Right-wing media figures have dismissed the consequences of defaulting on America's debt. Yet experts agree that if the U.S. were to default as a result of not raising the debt ceiling, it would have a catastrophic effect on the economic recovery.
Right-Wing Media Figures Cheerlead For Default
Bolling: “I Say Let Them Default.” As a guest co-host on Fox & Friends, Eric Bolling told Stuart Varney, “I say let them default. ... What's going to happen?” Varney replied, “Armageddon is going to happen.” From the April 13 edition of Fox & Friends:
VARNEY: There's a great danger in that. As you approach this deadline, if you're even talking about default, as even a possibility, a remote possibility, you really spook the world's money people. You really spook them.
BOLLING: I say let them default.
BOLLING: Let them go. What's going to happen?
VARNEY: You're a brave guy.
BOLLING: What's going to happen?
VARNEY: Armageddon's going to happen.
BOLLING: How is it going to be Armageddon? Let's talk about that for a second.
VARNEY: OK. If we fail to allow ourselves to borrow any more money --
BOLLING: I know the process. And then everyone raises their hands and says, “Oh my God, the U.S. is going to default.” Well -- where are they going to go? If the U.S. defaults, every other country in the world is going to default, too.
VARNEY: We're paying out --
BRIAN KILMEADE (co-host): That sounds like Armageddon.
VARNEY: We're paying out -- yeah, exactly.
BOLLING: My point is they're going to get the -- the theory that let's let it go and see what happens -- I like it. I like it. Because we could default and then get the spending under control. Get everything we want in default. It's -- for my -- for my dollar, let them go. Let them get to the point where --
KILMEADE: We can't get a credit card for seven years after that. As a country.
BOLLING: We'll get it the next day. China will be on our doorsteps saying, when can we give you money again?
VARNEY: You think?
BOLLING: Yeah, I do.
VARNEY: OK. If you don't allow us to borrow any more money, you've got $350 billion every month going out and only $200 billion coming in.
BOLLING: That's got to stop. That will force it to stop. That will guarantee --
VARNEY: So you've got an immediate $150 billion cut every month.
BOLLING: That will guarantee in order for it to come out of default, you have to stop spending. [Fox News, Fox & Friends, 4/13/11]
Limbaugh: “All [Defaulting] Means Is We Won't Be Able To Borrow Anymore.” From the April 20 edition of Rush Limbaugh's radio show:
LIMBAUGH: Here's the point, it's a scare tactic. It really isn't possible, there is always money coming in. The government can count on tax revenue from any number of sources and activities, there will always be money coming in. They can always print money. This default business is a straw dog, it's a straw man they're throwing out there to you. You want to know what the actual manifestations of an official default would be --
CALLER: Yeah, absolutely. Because, I mean, just looking in recent history, we were listening to the media and they're talking about how bad a government shutdown would be --
LIMBAUGH: It just -- all it means is we won't be able to borrow anymore. That's all it means. All it means is we have to live within our means.
CALLER: Well I don't think that would be too bad then.
LIMBAUGH: No, it's not. You know, the whole business -- I shocked a lot of people yesterday when I said not raising the debt limit is an option. [Premiere Radio Networks, The Rush Limbaugh Show, 4/20/11]
Hannity: “I Just Don't Have The Great Fear” That Potential Default “Is Going To Be A Calamity.” From the April 21 edition of Sean Hannity's Fox News show:
CHARLES KRAUTHAMMER: The real issue here is this, what should the Republicans demand in return for the debt limit? And what I think the Republicans ought to be doing right now, the House and the Senate leadership in the week or two between now and decision day, or at least when they're going to have to come back and talk about it, is to find one proposal, a single one, not eight or 10, a range here to there, that everybody agrees on and says, here's what we want in return for the debt limit. And I think it should be something really strong like a spending cap that could require a super majority to overturn, something like that. You are not going to get something revolutionary. But you've got to start with that.
HANNITY: I don't know what's worse though in my mind. I'm getting so concerned about these numbers. You know, is it worse that we default now and get our budget balanced or that America keeps continually taking on trillion in debts? It is a dangerous scenario evidenced by the S&P this week. And I just don't have the great fear that others do that this is going to be a calamity.
KRAUTHAMMER: No, I think in the end, if you don't raise it, it will be a calamity. We are the number one currency, the reserve currency in the world. It gives us tremendous advantages. If there's any default even for an hour that will undo 100 years of reliability. You don't want to do that. And politically, again, if you're seen as irresponsible - you always have to look at it from the ordinary American, the centrist American, the independent who's in the middle of the road. If the Republicans are seen as irresponsible, they are going to lose in 2012 and you are going to have six years of this and we are really going over a cliff. You have to keep your eye on the prize.
HANNITY: That's a frightening scenario. [Fox News, Hannity, 4/21/11]
Debt Default Would Be Disastrous For Economy
Council On Foreign Relations: “Most Economists ... Agree That The Impact Of A Government Default Would Be Severe.” From a report by the Council on Foreign Relations titled “U.S. Debt Ceiling: Costs and Consequences” :
Most economists, including those in the White House and from former administrations, agree that the impact of a government default would be severe. Federal Reserve Chairman Ben Bernanke has labeled a U.S. default a “recovery-ending event” (WSJ) that would likely spark another financial crisis. But short of default, officials warn that legislative delays in raising the debt ceiling could also inflict significant harm on the U.S. economy.
