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Many in G.O.P. Offer Theory: Default Wouldn’t Be That Bad

Jonathan Weisman
Wednesday, 9 Oct 2013 | 6:18 AM ET
Sen. Rand Paul, R-Ky.
Bill Clark | CQ Roll Call | Getty Images
Sen. Rand Paul, R-Ky.

WASHINGTON — Senator Richard Burr, Republican of North Carolina, a reliable friend of business on Capitol Hill and no one's idea of a bomb thrower, isn't buying the apocalyptic warnings that a default on United States government debt would lead to a global economic cataclysm.

"We always have enough money to pay our debt service," said Mr. Burr, who pointed to a stream of tax revenue flowing into the Treasury as he shrugged off fears of a cascading financial crisis. "You've had the federal government out of work for close to two weeks; that's about $24 billion a month. Every month, you have enough saved in salaries alone that you're covering three-fifths, four-fifths of the total debt service, about $35 billion a month. That's manageable for some time."

As President Obama steps up his declarations about the dire consequences of not raising the debt limit, increasing numbers of Congressional Republicans are disputing that forecast, as well as the timing of when the Treasury might run out of money and the implications of a default, further complicating the negotiating situation for both Mr. Obama and Speaker John A. Boehner, who must find a way out of the impasse.

(Read more: US will reach solution on shutdown: ECB's Asmussen)

Both men were counting on the prospect of a global economic meltdown to help pull restive Republicans into line. On Wall Street, among business leaders and in a vast majority of university economics departments, the threat of significant instability resulting from a debt default is not in question. But a lot of Republicans simply do not believe it.

Congress leaders know what they need to do: Pritzker
Penny Pritzker, US Commerce Secretary, says that she is confident that the leaders in Congress will come to an agreement before the debt ceiling deadline.

A surprisingly broad section of the Republican Party is convinced that a threat once taken as economic fact may not exist — or at least may not be so serious. Some question the Treasury's drop-dead deadline of Oct. 17. Some government services might have to be curtailed, they concede. "But I think the real date, candidly, the date that's highly problematic for our nation, is Nov. 1," said Senator Bob Corker, Republican of Tennessee.

Others say there is no deadline at all — that daily tax receipts would be more than enough to pay off Treasury bonds as they come due.

"It really is irresponsible of the president to try to scare the markets," said Senator Rand Paul, Republican of Kentucky. "If you don't raise your debt ceiling, all you're saying is, 'We're going to be balancing our budget.' So if you put it in those terms, all these scary terms of, 'Oh my goodness, the world's going to end' — if we balance the budget, the world's going to end? Why don't we spend what comes in?"

"If you propose it that way," he said of not raising the debt limit, "the American public will say that sounds like a pretty reasonable idea."

In a news conference, Mr. Obama said repeatedly that those who doubted the repercussions of a default were making a huge mistake.

"When I hear people trying to downplay the consequences of that, I think that's really irresponsible, and I'm happy to talk to any of them individually and walk them through exactly why it's irresponsible," he said. "And it's particularly funny coming from Republicans who claim to be champions of business. There's no business person out here who thinks this wouldn't be a big deal, not one. You go to anywhere from Wall Street to Main Street, and you ask a C.E.O. of a company or ask a small-business person whether it'd be a big deal if the United States government isn't paying its bills on time. They'll tell you it's a big deal. It would hurt."

(Read more: Shutdown is shaking confidence: US Commerce Secretary)

The turmoil created by the partial shutdown of the federal government has already sent investors fleeing from stocks to the safe harbor of Treasury bonds, long considered the safest investment on earth because the full faith and credit of the United States government has never been questioned. If that safe harbor is undermined, most economists have said loudly and repeatedly, the impact could be catastrophic.

The U.S. Chamber of Commerce and the National Association of Manufacturers, both bastions of Republican support, sent letters to Congress on Tuesday urging action on the debt ceiling.

"Our nation has never defaulted in the past, and failing to raise the debt limit in a timely fashion will seriously disrupt our fragile economy and have a ripple effect throughout the world," wrote Jay Timmons, the president of the manufacturers' group.

Some Republicans trust such warnings.

"Unlike some of my colleagues, I've been told by too many people in the financial business that there will be reactions in the market," said Senator John McCain, Republican of Arizona. "Of course I'm worried."

But the voices of denial are loud and persistent, with some Republicans saying that the fallout from the continuing shutdown and the automatic, across-the-board budget cuts known as sequestration has been less severe than predicted.

Mr. Paul acknowledged that some economists disagreed with him, but said others agreed. Peter Morici, a conservative economist and a frequent guest on Fox Business, dashed off a column on Tuesday in which he argued that "House Republicans, by refusing to raise the debt ceiling until they obtain budget reforms, may be the country's last hope to avoid a financial ruin."

Congressional Republicans have varied arguments. To Representative Paul Broun, Republican of Georgia and a candidate for the Senate, it is a question of ranking the evils.

"There are a lot of things that are going to affect our economy," he said. "The greatest threat right now is Obamacare. It's already destroyed jobs, it's already destroyed our economy, and if it stays in place as it is now, it's going to destroy America."

(Read more: Boehner says Obama's position is 'unsustainable')

Representative Ted Yoho, a freshman Florida Republican who had no experience in elective office before this year, said the largest economy on earth should learn from his large-animal veterinary practice.

"Everybody talks about how destabilizing doing this will be on the markets," he said. "And you'll see that initially, but heck, I've seen that in my business. When you go through that, and you address the problem and you address your creditors and say, 'Listen, we're going to pay you. We're just not going to pay you today, but we're going to pay you with interest, and we will pay everybody that's due money' — if you did that, the world would say America is finally addressing their problem."

Representative Justin Amash, Republican of Michigan and a leader of the House's libertarian wing, said: "There's no way to default on Oct. 17. We will have enough money to make interest payments. The issue is, how do we restructure our government so we don't have to keep hitting the debt ceiling?"

And while Representative Trent Franks, Republican of Arizona, conceded that a government that could no longer borrow money would have to curtail some of its contracting, he said Democrats should not get carried away.

"It's like everything else here," he said. "People on both sides of every argument seem to employ hyperbole when they could just state the truth and it would still be of significant consequence."

By Jonathan Weisman of The New York Times. Ashley Parker contributed reporting.

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