Republicans Pushing The Nation Toward Default

May 9, 2013

For two-plus years, House Republicans have defaulted on their obligations to the American public. This week's vote to prioritize debt payments is the clearest and most bewildering signal to the nation that they'll continue to do so, ensuring that holders of government bonds -- half of whom are foreign nationals -- are paid in the event of default while providing no such guarantee for millions of American veterans, teachers and doctors.

Instead of efforts to support our fragile economic recovery, House Republicans have repeatedly taken action that has damaged it, rarely veering from a course they set the moment they assumed control of the House in January 2011.

Few can forget the economic shock our nation experienced as Republicans steered us toward default in the summer of 2011. Although 11th-hour action prevented a default, our economy sputtered through July and August, experiencing the slowest pace of growth in the last three years. The stock market plummeted, sending the Dow Jones Industrial Average down 2,000 points, including its single largest one-day drop ever. And Standard & Poor's downgraded the U.S. credit rating for the first time in history – a downgrade that remains in place today.

S&P senior director Joydeep Mukherji said the stability and effectiveness of American political institutions were undermined by the fact that "people in the political arena were even talking about a potential default."

"That a country even has such voices, albeit a minority, is something notable," he was reported as saying in August 2011. "This kind of rhetoric is not common amongst AAA sovereigns."

Yet this January, the Republican rhetoric resumed, only retreating behind closed doors after economists and business leaders throughout the country warned about the continued uncertainty that would ensue.

This week they are back at it, seeking to pass legislation that would prioritize debt payments in preparation for another default showdown. The bill would ensure that private bondholders would be paid in the event that the debt ceiling isn't raised, while leaving veterans, teachers and tens of millions of other Americans without any guarantee.

No one expects the Senate to consider a plan to default on our legal obligations for the first time in over 200 years, but the fact that Republicans are even discussing the idea of default sends a signal to the public -- and American businesses -- that Republicans are once again prepared to damage the American economy to achieve their ideological goals.

After all, economists across the political spectrum have warned that "prioritization is impossible," as former Bush administration official Tony Fratto put it.

"Is the government really going to be in the position of withholding benefits, salaries, rent, contract payments etc., in order to pay off Treasury bondholders? That would be a political catastrophe," Fratto said earlier this year.

Rating agencies have been just as direct.

Moody's senior economist Mark Hopkins said prioritization is "like rearranging deck chairs on the Titanic." 

David Beers, who in 2011 was S&P's head of global sovereign ratings, said "it would mean a very sudden fiscal shock that the longer it lasted would filter powerfully through the system."

He added, "Potentially that would be deeply disruptive to the economy."

Republicans have set records for futility in enacting legislation during the two-plus years in the House. If their priority was job creation, that would be a worrisome statistic. But clearly, their priority is just the opposite.

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