As the Republican Senate continues to drive the country towards a default crisis, vulnerable Pennsylvania Senator Pat Toomey continues to favor political games over doing his actual job. Yesterday on the Senate floor, Toomey flat out said that concern over the effects of a default crisis is “ridiculous.”
The second thing is that if we don’t raise the debt ceiling by November 3rd we’re — it is implied, they don’t come out and say it this way, but it is implied that we’ll have this devastating, disruptive default in the markets. You know, we won’t be able to pay our treasury debts. It’s ridiculous. It’s never going to happen.
That’s right – the same Senator who recently voted to shut down the government over Planned Parenthood funding, and admitted that heplanned to leave responsible governing to others while he continued to play politics is now calling the threat of default “ridiculous.”
“Toomey’s reckless attitude about the default crisis isn’t surprising given that he publicly admitted that he plans to leave governing to others while he plays cheap political games, but what’s truly ‘ridiculous’ here is his stance on the looming default crisis,” said Sadie Weiner, DSCC Communications Director. “Pennsylvanians deserve better than a Senator who continues to play political games, this time at the expense of economic stability and the full faith and credit of the U.S.”
Here’s what economists of both parties say would happen in a default scenario:
BACKGROUND:
Head Of Largest Bond Fund Said Failure To Raise The Debt Ceiling Would Be “Catastrophic” And Cause The Stock Market To “Plunge.” “But most analysts take a darker view. Bill Gross, who runs Pimco, the world’s biggest bond fund, said in an e-mail that failure to raise the debt ceiling would be “catastrophic — global investors would move money at the margin to countries which have their act together, interest rates might rise by 50 basis points overnight, the stock market would plunge.” [Washington Post, 4/26/11]
JPMorgan Study Showed Even A Brief Default Could Lead To A Spike In Interest Rates That Could Cost The Government As Much As $75 Billion A Year And Increase Cost Of Buying A Car Or Getting A Mortgage. “The last time this looked like a serious threat in 2011, analysts at JPMorgan looked at the probable “domino effects’ of the Treasury default, and they weren’t pretty. What if the dominoes start falling? Among the ‘long-term adverse consequences for Treasury finances and the U.S. economy’ of even a brief default, the JPMorgan analysts figured the list includes a spike in interest rates as investors find other places to put their cash. Those higher rates could cost the government as much as $75 billion a year, they estimated. But that’s only the beginning. Those higher rates would flow through the rest of the economy, raising the cost of buying a new car or getting a new mortgage.” [CNBC, 10/9/15]
Former CBO Director And McCain Economic Advisor Doug Holtz-Eakin Said Default Would Have “Dramatic Impacts On Consumer Confidence” That “The World’s Melting Down Again.” “Without a hike, the specter of a default on U.S. obligations looms large — potentially setting the stage for significant market turmoil and dire consequences for America’s financial reputation across the globe. ‘The first thing you’ll see is a market reaction,’ said Doug Holtz-Eakin, head of the right-leaning American Action Forum and a former director of the Congressional Budget Office. ‘Then you’ve got dramatic impacts on consumer confidence, the world’s melting down again and they go into an economic fetal position … there’s just no good news there.’” [The Hill, 10/16/15]
- Holtz-Eakin Said Default Crisis Would Lead To “Very Bad Economic Outcomes” And “Chaos In The Financial Markets.” “‘Without a hike, the specter of a default on U.S. obligations looms large — potentially setting the stage for significant market turmoil and dire consequences for America’s financial reputation across the globe.’ said Douglas Holtz-Eakin, former Congressional Budget Office director, now president of American Action Forum.” [CNN, The Lead, 10/8/13]
Federal Reserve Chairwoman Janet Yellen Said Default Crisis Would Be “Catastrophic.” “The results of not lifting the statutory limit on borrowing would be ‘catastrophic,’ Ms. Yellen said. ‘Even in the run-up to the last debt ceiling crisis, [one] could see market participants taking steps in advance of that.’” [Wall Street Journal, Money Beat, 2/11/14]
CNBC: If Treasury Stopped Paying Government’s Bill, It “Could Hit Everyone From Small Business Government Contractors To Social Security Recipients” To Reimbursements To Doctors Treating Medicare Patients. “If the Treasury abruptly stopped paying the government’s bills, the freeze could hit everyone from small business government contractors to Social Security recipients to doctors getting reimbursed for treating Medicare patients.” [CNBC, 10/9/15]
