As of today, the United States has officially hit its legal borrowing limit, bumping into the statutory debt ceiling. The Treasury Department has some options at its disposal for delaying default, but those will be exhausted around August 2.
For months, Republicans have been claiming that they will refuse to raise the debt ceiling — and thus risk the widespread economic consequences of the U.S. eventually defaulting on its debt — unless several conditions are met, including cuts to Medicare and Social Security. In fact, some Republicans have said that they think that default wouldn’t be so bad. “The case has not been made that this is an absolute necessity,” said Rep. Bill Huizenga (R-MI).
However, Republicans poo-pooing the necessity of raising the debt ceiling might want to look to conservative icon Ronald Reagan. In 1983, Reagan warned that the consequences of failing to raise the nation’s borrowing limit “are impossible to predict and awesome to contemplate”:
The full consequences of a default — or even the serious prospect of default — by the United States are impossible to predict and awesome to contemplate. Denigration of the full faith and credit of the United States would have substantial effects on the domestic financial markets and the value of the dollar in exchange markets. The Nation can ill afford to allow such a result. The risks, the costs, the disruptions, and the incalculable damage lead me to but one conclusion: the Senate must pass this legislation before the Congress adjourns.
In a 1987 radio address, Reagan also said, “Congress consistently brings the government to the edge of default before facing its responsibility. This brinksmanship threatens the holders of government bonds and those who rely on Social Security and veterans benefits. Interest rates would skyrocket, instability would occur in financial markets, and the Federal deficit would soar.”
Several key Republican leaders, including Speaker of the House John Boehner (R-OH) and House Budget Committee Chairman Paul Ryan (R-WI) have admitted that failing to raise the debt ceiling is simply not an option, with Boehner saying that it would be a “disaster,” while Ryan called it “unworkable.” But the GOP continues to play games, inching the U.S. ever closer to the scenario that Reagan explicitly warned against.
Cross-posted on The Wonk Room.