The deadline to act to ensure America pays its bills is fast approaching, but House Republicans are denying how severe the consequences of inaction will be. Perhaps a report in the Wall Street Journal this morning will help change their minds:
“Top Wall Street executives are warning that any effort to pay interest on U.S. debt before other obligations such as Social Security, a strategy some lawmakers think would placate bond investors if the government breaches its borrowing limit, would pose severe risks to financial markets and the economy.”
“In recent meetings with Republican lawmakers and Obama administration officials, chief executives of the nation's largest financial institutions said putting some payments ahead of others would create insurmountable uncertainty for investors, drive up borrowing costs and cause market disruptions, according to people familiar with the meetings.”
“Market participants say while the U.S. might not technically default on its debt, missing any type of payment would likely harm the economy. ‘This is going to be permanently damaging for business and consumer confidence if this happens. People will never look at the United States Treasury the same ever again,’ said Tom Simons, money-market economist at Jefferies Group LLC, an investment bank.”
“In meetings Wednesday with Reps. Jeb Hensarling (R., Texas) and Kevin McCarthy (R., Calif.), both of whom support the House bill, Wall Street executives said selectively paying obligations would be too complicated to pull off without damaging financial markets, according to people familiar with the meetings. Goldman Sachs Group Inc. CEO Lloyd Blankfein was among those making the point to administration officials and other CEOs urged lawmakers to approve an increase in the statutory borrowing limit, these people said.”
“Lou Crandall, an economist at Wrightson ICAP LLC, a market-research firm, said prioritizing interest on the debt would create a ‘massive contraction’ from an economic standpoint. Sucking money out of the economy by not paying contractors or Social Security—many seniors rely on those checks for most of their income—would hamper growth, he said. ‘It's such a self-servingly bad idea that it really does undermine confidence in the political system's ability to avoid disasters.’”
Our economy can’t afford default denial. It’s past time for Republicans to get serious about our nation’s fiscal well-being and credibility.