CONSEQUENCES OF REPUBLICANS DEFAULTING ON NATION’S DEBT
July 28, 2011
CONSEQUENCES OF REPUBLICANS DEFAULTING ON NATION’S DEBT: “higher federal debt,” “Could Blow Up the Economy,” “possible collapse in equity prices, bank failures and a severe depression”
- Washington Post’s Ezra Klein, July 11: ‘Defaulting on the debt would return us to recession’ : $134 billion, or 10 percent of August’s GDP. That’s the size of the economic hit we’ll take if the debt ceiling isn’t raised and the federal government has to slash spending by 44 percent for the month of August.
- Center for American Progress, July 12: The last time the United States experienced a “technical default” in 1979—the kind that House Majority Leader Eric Cantor (R-VA) assures us doesn’t really matter—interest rates spiked by some 0.6 percentage points on a “permanent basis.” Economist Christian E. Weller, estimates that a one-half percentage point increase in the 10-year Treasury rate will raise mortgage rates by 0.66 percentage points.
- Think Progress, July 15, ‘Boehner Agrees With Obama That Social Security Checks May Not Go Out If The Debt Ceiling Isn’t Raised’ : As a report from the Bipartisan Policy Center laid out, “the government likely would not have enough revenue to pay the full $23 billion payment to Social Security recipients due on Aug. 3″ were the debt ceiling not raised, because of the high amount of Social Security payments that are due that day.
- Center for American Progress, 7/7/11: We’ve shown that a two-month failure to raise the debt limit could result in the largest quarterly economic decline since 1947…That would obviously be a bigger decline than in any quarter of the Great Recession. And the worst quarter of the Great Recession saw a loss of nearly 2 million jobs.”
- Wall Street Journal, 5/17: Business Groups to Congress: ‘Raising Debt Ceiling Is Critical’ : Sixty-two business groups, including the American Gas Association, the Telecommunications Industry Association, and the National Association of Manufacturers, urged congressional leaders on Wednesday to raise the federal debt ceiling amid fears that political brinkmanship could lead to another financial crisis.
- Talking Points Memo, 6/9: “Experts: Even Brief Default Could Blow Up The Economy” : Because interest rates on bonds determine how much it costs the US government to secure more debt, even seemingly slight changes can affect the long term deficit on a large scale. A 1% rise in interest rates, or 100 basis points, would grow the deficit by over $400 billion over the next five years and $1.2 trillion from 2012-2021, according to the CBO.
- Talking Points Memo, 6/14: ‘CBO Director Elmendorf: Debt Default ‘A Dangerous Gamble’. Ironically, Elmendorf noted that one of the potential consequences of even a brief period of default would be higher federal debt, triggered by a spike in interest rates and, thus, higher interest payments on federally issued debt.
- Wall Street Journal, May 13: US Chamber Urges Lawmakers to Raise Debt Limit ‘Expeditiously’. 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.”
- Politico, 4/27: ‘Bank execs warn GOP on debt limit’ : Executives from the deep-pocketed industry that traditionally pumps millions into political campaigns are warning members that failure to raise the limit would risk a spike in interest rates, a possible collapse in equity prices, bank failures and a severe depression.
- If Republicans in Congress Won’t Listen to the American People, Will They Listen to Ronald Reagan? SEE: NPR: Poll: More Americans Than Not Now Back Debt Ceiling Boost. CLICK HERE TO LISTEN to audio of President Ronald Reagan delivering his weekly radio address in September 1987, words that the GOP should very much heed today: “Congress consistently brings the Government to the edge of default before facing its responsibility. This brinkmanship threatens the holders of government bonds and those who rely on Social Security and veterans benefits. Interest rates would skyrocket, instability would occur in financial markets, and the Federal deficit would soar. The United States has a special responsibility to itself and the world to meet its obligations. It means we have a well-earned reputation for reliability and credibility — two things that set us apart from much of the world.”