In an interview with the Washington Post, Rep. Ted Yoho (R-FL) said on not raising the debt ceiling, “I think, personally, it would bring stability to the world markets.”
This is because, in his view, “we need to have that moment where we realize [we’re] going broke.” He firmly told the paper, “I’m not going to raise the debt ceiling.” He also characterized the current government shutdown as “the tremor before the tsunami.”
Few agree with Yoho that a failure to raise the debt ceiling, which would mean the United States government would not have adequate funds to pay for all of the debts it owes and would likely default on at least some, would be beneficial. Last week, the Treasury Department released a report that warned that a default could create “a recession more severe than any seen since the Great Depression.”
It came to this conclusion by looking at the consequences of the near default in 2011, which led to a sharp decline in consumer and business confidence, a hit to the financial markets, and a slow down in job growth. The impact on the financial markets from nearly defaulting on the debt and getting a first-ever downgrade on the debt from Standard & Poor’s “persisted for months.” The brinkmanship that time around also meant a $2.4 trillion drop in household wealth, an $800 billion drop in retirement assets, and a hit to mortgages. It increased the government’s borrowing costs by $1.3 billion.
This all happened even though the U.S. didn’t actually default in 2011. If that were to happen, investors could become unwilling to lend to the country, leaving it with an immediate cash shortfall and creating unknowable (yet clearly devastating) ripple effects throughout the markets and the global economy.
Threatening to not raise the debt ceiling unless Republican demands are met is a relatively new tactic. Historically, the limit was routinely raised, including seven times under President George W. Bush, and even House Speaker John Boehner (R-OH) used to warn against using it as leverage.