Recently, right-wing media figures have advised congressional Republicans to refuse to compromise in the debt ceiling debate, even allowing the country to default, because, they argue, the consequences of a default could hurt President Obama in 2012. Economists agree that there could be severe consequences to the economy if the debt ceiling is not raised.
Right-Wing Media Cheerlead Default To Improve GOP's 2012 Chances
Erickson To Boehner: "Obama Knows Default Would Be His ... Legacy. ... Don't Blink. ... Hold The Freaking Line." In a July 14 RedState post, CNN's Erick Erickson offered the following message to House Speaker John Boehner:
Last night the President engaged in off Broadway theatrics trying to scare the Republicans into folding on debt ceiling negotiations. Playing the role of Hollywood President, not the real President, the President said he didn't care if this brought down his Presidency and he would not yield. He then dared Eric Cantor to call his bluff.
You see Mr. Speaker, we know Barack Obama is thin skinned and we know he is mindful of his legacy. This is why Barack Obama stormed out of a meeting with Republicans last night when they confronted him with the fact that his supposed spending cuts are accounting gimmicks.
Barack Obama, for the sake of his legacy, cannot afford to be the President under whom America's credit tanks and under whom America defaults on its debts.
History will not blame Congress. History will blame Barack Obama for not doing what it takes to lead and for failing to do what it takes, no matter the cost, to keep the U.S. solvent.
Obama knows his history. Obama knows default would be his, not Congress's legacy. He cannot afford, for the sake of history, to be the guy who collapsed the United States.
Mr. Speaker, you can win this fight. Don't blink. Bring Cut, Cap, and Balance to the floor. Hold the freaking line. You can do this Mr. Speaker. And if you can't, we'll find someone else who can. [RedState, 7/14/11]
Erickson: If U.S. "Lose[s] Its Bond Rating, It Will Be Called The 'Obama Depression.' " In a July 15 RedState post titled, "Dear House Republicans, This is Your 'Time For Choosing,'" Erickson argued to "House Republicans":
In the election of 2010, voters sent you to Washington to do two things: (1) End Obamacare and (2) pull us back from the brink of financial ruin.
Will you now fail at the second task too?
If you cave, fold, or compromise on the President's terms, you will have failed in both your missions. If you support Mitch McConnell's plan, you will have decisively failed.
Now is a time for choosing. Now is your time for choosing. As I pointed out to John Boehner yesterday, despite what the pundits in Washington are telling you, it is you and not Obama who hold most of the cards. Obama has a legacy to worry about. Should the United States lose its bond rating, it will be called the "Obama Depression". Congress does not get pinned with this stuff. [RedState, 7/15/11]
Erickson Stated That His Post "Is Being Passed Around" By "House Republicans." Referring to his aforementioned July 15 RedState post, Erickson tweeted:
Wash. Times: "Compromising On Taxes Would Be Disastrous, Possibly Guaranteeing President Obama's Re-Election." In a July 15 editorial, The Washington Times stated:
The White House is fighting hard to resolve the debt-ceiling crisis with a deal that raises taxes to maintain elevated spending levels. Republicans need to understand that compromising on taxes would be disastrous, possibly guaranteeing President Obama's re-election in 2012.
We found ourselves in a similar situation 21 years ago. Between August and November 1990 Congress agreed to six temporary adjustments of the debt ceiling while pursuing budget negotiations with the White House. President George H.W. Bush had just been elected on his famous promise, "Read my lips, no new taxes." At the time, however, he was distracted by the brewing war over Iraq's invasion of Kuwait, and he needed congressional buy-in for Operation Desert Storm. In October, negotiators reached agreement on a budget pact that raised taxes and assured there would be lower spending, ultimately reducing deficits.
This was the spark that gave rise to Pat Buchanan's 1992 Republican primary challenge to President Bush, and it fueled the third-party insurgency of Ross Perot. This split on the right and among independents allowed Bill Clinton, who in 1991 was a second-tier Democratic candidate without a prayer of winning, to skate into the White House on 43 percent of the vote.
Democrats want to recreate this dynamic so that Mr. Obama could find himself back in the White House, even though his poll numbers have plunged. Tea Party supporters and other conservatives will treat any compromise on taxes as a betrayal akin to the 1990 budget deal. They will either sit out the next election or be so angry they go the third-party route. Such a split is key to Democratic success. Mr. Obama, who made a "no tax" pledge for the middle class is no doubt confident that he can break his promise without penalty. Democrats generally never met a tax they didn't like, and the White House will simply redefine "middle class" to exclude those on whom they seek to place new and ruinous burdens.
