Several Congressional Republicans, including Sen. Pat Toomey (R-PA), have posited that failing to raise the debt ceiling — and thus forcing the U.S. to default on some of its obligations — would not be bad for the economy. “I don’t think it’s going to have an adverse impact on the economy for the days or weeks or perhaps even months that this would continue,” Toomey said.
These “default deniers” don’t believe that failing to raise the debt ceiling would have the negative consequences that most economic analysts say it will. Radio shock-jock Rush Limbaugh even said yesterday that failing to raise the debt ceiling will improve the nation’s creditworthiness.
Nunes says the debt cap must be raised at some point but not necessarily before the point of default.
“By defaulting on the debt, in the short and long term, it could benefit us to go through a period of crisis that forces politicians to make decisions” on major policies that affect the budget, he told POLITICO.
The GOP has been playing chicken with the debt ceiling for months, but Nunes is now advocating outright default and all of the consequences such a default would bring. As Princeton Professor Alan Blinder noted in the Wall Street Journal this morning, the U.S. defaulting on its obligations could eventually “reignite the world financial crisis”:
Should it occur, the consequences could be severe. It might, for example, reignite the world financial crisis. Remember how rattled financial markets became last year when it looked like Greece might default? And that was just little Greece and the possibility of default. An actual default by the mightiest nation on Earth would be immeasurably more unsettling. Where, in such a case, would frightened investors run to hide? The U.S. dollar would be among the first casualties. If hot money were to flee what was once its safest haven, the dollar would sink and U.S. interest rates would rise. The latter could lead us back into recession.
There would also be lasting costs to the U.S. government in the form of higher interest rates…How much? Again, no one can know. But even if it’s as little as 10–20 basis points on the U.S. government’s average borrowing cost, that’s an additional $10 billion to $20 billion in interest expenses every year. Seems like an expensive way to score a political point
Bank of America analysts agreed, noting that not raising the debt ceiling “would likely push the U.S. into recession and drag down the stock market.”
Rep. Michele Bachmann (R-MN) said earlier this month that “no one is advocating defaulting.” But it seems, for the House Republicans at least, that is no longer the case.
Cross-posted on The Wonk Room.