Two top Republicans are proclaiming that there is no way to know the consequences of a failure to raise the federal debt limit. While they may be at a loss to explain the consequences of a failure to raise the debt limit to avoid a potential U.S. default, many business leaders and fellow Republicans know the dire consequences of a failure to raise the debt limit.
Former Minnesota governor Tim Pawlenty, a candidate for the 2012 GOP nomination for president; and Republican National Committee Chairman Reince Preibus each made similar comments about the debt ceiling debate Tuesday while appearing on Joe Scarborough’s MSNBC morning news program:
President Obama and senior members of his administration have been conducting high-stakes negotiations for weeks with congressional Republicans, who have demanded extraordinarily deep cuts to a swath of federal spending in exchange for a vote on the debt ceiling. If the two sides don’t come to an agreement by early August, the federal government likely will begin defaulting on its current debts.
Scarborough, a former Republican congressman from Florida, asked Pawlenty what he thought about Obama’s handling of the debt issue.
Pawlenty responded: “We don’t know. The real test is coming up as the deadline approaches. Right now, as judged by outcomes, the answer is we haven’t done anything yet. The debt ceiling is going to be a fork in the road. My view is that the Republicans shouldn’t raise it. If they do, they need to get something permanent and structural and meaningful, the constitutional amendment, spending caps, and changes in the near term.”
Scarborough followed up by asking Pawlenty about what the impact would be if the debt limit is not raised.
“Well, we don’t know that,” the candidate answered.
Scarborough replied, “Well, I don’t know what’s going to happen to me if I jump off a cliff. But I think I’ll go splat.”
Scarborough asked Preibus about whether he thought the U.S. economy “will just keep chugging along normally” if the government were to default, whether it would cause a financial crisis.
“You know, I don’t know, because we’ve never been there before, Joe,” was the response from the head of the Republican Party.
Despite the protests otherwise from Pawlenty and Preibus, a number of other Republicans and financial experts have already weighed in on the consequences of default, which they say could cause catastrophe.
JP Morgan Chase CEO Jamie Dimon says default on the federal debt would be “catastrophic.”
Larry Kudlow, the conservative financial television commentator, also says it would be “catastrophe” if the debt ceiling were not raised.
“Kudlow said it would be a ‘catastrophe’ if we failed to raise the debt ceiling — and noted that he was ‘very worried’ about it,” according to a news account in the Daily Caller. “When I noted that some don’t think failing to raise the debt ceiling would be a big deal, he said: ‘Those people would be wrong. I just want to tell you; the idea that we can’t sell bonds to pay the interest on our debt is an utter disaster, Matt. Trust me on this, my friend. This is much different than the government shutdown. The government shutdown you know, we go on until tomorrow. We furlough unessential workers, but the social security checks get paid, right? If you can’t sell more bonds after the ceiling is reached, the social security checks do not get paid, okay — nothing gets paid.’”
Further, the chairman of the Federal Reserve also has warned of big problems. Ben Bernanke, first appointed his post by President George W. Bush, warns that failure to raise the debt limit “could cause severe disruptions in financial markets.”
In a speech this month, Bernanke remarked, “Failing to raise the debt ceiling in a timely way would be self-defeating if the objective is to chart a course toward a better fiscal situation for our nation. The current level of the debt and near-term borrowing needs reflect spending and revenue choices that have already been approved by the current and previous Congresses and administrations of both political parties. Failing to raise the debt limit would require the federal government to delay or renege on payments for obligations already entered into.
“In particular, even a short suspension of payments on principal or interest on the Treasury’s debt obligations could cause severe disruptions in financial markets and the payments system, induce ratings downgrades of U.S. government debt, create fundamental doubts about the creditworthiness of the United States, and damage the special role of the dollar and Treasury securities in global markets in the longer term. Interest rates would likely rise, slowing the recovery and, perversely, worsening the deficit problem by increasing required interest payments on the debt for what might well be a protracted period,” he adds.
Other experts have noted that failure to raise the debt limit could cost 640,000 jobs at a time of already high unemployment, and would slow economic growth by at least 1 percent when the economy already is at risk of stalling out.
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.