Geithner has argued that congressional gridlock will sow significant uncertainty in the bond markets and place upward pressure on interest rates. He warns that the increase would not only hike future borrowing costs of the federal government, but would also raise capital costs for struggling U.S. businesses and cash-strapped homebuyers. In addition, rising interest rates would divert future taxpayer money away from much-needed capital investments such as infrastructure, education, and health care. Estimates suggest that even an increase of twenty-five basis points on Treasury yields could cost taxpayers as much as $500 million more per month. [Council on Foreign Relations, 4/22/11]
CNNMoney: Default Is “A Nightmare Event That Would ... In All Likelihood, Precipitate Another Global Financial Meltdown.” From CNNMoney.com:
The feds are on track to reach their $14.29 trillion borrowing limit in mid-May, and the Obama administration says juggling accounts can only buy time until July 8. After that date, the government will default on its debt -- a nightmare event that would gut investor confidence in U.S. bonds, send our borrowing costs soaring, and in all likelihood, precipitate another global financial meltdown.
For months, the White House has been working behind the scenes to avert that outcome by lobbying for a simple, so-called “clean” hike of the debt ceiling. But Congressional Republicans are intent on demanding that any raise come with at least some of their deficit-cutting priorities. With market watchers nervously tracking the face-off as the clock winds down, it's worth taking a look back at the last time a political fight nearly ended in default. [CNNMoney.com, 4/25/11]
Former Treasury Official: Default “Would Make The Lehman Brothers Bankruptcy Look Like A Walk In The Park.” The Hill reported on former Treasury Department official Jim Millstein's comments to CNBC:
A former Treasury Department official who played a key role in the government's efforts to recover from the financial crisis said Tuesday it would be “nuts” to even consider not raising the debt ceiling.
Jim Millstein, who oversaw the Treasury's effort to restructure American International Group before leaving the public sector in February, argued on CNBC that the debt ceiling has to be raised to avoid “extraordinary” adverse consequences.
If lawmakers balk on boosting the ceiling and the government defaults, the former Obama Treasury official, said it “would make the Lehman Brothers bankruptcy look like a walk in the park on a sunny day.”
When Lehman declared bankruptcy during the heights of the 2008 financial crisis, it marked the largest bankruptcy in US history, and it played a major role in driving down financial markets. The Dow Jones Industrial Average dropped 500 points the day the firm filed for bankruptcy -- the largest at the time since the terrorist attacks of Sept. 11, 2001.
“There are a lot of people talking about this debt ceiling of being no consequence and we can blow right by it without any consequences, and I just think it's nuts,” Millstein said. [The Hill, 4/12/11]
JPMorgan CEO: Default On America's Debts Would Be “Catastrophic” And “Crazy.” The Hill reported:
The head of a major Wall Street company echoed White House officials Wednesday, warning that a default on America's debts would be “catastrophic.”
Speaking at an event hosted by the U.S. Chamber of Commerce, Jamie Dimon, chairman and chief executive officer of JPMorgan Chase & Co., said America has a “moral obligation” to ensure it pays its debts on time.
“This chatter about not meeting our obligations, I just don't understand it,” he said. “It's a moral obligation to ourselves. ... They should know that the United States is good for its money. Period.”
Dimon's comments come as some conservative senators are vowing to vote against raising the current $14.3 trillion debt limit, which the Treasury Department expects to hit by May 31.
Dimon argued that refusing to raise the debt limit would inject uncertainty into the financial markets.
“If anyone wants to push that button ... I think they're crazy,” he said. [The Hill, 3/30/11]
Bernanke: Default Would Most Likely Be “A Recovery-Ending Event.” From The New York Times:
Republicans have also signaled that they will again demand fundamental changes in policy on health care, the environment, abortion rights and more, as the price of their support for raising the debt ceiling.
In a letter last week, Treasury Secretary Timothy F. Geithner told Congressional leaders the government would hit the limit no later than May 16. He outlined ''extraordinary measures'' -- essentially moving money among federal accounts -- that could buy time until July 8.
Once the limit is reached, the Treasury Department would not be able to borrow as it does routinely to finance federal operations and roll over existing debt; ultimately it would be unable to pay off maturing debt, putting the United States government -- the global standard-setter for creditworthiness -- into default.
The repercussions in that event would be as much economic as political, rippling from the bond market into the lives of ordinary citizens through higher interest rates and financial uncertainty of the sort that the economy is only now overcoming, more than three years after the onset of the last recession.
Given the short time frame for action and the prospect of an intractable political clash, leaders in both government and business are already moving to avert a crisis that most likely would be ''a recovery-ending event,'' as Ben S. Bernanke, the Federal Reserve chairman, testified recently in the Senate. He described a sequence of events that ''would cascade through the financial markets,'' provoking another credit crisis like that in 2008 and causing interest rates to jump. [The New York Times, 4/10/11]