Wall Street Journal To GOP: Be Prepared To Shoot Debt Ceiling Hostage
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The Wall Street Journal endorsed the Republican strategy of using the debt ceiling to extract spending cuts from Democrats, so long as Republicans are prepared to let the United States default on its debt and obligations. Economists have warned that a default would create a new national and global recession and have other catastrophic effects.
The GOP congressional leadership has said that it will demand spending cuts in exchange for raising the debt ceiling -- a measure that allows Congress to pay for past spending, and until recently a measure that was routinely passed by Congress -- even though President Obama has said he will not bargain for a debt ceiling increase. During a May 2012 speech, Republican House Speaker John Boehner pledged to again use the debt ceiling as a method to cut federal spending. In the past month, Boehner's spokespeople have told media outlets that he is still committed to using the debt ceiling as leverage for spending cuts. Republican Senate Minority Leader Mitch McConnell wrote an op-ed on Thursday where he stated that the debt ceiling "is the perfect time" to push for spending cuts.
A Journal editorial advised Speaker Boehner and his fellow Republicans that if they were to again use a vote to raise the borrowing limit of the United States as a way to pass spending cuts, they cannot bluff about the threat of default. The Journal stated:
We'll support efforts to cut spending and reform entitlements, but the political result will be far worse if Republicans start this fight only to cave in the end. You can't take a hostage you aren't prepared to shoot. Do the two GOP leaders have a better strategy today than they did in 2011, and do they have the backbench support to execute it?
But economists have warned that not raising the debt ceiling would be catastrophic to the economy. When Republicans threatened in 2011 to not raise the debt ceiling, Moody's analytics chief economist Mark Zandi warned that after the possibly resultant default, "financial markets would unravel and the U.S. and global economy would enter another severe recession." A June 2011 letter to congressional leaders and signed by 235 prominent economists warned:
Failure to increase the debt limit sufficiently to accommodate existing U.S. laws and obligations also could undermine trust in the full faith and credit of the United States government, with potentially grave long-term consequences. This loss of trust could translate into higher interest rates not only for the federal government, but also for U.S. businesses and consumers, causing all to pay higher prices for credit. Economic growth and jobs would suffer as a result.
The Economic Policy Institute warned that even if the federal government could stave off default by prioritizing interest payments, the resultant ceasing of government spending would create "a massive demand shock to the economy" because:
[T]he government would have to immediately cut expenditures by roughly 10 percent of that month's GDP, and more than that as time went on. This means Social Security checks would be cut, doctors would not be reimbursed in full for seeing Medicare and Medicaid patients, and private contractors doing business with the federal government would not be paid.
Following the resolution of the 2011 debt ceiling fight, in which the debt ceiling was ultimately raised before the U.S. defaulted on its debt, the credit rating agency Standard & Poor's downgraded the U.S. credit rating and released a statement citing "political brinksmanship" and the threat of default as "political bargaining chips" among its reasons for the downgrade. The Bipartisan Policy Center estimated that "the ten-year cost to taxpayers caused by the delay in raising the debt limit will amount to $18.9 billion."