The Latest Stupid Republican Tricks: The “Default Deniers”

GOP Leadership

{Sigh….} Is there any way to be rid of these crazies? The latest Republican nutty meme is that it will be much much better for all concerned if Congress doesn’t raise the debt ceiling and the U.S. has to either cut trillions in spending or default on its debts. From Politico:

They are the newest breed of government skeptics, the swelling ranks of Republicans who don’t believe the Obama administration when it says a failure to raise the debt limit will prove catastrophic.

And they stand ready to make negotiations over raising the cap on debt as grueling as possible, making Treasury officials and Wall Street more nervous than ever that the country could suffer an unprecedented default with consequences no one can predict.

The suspicion, which once flourished on only the conservative outskirts of economic circles, has seeped into the mainstream in recent weeks, gaining broader acceptance among establishment Republicans, even as the administration issues increasingly dire warnings.

House Speaker John Boehner (R-Ohio) validated the default deniers Sunday, saying, “I understand the doubts.” Jim Nussle, a budget director under former President George W. Bush, argued last week that “no one’s going to default” if Congress misses the Aug. 2 deadline. And Alabama Sen. Jeff Sessions, the top Republican on the Budget Committee, accused the White House of scare tactics similar to those used by the previous administration to win quick approval of the 2008 bank bailout after the markets crashed.

Via Think Progress, Rush Limbaugh yesterday responded to the Politico article by leaping aboard the GOP elephant just as it began to topple off the cliff. Limbaugh announced on his radio program that refusing to raise the debt ceiling will help the country’s credit rating.

LIMBAUGH: Today I claim the mantle. I proudly and honestly come to you today as the Mr. Big of the default deniers. We will not default on anything. And moreover, it is more likely that the country’s creditworthiness would go up around the world since we would finally be doing something to address our out-of-control spending and indebtedness if we were not to raise the debt limit. We would be perceived around the world as serious for a change, and responsible for a change. Otherwise we are headed for junk bond status.

I’m no economist, but according to Dakinikat Alan S. Blinder is a really good one, and he wrote an op-ed for the Wall Street Journal today. Here is his analysis of what could happen if the Republicans get their way on the debt ceiling.

What happens if we crash into the debt ceiling? Nobody really knows, but it’s not likely to be pretty. Inflows and outflows of cash to and from the Treasury jump around from day to day as bills are paid and revenues arrive. But at average fiscal 2011 rates, receipts cover only about 60% of expenditures. So if we hit the borrowing wall traveling at full speed, the U.S. government’s total outlays—a complex amalgam that includes everything from Social Security benefits to soldiers’ pay to interest on the national debt—will have to drop by about 40% immediately.

The bottom line is that Timmy Geithner will have to decide whether to pay soldiers and old folks or pay China other foreign creditors. I guess that’s what the Republicans are hoping for–that it will spell the end of the entire social safety net. But they don’t seem to be thinking very long-term. Do they really believe Americans will passively allow that to happen? Back to Blinder:

If and when the time comes, Mr. Geithner and his boss will have to decide. But here’s one prediction: Defaulting on the national debt will not be their first choice. After all, the statue of Alexander Hamilton at the Treasury entrance reminds Mr. Geithner every day of the importance of maintaining the nation’s creditworthiness. Even if we hit the debt ceiling, maturing obligations still can be rolled over. And I’ll bet he will bend every effort to make the interest payments, too. Unfortunately, however, when you’re 40% short, not much can be ruled out.

Exactly. Geithner is going to choose to pay China, not the elderly and disabled–that’s what the Republicans are counting on. But that will be a choice between chaos in the world economy and mass uprisings on the domestic front–or we might get both. According to Blinder a contraction in the U.S. economy like the one the Republicans are pushing us toward could lead to world-wide financial panic. According to Blinder:

…suppose the federal government actually does reduce its expenditures by 40% overnight. That translates to roughly $1.5 trillion at annual rates, or about 10% of GDP. That’s an enormous fiscal contraction for any economy to withstand, never mind one in a sluggish recovery with 9% unemployment. Even contemplating such a possibility is evidence of a dark, self-destructive impulse.

Second, markets now assign essentially zero probability to the U.S. losing its fiscal mind. They’d be caught flat-footed if the threat of default suddenly started to look real, possibly triggering a world-wide financial panic. Remember how markets reacted to the Lehman Brothers surprise? As Mr. Geithner pointed out in New York on Tuesday, “As we saw in the fall of 2008, when confidence turns, it can turn with brutal force and with a momentum that is very difficult and costly to arrest.”

And Blinder isn’t even considering what the reaction would be among ordinary Americans here at home when the economy completely tanks and there is no social safety net whatsoever.

9 Comments on “The Latest Stupid Republican Tricks: The “Default Deniers””

  1. bostonboomer says:

    Johnathan Chait: I’m Getting Scared about the Dept Ceiling.

    He’s reacting to the Blinder piece. He says the one thing that “could save us” is if Obama gives in on a policy issues (ending Social Security and Medicare???). None of these people are getting that we could end up with violence in the streets of U.S. cities.

    • Seriously says:

      It sounds like they’re setting us up for yet another round of kabuki. It’s hard to believe that the Repubs would really pull the trigger here and plunge us into highly publicized chaos, though it’s certainly possible. But Obama and the Dems “reluctantly” giving away the entire store and quietly easing us into gradual chaos with Dennis and the boys assuring us that it was inevitable and it won’t be that bad and they’ll do whatever they can to mitigate it, muddying the waters all they can? That sounds pretty familiar.

  2. bostonboomer says:

    NPR’s take:

    It all boils down to Obama being courageous. Don’t these people get it? That will never happen!!

    • paper doll says:

      NPR is hopeless…what’s constantly shocking to , even me, is the SPEED with which these blows are coming. …there was a time the Over Lords would be just waking up for more from the 800 billion tax brake fix…. but no, there must be a bong hit of loot or social destruction for the average person every single minute.

  3. fiscalliberal says:

    So – has anyone in the Financial community spoken up on the debt default. If it was catestrophic, I would expect people from the indutry talking out if it was really bad.

    I would expect Obama to change the last minute conceeding to the Republican demands. This sets the stage for the next election. We think it would hurt the poor more. We will see what Cornell West has to say about this. Has Jessie Jackson said anything?

  4. joanelle says:

    We are spending soooo much money to keep military installations in friendly countries that don’t need those installations or at least don’t need the size installation that we have there. Billions would be saved – perhaps more – if we were to pull back, say 75% of the troops in 737 bases in foreign lands would certainly significantly reduce the outflow.