WASHINGTON — Last week, a small band of House Republicans, including presidential contender and Tea Party favorite Michele Bachmann, introduced legislation to prioritize federal payments in case Congress does not raise the debt ceiling before the looming Aug. 2 deadline. It’s a contingency plan if the U.S. defaults on its financial obligations, which Bachmann says wouldn’t be such a big deal.
It’s this kind of talk that can make a buttoned-down, former investment banker like Rep. Jim Himes, a Democrat of Greenwich, go a little crazy. Or at least go on cable.
With the debt negotiations between the White House and moving in fits-and-starts, Himes has been on a campaign of sorts to knock down the idea that breaching the Aug. 2 deadline would be anything less than devastating. Or, as Himes put it, “to debunk the baloney that this is not a crisis.”
He’s been on Bloomberg television twice. He’s been on CNBC’s “Squawk Box,” and WCBS and WYNC radio in New York. Today, he is on WNPR in Connecticut. He’s given speeches on the House floor. His talking points on the issue are featured on his website, and his office is sending out a debt-related mailer to voters this week.
“Eventually we’re going to lose the confidence of the capital markets and that’s a profoundly dangerous thing to do,” Himes said on Bloomberg Television.
With a budget-and-debt deal being discussed in closed-door talks by top leaders and the clock ticking ominously down, Himes said one of the most constructive things he can do is serve as a counterweight to lawmakers like Bachmann, who is making this issue central to her debut on the national stage.
In Bachmann’s first ad of the presidential season, which started running in Iowa earlier this month, the Minnesota Republican declares that she will not vote for an increase in the debt ceiling under any circumstances.
The contingency bill, which she is co-sponsoring with two other House Republicans, would specify that if the U.S. hits its debt ceiling limit and can’t borrow more money, the federal government should prioritize payments to U.S. service members and current creditors. At a press conference to discuss the bill, Bachmann had this to say about the predictions of chaos if Aug. 2 comes and goes with no congressional action to raise the debt ceiling:
“This is a misnomer that I believe that the president and the Treasury secretary have been trying to pass off on the American people, and it’s this: that if Congress fails to raise the debt ceiling by $2.5 trillion, that somehow the United States will go into default and we will lose the full faith and credit of the United States. That is simply not true.”
Never mind the dire warnings of U.S. Treasury Secretary Timothy Geitner, Federal Reserve Chairman Ben Bernanke, or any number of economists, Wall Street watchers, and debt rating agencies.
“Any responsible public official who puts forward a plan to manage the U.S. becoming a deadbeat needs to look themselves in the mirror,” Himes said when asked about Bachmann’s bill. “Anybody with better than a fourth-grade knowledge of capital markets and interests rates knows that we’re dealing with potential catastrophe here.”
Himes said he’s taken up this crusade because the stakes are so high and because, as a one-time Goldman Sachs banker, he has more experience in the financial world that most of his congressional counterparts.
“Many of my colleagues naturally think of this they way they think of a government shutdown, but we control everything about a government shutdown,” he said. “We don’t control the capital markets, and when they turn on us, there’s no button we can press to restore confidence.”
Most Republicans haven’t endorsed Bachmann’s position, recognizing that it could be economically and politically risky not to raise the debt ceiling. Senate Republican Minority Leader Mitch McConnell warned that such a move could “destroy” the Republican brand and allow President Obama to shift the blame for the bad economy to the GOP, “maybe with some merit.”
But while only a handful of lawmakers have embraced the argument that a default would not be calamitous, the prospect of default remains real. The White House and congressional leaders have been unable, despite weeks of intense back-and-forth negotiations, to come to an agreement on legislation that would pave the way for a debt ceiling hike.
The White House has been pushing for a broad package that reduces the debt by as much as $4 trillion, through spending cuts, entitlement reform, and tax increases. But Republicans have vowed to oppose any package that includes tax hikes, resulting in stalemate.
With 12 days to go before Aug. 2, Himes and others have started to ring their alarm bells more loudly.
Defaulting with have “real, immediate, and potentially catastrophic consequences,” the U.S. Chamber of Commerce’s top lobbyist, Bruce Josten, wrote in a blog post Thursday. “If Congress fails to raise the debt ceiling, there will be real impacts, for every American. Interest rates will rise for everyone – which means higher rates for American consumers and the small businesses who drive our economy. Car loans, mortgages, and business and student loans will all be more expensive.”
The Bipartisan Policy Center, a Washington think tank, put out a report last week detailing the kinds of painful choices that Treasury officials would have to make if the debt ceiling is not increased.
“Treasury has no secret bag of tricks to finance government operations past August 2,” the center’s report states. The U.S. Treasury would be unable to pay 40 to 45 percent of the U.S. governments bills, forced to choose “from among 80 million monthly payments.”
For example, in the 21 business days between Aug. 3 and Aug. 31, the government would collect about $172.4 billion in revenues, but would face $306.7 billion in bills, according to the center’s estimates. The government could pay interest on Treasury securities ($29 billion), Social Security benefits ($49.2 billion), Medicare and Medicaid costs ($50 billion), defense vendors ($31.7 billion), and unemployment insurance ($12.8 billion) before exhausting the incoming revenues.
So what bills would go unpaid? A lot, starting with paychecks for active duty military. Then there’s funding for veterans benefits, the FBI, federal court operations, food stamps, tax refunds, and housing assistance. The list goes on.
The economic ripple effect would be quick and widespread, the center’s report says, with considerable day-to-day uncertainty and chaos.
“You cannot vote to lower taxes or to increase spending, and then turn around and say I’m not going to pay for that,” Himes said in a House floor speech last week.
A day later, Bachmann and her colleagues held their news conference. And a week later, despite a fresh swirl of rumors that the White House and congressional Republicans were on the cusp of a deal, participants said they remained at loggerheads
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