 2015 and some serious cuts now. 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.
When it comes to the potential damage caused by the Republican economic suicide bombers, Americans don't need to take Annie Lowrey's or Ezra Klein's word for it. Over the past few weeks, the U.S. Chamber of Commerce, Wall Street executives, the National Association of Manufacturers and a host of the GOP's other big business allies have warned the Republican leadership that the party's grandstanding risks an economic calamity for the United States. As The Hill reported, the same business backers who bankrolled the GOP's overwhelming victories in November has had enough of the fear, uncertainty and doubt coming from Messrs.' McConnell, Boehner and Cantor.
Groups such as the National Association of Wholesaler-Distributors (NAW), the U.S. Chamber of Commerce and the National Association of Manufacturers (NAM) plan to step up their advocacy for a debt-limit increase as the deadline for congressional action draws closer.
Lobbyists for several major trade associations told The Hill that they have already had discussions with first-term House Republicans about the necessity of lifting the debt ceiling to avoid a default on U.S. debt.
As one Wall Street executive described the carnage Republicans are about to cause:
"They don't seem to understand that you can't put everything back in the box. Once that fear of default is in the markets, it doesn't just go away. We'll be paying the price for years in higher rates."
Last month, the Wall Street Journal highlighted the growing concern at the reliably Republican U.S. Chamber of Commerce:
The U.S. Chamber of Commerce waded into the fight over increasing the government's borrowing limit on Friday by urging members of Congress to raise the debt ceiling "as expeditiously as possible."
The business community's chief lobby in Washington made the case in a letter to lawmakers signed by Bruce Josten, the group's head of government affairs, arguing that failure to pass legislation authorizing an increase in borrowing by Aug. 4 "would create uncertainty and fear, and threaten the credit rating of the United States."
Despite their current posturing, John Boehner, Mitch McConnell and GOP Congressional majorities voted seven times to raise the debt ceiling under George W. Bush. During his tenure, the U.S. national debt doubled, fueled by the Bush tax cuts of 2001 and 2003, the Medicare prescription drug plan and the unfunded wars in Iraq and Afghanistan. McConnell and Boehner voted for all of it. But now that a Democrat is in the White House, they proclaim that the debt ceiling vote is a "great opportunity" to reduce U.S. deficits.
Writing last month in the Wall Street Journal, former Federal Reserve vice chairman Alan Blinder worried about the economic and political damage the Republicans' unprecedented debt ceiling gambit would cause:
[S]hould the view take hold that threats to default are now a permissible weapon of political combat in the world's greatest democracy, U.S. government debt will lose its exalted status as the safest asset money can buy--with unpleasant consequences for the dollar and interest rates.
Fights over the budget are normal and proper in a democracy, especially when the two parties hold dramatically different views. But threatening to default should not be a partisan issue. In view of all the hazards it entails, one wonders why any responsible person would even flirt with the idea.
Sadly, this is now standard operating procedure for a Republican Party whose leading lights freely admit their claims were "not intended to be a factual statement."
Meanwhile, the ironies abound for a Republican Party now holding the debt ceiling and the American economy hostage. After all, while current laws on the books would erase the federal budget deficit before 2020, the Ryan plan which garnered the votes of 235 House Republicans and 40 GOP Senators serves up another $4 trillion in Treasury-draining tax cuts over the next decade and would require the debt ceiling to be raised repeatedly. Similarly not content with the two-year, $800 billion tax cut compromise they inked with President Obama in December, Republican colleagues Jim Demint (R-SC) and Mike Pence (R-IN) proposed making the budget-busting, Treasury draining Bush tax cuts permanent. The name of their legislation? The "Tax Relief Certainty Act.")
Of course, for Republicans now prepared to sabotage the U.S. economy, there are only two certainties in life: death and tax cuts.
(For more background, see "10 Things the GOP Doesn't Want You to Know About the Debt .")
UPDATE: Today, 235 economists - including six Nobel Prize winners - signed an open letter to Congressional leaders urging them to to raise the ceiling, and to do so "without attaching drastic and potentially dangerous reductions in federal spending." Failure to do so, they warned, "could push the United States back into recession." Meanwhile, Standard & Poors told Reuters "the United States would immediately have its top-notch credit rating slashed to 'selective default' if it misses a debt payment on August 4."