Fox News is encouraging Republicans to once again hold up a routine increase in the debt ceiling to exact spending cuts in deficit reduction negotiations with Democrats, though the same tactic previously cost the government billions and resulted in a credit-rating downgrade. Experts agree that another Republican refusal to raise the debt ceiling in a timely manner would be extremely costly to the economy.
Fox Pushes Republicans To Use Debt Ceiling As Leverage In Deficit Reduction Negotiations
Fox's Steve Doocy: Republicans "Obviously Have The Upper Hand" In Debt Ceiling Talks. Fox & Friends co-host Steve Doocy said to Republican Senator John Thune (R-SD) that Republicans would "obviously have the upper hand" on debt ceiling negotiations, granting them a chance to demand spending cuts in return for raising the debt ceiling:
STEVE DOOCY (co-host): Well, the good news for the Republicans is that the looming debt -- raising the debt ceiling talks, that's just around the corner. And you guys obviously have the upper hand on that.
SEN. JOHN THUNE: Well, I think we have more. We do have some leverage with the debt ceiling increase. More than we do right now. [Fox News, Fox & Friends, 12/7/12]
Donald Trump: Republicans Should Use The Debt Ceiling Now To Make A Deficit Reduction Deal. Frequent Fox guest Donald Trump encouraged Republicans to use the bargaining power they have on the debt ceiling to push for a more comprehensive deal to avoid automatic spending cuts and tax increases set to go into effect in 2013:
DONALD TRUMP: The fact is the Republicans have plenty of negotiating strength. Maybe they even have the upper hand. I've been hearing everyone saying the President has the upper hand. I think maybe the Republicans in a certain way have the upper hand, because they have the debt ceiling coming up.
GRETCHEN CARLSON (co-host): Exactly
STEVE DOOCY (co-host): It's just around the corner.
TRUMP: And they should use that. And they should use it very strongly. [Fox News, Fox & Friends, 12/10/12]
But The GOP Delay In Increasing The Debt Ceiling Cost The Government Billions In 2011 And Led To Downgraded Credit Rating
Government Accountability Office: "Delays In Raising The Debt Limit In 2011 Led To An Increase In Treasury's Borrowing Costs Of About $1.3 Billion." The Government Accountability Office estimated that the delay in raising the debt ceiling cost the Treasury $1.3 billion in 2011 and diverted important resources from its usual operations:
Delays in raising the debt limit can create uncertainty in the Treasury market and lead to higher Treasury borrowing costs. GAO estimated that delays in raising the debt limit in 2011 led to an increase in Treasury's borrowing costs of about $1.3 billion in fiscal year 2011. However, this does not account for the multiyear effects on increased costs for Treasury securities that will remain outstanding after fiscal year 2011. Further, according to Treasury officials, the increased focus on debt limit-related operations as such delays occurred required more time and Treasury resources and diverted Treasury's staff away from other important cash and debt management responsibilities. [Government Accountability Office, 7/23/12]
Bipartisan Policy Center: "The Ten-Year Cost To Taxpayers Caused By The Delay In Raising the Debt Limit Will Amount To $18.9 Billion." The Bipartisan Policy Center expanded on the analysis conducted by the GAO to conclude that 2011's debt ceiling fight and near default will cost taxpayers $18.9 billion over 10 years:
The Government Accountability Office (GAO) recently conducted a study of the increased interest costs to the federal government on bonds issued during the 2011 debt limit event. Extending this analysis, BPC estimates that the ten-year cost to taxpayers caused by the delay in raising the debt limit will amount to $18.9 billion.
GAO conducted an economic analysis of the increased interest cost to taxpayers and estimated that this amounted to $1.3 billion for Fiscal Year 2011 alone. The total cost to taxpayers from that event, however, will be much higher, because elevated interest costs will persist for as long as the bonds issued during that period remain outstanding - in some cases, for many years after 2011. [Bipartisan Policy Center, 11/27/12]
Moody's Warned During 2011 Debt Ceiling Fight That A Downgrade Was Possible Without An Increase In The Debt Ceiling. In June 2011, the credit rating agency warned that if Congress did not raise the nation's borrowing limit, a credit downgrade was possible:
Moody's Investors Service warned Thursday that it might downgrade the United States government's sterling credit rating if Congress did not increase the nation's debt limit "in coming weeks," putting a spur to the sputtering talks between party leaders and the White House on a plan to restore fiscal stability.
The warning, from one of the agencies whose assessments of creditworthiness help determine interest rates, amounted to a stern reminder from Wall Street to Washington that global financial markets are watching the budget battle closely and that a standoff or brinkmanship could have economic consequences.
Its warning was two-pronged. First, Moody's said, if Congress does not increase the Treasury's borrowing authority in coming weeks, the nation's credit rating may be lowered "due to the very small but rising risk of a short-lived default." That is likely to translate into higher interest rates at a time when the recovery shows signs of slowing again.
And second, Moody's said, with an implicit slap at both parties, that whether the United States keeps its triple-A rating "will depend on the outcome of negotiations on deficit reduction." [The New York Times, 6/2/11]
Standard & Poor's Downgraded U.S. Debt Following Debt Ceiling Fight In Part Because Of "Political Brinksmanship." In its statement on the decision to downgrade the U.S. credit rating, Standard & Poor's singled out "political brinksmanship" and highlighted the use of the threat of default as "political bargaining chips":
We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process. We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade.
