By using the impending need to raise the federal debt limit as a political bargaining chip in their desire to push through a controversial plan to privatize Medicare, Republicans are willing to risk serious damage to the U.S. economy, a senior Senate Democrat warns.
House Majority Leader Eric Cantor on Wednesday became the latest and highest-ranking Republican so far to dismiss the looming threat of a U.S. default as no big deal, joining a chorus of Republicans who continue to downplay the fallout of a default as they seek leverage to impose their plan for ending Medicare.
Conservatives are pushing trillions of dollars of cuts to federal spending — including the enactment of Rep. Paul Ryan’s plan to privatize Medicare — in exchange for allowing a vote to raise the debt limit.
The government hit that limit this week, although Treasury Secretary Timothy Geithner is using accounting tricks to buy time to avoid risk of federal default on its borrowing obligations. Even with Geithner’s actions, the debt ceiling will have to be raised by early August in order not to risk a first-ever default by the U.S. government.
The Washington Post on Wednesday published a story with the headline, “Cantor is latest Republican to dismiss importance of debt-ceiling deadline for financial markets.”
Freshman Sen. Pat Toomey (R-Pa.) also reportedly downplays the risk of default, likening it to just the level of “a partial government shutdown,” according to a Politico story published Tuesday.
“House Republicans are so fixated on imposing their plan to end Medicare as we know it that they are trying to wish away what every credit market analyst says would be an utter catastrophe for our economy,” says Sen. Charles Schumer of New York, a member of the Senate Democrats’ leadership team.
While Cantor and others now are downplaying the risk of default, other top economists warn of dire consequences if Congress fails to raise the debt limit.
The practice of “using the debt limit as a bargaining chip is quite risky,” warns Federal Reserve Chairman Ben Bernanke, a Republican first appointed by George W. Bush.
Failing to act could set off an economic crisis such as that which hit the Lehman Bros. financial-services firm, which helped set off the broader financial meltdown in 2008, Bernanke says. That meltdown required extraordinary federal intervention in the form of massive taxpayer-funded bailouts in order to avoid a total financial collapse.
“The worst outcome would be one in which the financial system would be again destabilized, which we saw in Lehman, which would have extremely dire consequences for the rest of the economy,” he says.
Republican House Speaker John Boehner reportedly drew the ire of conservative tea party activists by acknowledging that the government not only would have to raise the debt limit, but also Congress will “have to raise it again in the future.”
Scott Nance is the editor and publisher of the news site The Washington Current. He has covered Congress and the federal government for more than a decade.