Republicans Downplay ‘Default,’ Dismiss Debt Deadline

Some GOP lawmakers say White House officials — and global financial experts — are exaggerating the potential impact of missed payments.

An employee counts USD notes at a money change outlet in Jakarta on June 14, 2013.
National Journal
Tim Alberta Michael Catalini
Oct. 6, 2013, 7:45 a.m.

The White House is sound­ing alarms about the fast-ap­proach­ing Oct. 17 dead­line for rais­ing the na­tion’s bor­row­ing lim­it. Fail­ure to do so, Pres­id­ent Obama and Treas­ury Sec­ret­ary Jac­ob Lew have warned, could res­ult in a first-ever de­fault on Amer­ica’s debt and trig­ger glob­al eco­nom­ic calam­ity.

But some Re­pub­lic­ans in Con­gress aren’t buy­ing it.

Not only do some con­ser­vat­ives say Oct. 17 is an ar­ti­fi­cial dead­line — “Nobody thinks we’re go­ing to de­fault on Oct. 17th,” said Rep. Tim Huel­skamp, R-Kan. — but they also are at­tempt­ing to nar­rowly define what would con­sti­tute de­fault.

In in­ter­views with more than a dozen GOP law­makers, the Re­pub­lic­ans re­jec­ted the no­tion that Wash­ing­ton could de­fault on its debt un­less a bor­row­ing in­crease is ap­proved be­fore Oct. 17. For the United States to ac­tu­ally de­fault, these Re­pub­lic­ans ar­gue, the Treas­ury De­part­ment would have to stop pay­ing in­terest on its debts — something GOP law­makers claim is in­con­ceiv­able.

“There’s al­ways rev­en­ue com­ing in­to the Treas­ury, cer­tainly enough rev­en­ue to pay in­terest,” said Rep. Justin Amash, R-Mich. “Demo­crats have a dif­fer­ent defin­i­tion of ‘de­fault’ than what we un­der­stand it to be. What I hear from them is, ‘If you’re not pay­ing everything on time that’s a de­fault.’ And that’s not the tra­di­tion­ally un­der­stood defin­i­tion.”

If this sounds fa­mil­i­ar, it’s be­cause it has been Re­pub­lic­ans’ line of at­tack since their debt-ceil­ing battle with Obama in the sum­mer of 2011.

Then, as now, the GOP ar­gues it’s not the debt lim­it that would cause de­fault, it’s Obama. The coun­try would have the funds to pay its cred­it­ors if the ad­min­is­tra­tion would just delay pay­ments to cer­tain agen­cies.

Hop­ing to turn that ar­gu­ment in­to law, Re­pub­lic­ans have touted le­gis­la­tion that would force Treas­ury to pri­or­it­ize which bills it pays, push­ing in­terest pay­ments to the coun­try’s cred­it­ors, as well as to seni­or cit­izens and vet­er­ans, to the front of the line and put­ting everything else second.

The meas­ure makes for sol­id mes­saging — few voters are likely to dis­agree that So­cial Se­cur­ity and vet­er­ans’ dis­ab­il­ity pay­ments should be top pri­or­it­ies — but budget wonks and fin­an­cial in­dustry ex­perts cri­ti­cize the idea.

“I don’t know any ser­i­ous per­son who doesn’t think this will be cata­clys­mic,” said Steve Bell, a former Re­pub­lic­an staff dir­ect­or of the Sen­ate Budget Com­mit­tee and now seni­or dir­ect­or with the Bi­par­tis­an Policy Cen­ter.

The as­sump­tion that the U.S. will hon­or all of its debts — and hon­or them on time — is the found­a­tion for much of the glob­al fin­an­cial sys­tem, Bell ar­gues. So the fun­da­ment­al prob­lem with the Re­pub­lic­an po­s­i­tion is that Treas­ury makes between 3 mil­lion and 5 mil­lion fin­an­cial trans­ac­tions a day, and if the fed­er­al gov­ern­ment starts to pick and choose which it will hon­or, it will land the eco­nomy in chaos.

Many of the world’s lead­ing fin­an­cial ex­perts, who are watch­ing the slow pace of ne­go­ti­ations in Wash­ing­ton with dread, agree.

“The gov­ern­ment shut­down is bad enough, but fail­ure to raise the debt ceil­ing would be far worse, and could very ser­i­ously dam­age not only the U.S. eco­nomy, but the en­tire glob­al eco­nomy,” IMF Dir­ect­or Christine Lagarde said Thursday.

In­deed, while Re­pub­lic­ans and the White House might dis­agree over how to define a de­fault, the world’s mar­kets are likely to see any missed pay­ment as a sig­nal of pro­found fin­an­cial weak­ness in the United States, and re­act ac­cord­ingly.

“It’s just un­think­able,” said Sen. An­gus King, an in­de­pend­ent from Maine. “We don’t have to spec­u­late about this; just go back and look at 2011. See what happened when we even flir­ted with it. Mar­kets went down. Jobs went down. The eco­nomy con­trac­ted.”

Re­pub­lic­ans don’t dis­pute the risks of toy­ing with Treas­ury’s Oct. 17 dead­line. (In fact, some ex­pressed con­cern about scar­ing Wall Street.) Rather, they seem de­term­ined to cor­rect what they view as a blatant mis­con­cep­tion of what truly con­sti­tutes a de­fault on the na­tion’s debt.