The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year's wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently. [Standard & Poor's, 8/5/11]
Another Debt Ceiling Standoff Could Be Even More Costly This Time
Center On Budget And Policy Priorities: Damage From Exceeding The Debt Ceiling And Defaulting Would Be "Serious And Lasting." Center on Budget and Policy Priorities (CBPP) Chief Economist Chad Stone wrote that the real threat to the economy comes not from the fiscal cliff, but from the possibility of "brinksmanship over raising the debt ceiling":
[T]he real danger to the economy would arise from another round of brinksmanship over raising the debt ceiling. Unlike the damage from going past the beginning of the year before mitigating the effects of the "fiscal cliff," the damage from the U.S. government defaulting on its obligations, even briefly, would be serious and lasting. [Center on Budget and Policy Priorities, 12/7/12]
Ezra Klein: GOP Is Threatening A "Congressionally Induced Global Financial Crisis." In his WonkBlog, The Washington Post's Ezra Klein wrote that a possible backup plan by Republicans should the deficit negotiations fail is to create a fight over the next debt ceiling increase. He highlighted the possible costs to both the economy and the Republican Party:
Today, the New York Times adds more detail, including this quote from Rep. Michael C. Burgess (R-TX): "There's always better ground, but you have to get there."
In this case, the "better ground" is exchanging the threat of a congressionally induced recession for the threat of a congressionally induced global financial crisis. That's better ground?
Not for the economy, certainly. But it's also difficult to see how it's better ground for the GOP. Hill Republicans tell me that the underlying insight is that while the president can permit the economy to fall over the fiscal cliff, he can't allow a default. That gives Republicans a stronger hand, or so they think. But run the scenario out in more detail and its political risks come clear.
Republicans will be threatening not just to take us over the fiscal cliff, which will already have happened, but to trigger a financial crisis by breaking through the debt ceiling. And they will be doing all of this after having lost an election. And for what? Because they want deeper Medicare cuts that they refuse to publicly specify?
"Remember," says NBC's First Read, "the debt ceiling standoff in July 2011 was bad [for] the president, but it was worse for the GOP's brand." A combined austerity crisis/debt ceiling standoff in 2012 is likely to be even more devastating to the Republican Party. [The Washington Post, WonkBlog, 12/5/12]
NY Times: Republicans "Learned Nothing From The Debacle Of 2011." A New York Times editorial called the Republican plan to use the debt ceiling debate to cut entitlements a "potential catastrophe":
Republicans clearly sense that they are being outmaneuvered in the fiscal talks by the Obama administration, unable to stop the inevitable rise in tax rates for the rich. But they have one last card to play and they intend to use it, knowing it will endanger economic progress: They are threatening once again to default on the credit of the United States if President Obama doesn't do their bidding.
Apparently, they learned nothing from the debacle of 2011, when they first tried this extortionate tactic. The nation lost its AAA credit rating, stock values plunged, and the approval rating of Congress sank to historically low levels. Republicans portray themselves as spending hawks, but that episode cost the Treasury $1.3 billion in higher borrowing costs in 2011, according to the Government Accountability Office. Last week, the Bipartisan Policy Center estimated that the 10-year cost of higher interest rates was $18.9 billion.
Republicans savor that potential catastrophe, caring only that the threat won them $2 trillion in spending cuts over a decade from Mr. Obama. Now they want to do it again, and this time they want something the last agreement missed: big cuts to Social Security, Medicare, Medicaid and other programs that primarily benefit middle- and low-income people. Grover Norquist, who leads the party's anti-tax cult, even suggested that the debt limit be raised only enough to get through a month at a time, so that Republicans can maximize their blackmail power.
This is one of the worst imaginable ways to run a government, and Treasury Secretary Tim Geithner is desperate to prevent it from recurring. As part of the administration's initial fiscal offer last week, Mr. Geithner proposed a way to eliminate this threat, allowing the president to raise the debt ceiling unless two-thirds of Congress overruled him. This idea provoked immediate laughter in Republican offices in the Capitol. [The New York Times, 12/5/12]
Fox Also Encouraged The Previous Costly Debt Ceiling Standoff
Fox's Eric Bolling: "I Say Let Them Default." As a guest co-host on Fox & Friends, Eric Bolling told Fox Business host Stuart Varney, "I say let them default. ... What's going to happen?" Varney replied, "Armageddon is going to happen." [Fox News, Fox & Friends, 4/13/11, via Media Matters]
Fox's Neil Cavuto: U.S. Among Countries That "At Face Value Don't Deserve" AAA Rating. Fox News host and senior vice president of business news Neil Cavuto listed the United States as among several countries that "at face value don't deserve" a AAA credit rating, adding that a downgrade is "feared and sort of like the great financial Godot people have been waiting for ... but it's gonna come." Cavuto also said: "I think the better part of valor is actually go ahead and downgrade. We don't deserve a AAA rating." [Fox News, On the Record with Greta Van Susteren, 4/18/11, via Media Matters]
Cavuto: "I Would Welcome A Downgrade. ... I Think It Would Be The Pain From Which We Have A Gain." On Your World, Cavuto said: "I would welcome a downgrade, I really would. I think it would be the pain from which we have a gain." [Fox News, Your World, 7/27/11, via Media Matters]
Fox's Sean Hannity: "I Would Not Vote To Raise The Debt Ceiling." During a panel discussion in April 2011 edition of his Fox News show, Sean Hannity said, "If I was in Congress, I would not vote to raise the debt ceiling." [Fox News, Hannity, 4/12/11, accessed via Nexis]
Fox's Andrew Napolitano: "If I Were In The Congress, I Would Encourage Everybody To Vote Against Raising The Debt Ceiling." On his old Fox Business show, Andrew Napolitano interviewed Rep. David Schweikert (R-AZ). During the interview, Napolitano spoke repeatedly about the debt limit and at one point said, "If I were in the Congress, I would encourage everybody to vote against raising the debt ceiling." [Fox Business, Freedom Watch, 4/11/11, via Media Matters]