Politico...
Default deniers: The
new skeptics
By Carrie Budoff Brown
5/17/11
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.
“Congress was stampeded,” Sessions said of the bailout vote. “They will
have a harder time stampeding … Congress.”
The growing divide is fed by a combustible mix: deep distrust among
conservatives of President Barack Obama and government in general and a
hardening view among mainstream Republicans that the debt-limit vote
offers the best shot in years to fundamentally reorder the country’s
finances — and they can’t let it pass them by. The government hit the
$14.29 trillion debt limit Monday, but Treasury took steps to keep the
country afloat through August.
Within weeks of Treasury Secretary Timothy Geithner’s initial plea in
January for a quick vote, Republicans gravitated toward a
counternarrative, pushed first by a handful of conservative economists
and ushered into the mainstream by Pennsylvania Sen. Pat Toomey on the
editorial pages of The Wall Street Journal.
Now, the negotiating position of a growing number of Republicans
appears to be this: If they need to hold out for a better
deficit-cutting deal and blow the August deadline, so be it.
“The one acting like his hair is on fire is Mr. Geithner,” said Arizona
Rep. David Schweikert. “It’s absolutely silly. We have plenty of cash
flow to pay debt, which means I’m trying to figure out how credibly the
administration can keep using that language.”
The doubters — backed by Wall Street — reject Geithner’s repeated
claims that failing to raise the statutory cap will force the federal
government into the first default in its history.
That’s hogwash, the doubters say, because the government takes in more
than enough revenue to cover its obligations. They acknowledge the
administration will need to make deep and painful spending cuts but
argue that Geithner can avert default if he prioritizes which bills to
pay.
It would be more like a partial government shutdown, Toomey said.
“That’s disruptive; that’s not optimal,” Toomey conceded in an
interview. “But it’s not a financial crisis. It’s not a default on our
debt. It’s not a catastrophe. It’s a disruption.”
Geithner’s response? It’s default by another name.
Even if Treasury pays its debt, other obligations, such as salaries,
tax refunds and contractor payments, would go unmet, tattering the
country’s creditworthiness, Geithner has argued.
In a letter Friday to Sen. Michael Bennet (D-Colo.), Geithner wrote
that such an event “would inflict catastrophic, far-reaching damage to
our nation’s economy, significantly reducing growth and increasing
unemployment.” The value of 401(k) plans and pension funds would
plummet, while the cost of buying a home or car and taking out student
or business loans would rise, Geithner wrote.
“This abrupt contraction would likely push us into a double-dip
recession,” the secretary warned.
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