“We’re not go­ing to de­fault; there is no de­fault,” said Rep. Mick Mul­vaney, R-S.C. “There’s an [Of­fice of Man­age­ment and Budget] dir­ect­ive from the 1980s, the last time we got fairly close to not rais­ing the debt ceil­ing, that clearly lays out the pro­cess by which the Treas­ury sec­ret­ary pri­or­it­izes in­terest pay­ments. Tim Geithner un­der­stood that, be­cause the last week­end in Ju­ly of 2011 he was in New York City telling the primary deal­ers that we were not go­ing to de­fault on our debt.”

Mul­vaney even went so far as to say Obama and White House of­fi­cials have been dis­hon­est when warn­ing of de­fault: “If the pres­id­ent wants to lie to the pub­lic, I can’t stop him.”

Con­gres­sion­al Demo­crats do not dis­pute this nar­row defin­i­tion be­ing pushed by the GOP. Rather, they won­der openly as to why Re­pub­lic­ans would even risk de­fault.

“I wouldn’t re­com­mend play­ing Rus­si­an roul­ette with the full faith and cred­it of the United States,” said Rep. Chris Van Hol­len of Mary­land, the rank­ing Demo­crat on the House Budget Com­mit­tee. “The sec­ret­ary of the Treas­ury has giv­en his best es­tim­ate of the time at which it be­comes very risky not to raise the debt ceil­ing. He’s nev­er said that you can be ab­so­lutely pre­cise about these things, but he says the risks are way too high at that point.”

While some Re­pub­lic­ans cast the Oct. 17 cutoff as ar­ti­fi­cial, mem­bers like Re­pub­lic­an Rep. Dave Reich­ert of Wash­ing­ton — who sug­ges­ted the date was “fudged” by the Treas­ury De­part­ment — said law­makers have no choice but treat it like a real dead­line.

Demo­crats con­cede what they cast as a small point: The ac­tu­al date might in­deed fluc­tu­ate de­pend­ing on the gov­ern­ment’s re­ceipts. But that’s not the point, they say.

“I don’t think it mat­ters be­cause it’s the buildup, the lack of in­vest­ment, the ef­fect that it has on the mar­ket,” said Sen. Amy Klobuchar, D-Minn. “I really don’t think we should be mess­ing around with try­ing to out-pre­dict the Treas­ury De­part­ment. When they say that they’ve used all ex­traordin­ary means and that they pre­dict this date will be in mid-Oc­to­ber, I be­lieve them.”

{{ BIZOBJ (video: 4489) }}

Patrick Reis and Stacy Kaper contributed to this article.
What We're Following See More »
HE ‘WILL NEVER BE PRESIDENT’
Warren Goes After Trump Yet Again
5 hours ago
THE LATEST

When it comes to name-calling among America's upper echelon of politicians, there may be perhaps no greater spat than the one currently going on between Sen. Elizabeth Warren and Donald Trump. While receiving an award Tuesday night, she continued a months-long feud with the presumptive GOP presidential nominee. Calling him a "small, insecure moneygrubber" who probably doesn't know three things about Dodd-Frank, she said he "will NEVER be president of the United States," according to her prepared remarks."We don't know what Trump pays in taxes because he is the first presidential nominee in 40 years to refuse to disclose his tax returns. Maybe he’s just a lousy businessman who doesn’t want you to find out that he’s worth a lot less money than he claims." It follows a long-line of Warren attacks over Twitter, Facebook and in interviews that Trump is a sexist, racist, narcissistic loser. In reply, Trump has called Warren either "goofy" or "the Indian"—referring to her controversial assertion of her Native American heritage. 

FIRST CHANGE IN FOUR DECADES
Congress Passes Chemical Regulations Overhaul
8 hours ago
THE DETAILS

The House on Tuesday voted 403-12 "to pass an overhaul to the nation’s chemical safety standards for the first time in four decades. The Frank R. Lautenberg Chemical Safety for the 21st Century Act aims to answer years of complaints that the Environmental Protection Agency lacks the necessary authority to oversee and control the thousands of chemicals being produced and sold in the United States. It also significantly clamps down on states’ authorities, in an effort to stop a nationwide patchwork of chemical laws that industry says is difficult to deal with."

Source:
NO MORE INDEPENDENT VOTERS?
GOP Could Double Number of Early Primaries
8 hours ago
THE DETAILS

"Leaders of the Republican Party have begun internal deliberations over making fundamental changes to the way its presidential nominees are chosen, a recognition that the chaotic process that played out this year is seriously flawed and helped exacerbate tensions within the party." Among the possible changes: forbidding independent voters to cast ballots in Republican primaries, and "doubling the number of early states to eight."

Source:
LEVERAGE
Kasich Tells His Delegates to Remain Pledged to Him
10 hours ago
THE LATEST

Citing the unpredictable nature of this primary season and the possible leverage they could bring at the convention, John Kasich is hanging onto his 161 delegates. "Kasich sent personal letters Monday to Republican officials in the 16 states and the District of Columbia where he won delegates, requesting that they stay bound to him in accordance with party rules."

Source:
EFFECTIVE NEXT MONTH
House GOP Changes Rules for Spending Measures
10 hours ago
THE DETAILS

"Speaker Paul Ryan is changing the rules of how the House will consider spending measures to try to prevent Democrats from offering surprise amendments that have recently put the GOP on defense. ... Ryan announced at a House GOP conference meeting Tuesday morning that members will now have to submit their amendments ahead of time so that they are pre-printed in the Congressional Record, according to leadership aides." The change will take effect after the Memorial Day recess.

Source:
×