House Speaker John A. Boehner, Ohio Republican, and Senate Minority Leader Mitch McConnell, Kentucky Republican, need to learn the lesson of the 1990 budget deal. Any debt-ceiling agreement that raises taxes while only promising spending cuts will simply give the government more room to binge. Agreeing to new taxes could be the trigger that places Rep. Nancy Pelosi, San Francisco Democrat, back in the speaker's chair. No wonder the White House is so eager to seal that deal. [The Washington Times, 7/15/11 via Media Matters]
Experts Agree That Failure To Raise Debt Ceiling Could Have Severe Economic Consequences
Zandi: "In A Post-Default World, Financial Markets Would Unravel And The U.S. And Global Economy Would Enter Another Severe Recession." In a July 15 Washington Post op-ed, Moody's economist Mark Zandi stated: "The Obama administration and Congress must raise the federal debt ceiling by Aug. 2. That's all there is to it." Zandi warned that failure to do so could create "another severe recession" in "U.S. and global econom[ies]." From The Washington Post:
The Obama administration and Congress must raise the federal debt ceiling by Aug 2. That is all there is to it. In a post-default world, financial markets would unravel and the U.S. and global economy would enter another severe recession. The nation's already daunting fiscal problems would spiral out of control as tax revenue plunged and demand surged for unemployment insurance, food stamps, Medicaid and other programs supporting vulnerable Americans.
Yes, it would be wonderful if politicians could agree to rein in future budget deficits as part of a debt-limit deal. But that isn't necessary right now. Simply raising the debt ceiling enough to last through next year's elections would appease global investors and sustain the economic recovery. The 2012 vote will be a referendum on how to address our fiscal problems: The winner sets the agenda, and tough decisions can be made after the next president and Congress take office.
Defaulting on the nation's debt would be cataclysmic. The U.S. Treasury's Aaa rating is the one constant in the world's financial system. When times are bad anywhere on the planet, global investors flock to Treasury bonds because they know they will get their money back. This "flight to quality" has pushed U.S. interest rates to near-record lows and has been vital to keeping our economy afloat. Yet this benefit was earned over more than two centuries by adhering to the bedrock principle that the United States always pays its bills on time. One misstep, and the government would have to pay higher interest rates for years, perhaps for generations. [The Washington Post, 7/15/11]
Gross: "The Debt Ceiling Must Be Raised And Not Be Held Hostage By Budget Negotiations." In a Washington Post op-ed, Bill Gross, founder of the investment firm Pimco, warned that "[t]he debt ceiling must be raised and not be held hostage by budget negotiations." From The Washington Post:
To raise or not to raise the debt ceiling; that is the question: Whether 'tis nobler to suffer the slump and arrows of default today or in some distant future. Oh, bards of Washington, give us your answer.
This Shakespearean financial dilemma hangs in the balance between now and a somewhat theoretical Aug, 2, but I can tell you what an unbiased investment manager thinks: Don't mess with the debt ceiling. Raise it unencumbered if necessary. I say unbiased because my credentials have become very public over the past several months. Pimco owns very few Treasury securities, and its clients would theoretically benefit if yields rose on an under-owned asset class that was technically in default. But default would still be a huge negative for the U.S. and global financial markets, introducing fear and unnecessary volatility into the economy and global trade. The market situation might resemble what happened after Lehman Brothers collapsed in 2008.
The answer to our modern-day Hamlet's question then, is that there should be no question at all. The debt ceiling must be raised and not be held hostage by budget negotiations. Don't mess with the debt ceiling, Washington. Bond and currency vigilantes will make you pay. [The Washington Post, 7/13/11]
Politico: U.S. Going Into Default Is "An Unthinkable Idea To Many Economists And Market Participants." From Politico:
Republicans are growing increasingly concerned about the impact a bruising fight over raising the nation's $14.29 trillion debt ceiling could have on U.S. financial markets.
House Speaker John Boehner (R-Ohio) has had conversations with top Wall Street executives, asking how close Congress could push to the debt limit deadline without sending interests rates soaring and causing stock prices to go lower, people familiar with the matter said. Boehner spokesman Michael Steel said Tuesday night that he was not aware of any such conversations.
Treasury Secretary Timothy Geithner has warned Congress that without new borrowing authority, the federal government could hit the statutory debt limit by May 16.
Treasury could then implement emergency measures to continuing making interest payments on existing debut until around July 8. After that, the U.S. risks going into default, an unthinkable idea to many economists and market participants who say such an event could drive scores of large banks into failure, send interest rates skyrocketing as foreign investors abandon U.S. securities and crush the already slow-going economic recovery. [Politico, 4/13/11]
MSNBC: If Default Causes Interest Rates To "Rise Too Far, Too Fast, The U.S. Economy Could Face The Risk Of Another Recession." From an April 11 article on MSNBC's website:
Washington is gearing up for a battle over how many trillions the federal government can borrow to pay its bills, and it's shaping up to be an even bigger brawl than the one just resolved over funding the government for the next six months.
While investors viewed last week's budget brinksmanship as a minor event, they are beginning to grow concerned that many lawmakers and ordinary Americans, [sic] fail to grasp the implications of even suggesting the United States would default on its debt obligations.
What is a political football to Congress could end up flattening the economy and hurting consumers by lowering the nation's pristine credit rating and sending interest rates sharply higher.
So far, bond market investors apparently are not very worried; the United States has never defaulted on its debt and many have long thought a default unimaginable. On Monday, amid the rancorous aftermath of the budget battle that nearly shut down the government, bond prices were flat.
But some investors are betting that bond prices are headed lower. As the Federal Reserve wraps up a $600 billion round of bond buying designed to keep interest rates low, many investors are wondering what will replace that program when it expires in June. On Monday, the giant investment fund PIMCO, which recently dumped its holdings of U.S. Treasury securities, disclosed that it has gone even further and is now selling U.S. debt short -- a bet that bond prices have further to fall.
Falling bond prices hurt more than the investors who hold them. As prices fall, interest rates rise. If they rise too far, too fast, the U.S. economy could face the risk of another recession. Without borrowing authority, the government would be powerless to pay all its bills, much less assemble another stimulus package to revive the economy. [MSNBC, 4/11/11]
Ex-Treasury Official: "This Would Make The Lehman Brothers Bankruptcy Look Like A Walk In A Park ... They're Really Playing With Fire." From The Huffington Post:
If Congress doesn't raise the $14.3 trillion debt limit by mid-May, the U.S. government will have to resort to emergency measures to avoid default. One missed payment, which could happen as soon as July if the ceiling is not raised, would likely set off a widespread global panic, causing borrowing costs to skyrocket and severely crippling the nation's economy.
But Republican lawmakers have said they will use the debt limit as a means of enforcing fiscal austerity, insisting they won't raise it without winning concessions from Democrats.
Meanwhile, Jim Millstein, the former restructuring officer at Treasury, who helped reorganize AIG, outlined how disastrous the consequences of default would likely be. Speaking on CNBC on Tuesday, he said that a Treasury default would affect investors of all sorts, and he criticized those who downplay the consequences.
"This would make the Lehman Brothers bankruptcy look like a walk in a park on a sunny day," he told CNBC's David Faber. "They're really playing with fire." [The Huffington Post, 4/13/11]
Even Some Fox News Figures Have Said That Not Raising The Debt Ceiling Would Be "Armageddon"
Wallace: "I'm One Of Those People Who Think Going Into Default Would Be A Bad Thing." On the July 15 broadcast of Fox News' America's Newsroom, Fox News Sunday host Chris Wallace noted some of the negative consequences of allowing the country to default and went on to say: "I'm one of those people who think going into default would be a bad thing." [Fox News, America's Newsroom, 7/15/11 via Media Matters]
Varney: "No Politician Is Going To Allow The U.S. Government To Default ... But If It [Happened], It Would Indeed Be Armageddon." On the April 13 edition of Fox News' Fox & Friends, guest and Fox Business host Stuart Varney agreed with White House press secretary Jay Carney that failure to raise the debt ceiling would be "Armageddon." Varney added that it would be "the worst of all possible worlds economically." From the show:
GRETCHEN CARLSON (co-host): So what will really happen if Congress does not vote to raise the debt ceiling by the May 16 deadline? Stu Varney says it would be Armageddon. You are agreeing -
VARNEY: Oh, yes. It would.
CARLSON: -- with Jay Carney and President Obama.
VARNEY: Look, it's not going to happen, OK? No politician is going to allow the United States government to default. It's just not going to happen. But if it did, it would indeed be Armageddon, OK? It would be the worst of all possible worlds, economically. OK. Go through the chain reaction. All the world's big banks have lent Uncle Sam money. In the event of a default, Uncle Sam doesn't pay back that money. And the banks have no money. They are bankrupt. They cannot make car loans. They cannot make house loans. They can't finance smaller companies. Even their payroll. So you -
CARLSON: OK, so if it's not going to happen --
VARNEY: -- you've got an instant depression. Not going to happen.
CARLSON: This is a major bargaining chip for the Republicans, though -
CARLSON: -- who will say, the only way we're going to vote for this, President Obama, is if you give us tons of stuff in return.
VARNEY: Well, there's a great danger in that. Because as you approach this deadline, if you're even talking about default, as even a possibility, a remote possibility, you really spooked the world's money people. You really spook them. [Fox News, Fox & Friends, 4/13/11 via Media Matters]
Goldberg: Not Raising The Debt Ceiling "Would Be Catastrophic." On the April 11 broadcast of Fox News' The O'Reilly Factor, Fox News contributor Bernie Goldberg discussed media coverage of the debt ceiling debate and predicted: "[Y]ou will see stories about how, if the Republicans play hard ball again and act, according to the words of the editorial, irresponsibly and like a bunch of radicals, how if they behave that way again when it comes to raising the debt ceiling, we could have a default in this country, and that would be catastrophic. It would be." [Fox News, The O'Reilly Factor, 4/11/11, via Nexis]