On the heels of Donald Trump’s total capitulation over the record-length government shutdown he bragged about starting, the president and his allies are desperately looking for new leverage to extract some $5.7 billion in border funding for the rest of the year. With the agreement that reopened the government only keeping the lights on until Feb. 15, born-again Trump bathwater-drinker Graham urged the White House to double down on blackmail as a negotiating strategy. As CNN reported:
"His wall money is necessary. His barrier money," Graham said. "We've got to raise the debt ceiling in March. So [Treasury Secretary Steve] Mnuchin was there telling us about that. We've got to come up with a budget agreement. If you want to continue to get the military refurbished and rebuild it, then we need to end the last two years of sequestration."
He added, "so there's a package we could put together that would solve several problems. My thought is while we're talking about all these things that are coming due pretty soon, let's think bigger rather than smaller."
And what does Graham mean by thinking bigger? “Taking such a step would amount to a dramatic move by the President,” as Manu Raju and Clare Foran of CNN explained on Tuesday, “He could dare Democrats to block funding for the border wall and risk sending the country into default in the process.” Or as Matthew Yglesias summed it up, “In other words: Trump would be able to threaten not just a government shutdown but a default on the national debt to get his way.”
That’s no exaggeration. As Graham himself put it in August 2017:
“We should use our majority in a clever way. So if you had putting the country at default and building a wall, so that's like 0 for 2. Nobody wants us to default on the debt, and almost everybody wants to secure the border. That's a pretty good combination.”
Graham is not alone in encouraging border-wall brinksmanship. Among the GOP conferees currently working with their Democratic colleagues to hammer out an agreement before the Feb. 15 drop-dead date, Sens. Richard Shelby, Roy Blunt, and Lamar Alexander are backing the debt-ceiling gambit.
To be sure, the debt ceiling does have to be raised. After increases were suspended for two years, the amount of money the United States can legally borrow will have to raised in early March. The national debt, which was at roughly $19 trillion when Barack Obama left office, now nears $22 trillion. As the nonpartisan Congressional Budget Office (CBO) again warned last week, thanks to higher spending and lower receipts in the wake of the GOP tax cuts, the U.S. will run a $900 billion deficit this year and produce annual trillion-dollar deficits beginning in fiscal year 2022. If Congress fails to raise the debt limit next month, through “extraordinary measures” the Treasury can forestall the “drop-dead date” until as late as August.
So, just what would happen to the United States should Congress fail to hit that drop-dead date. In a nutshell, America would experience an economic nightmare that would make the $11 billion lost during the needless government shutdown seem like happy days. You don’t have to take my word for it. Just ask Lindsey Graham, who in January 2011 warned what would happen if Democrats did not pay the GOP’s ransom for releasing the Republicans’ debt ceiling hostage:
"Let me tell you what's involved if we don't lift the debt ceiling: financial collapse and calamity throughout the world. That's not lost upon me. But we've done this 93 times. And if we keep doing the same old thing, then that is insanity to the nth degree."
Then as now, Senator Graham had plenty of company among the GOP’s best and brightest. To force President Obama to slash spending, they made clear they were more than willing to destroy the American economy. Then-House Budget Committee Chairman Paul Ryan (R-WI) warned, “You can’t not raise the debt ceiling.” His boss, Speaker John Boehner (R-OH) put it this way 8 years ago:
"That would be a financial disaster, not only for our country but for the worldwide economy. Remember, the American people on Election Day said, 'we want to cut spending and we want to create jobs.' And you can't create jobs if you default on the federal debt."
As noted above, the U.S. debt limit places a cap on Uncle Sam's borrowing authority. From 1980 to 2010, presidents and congressional majorities from both parties routinely raised the debt ceiling roughly 40 times to enable the Treasury to borrow more money to pay the bills the federal government had already incurred. This was the case when Ronald Reagan tripled the national debt during his eight years in office. After 17 debt-ceiling hikes during Reagan's tenure, George W. Bush required seven more as he nearly doubled the U.S. national debt again. Failure to raise the debt ceiling would immediately jeopardize the full faith and credit of the United States and thus trigger a sovereign default. That’s why, as Steve Benen noted in May 2011, there was no doubt about WWRD (What Would Reagan Do?) when it came to the lifting of the debt limit. The Gipper had told us so himself:
"The full consequences of a default -- or even the serious prospect of default -- by the United States are impossible to predict and awesome to contemplate. Denigration of the full faith and credit of the United States would have substantial effects on the domestic financial markets and the value of the dollar."
That’s why, as the debt-ceiling crisis reached the point of no return in the summer of 2011, warning lights worldwide were flashing red.
With the prospect of Washington having to immediately cut federal spending by a staggering 44 percent, the Bipartisan Policy Center warned, "On an annualized basis, the cut in spending alone is a 10 percent cut in GDP." The IMF sounded the alarm, too, pleading with Congress that "the debt ceiling should be raised as soon as possible to avoid damage to the economy and world financial markets." President Obama's Treasury secretary, Tim Geithner ("Failure to increase the limit would be deeply irresponsible") and chief economist, Austan Goolsbee ("If we get to the point where you've damaged the full faith and credit of the United States, that would be the first default in history caused purely by insanity") issued dire forecasts about the cataclysmic consequences of a U.S. default that August.
But GOP default deniers like Michele Bachmann dismissed those predictions out of hand. Bachmann accused Secretary Geithner of "outright blatant lies" and "scare tactics." For his part, then-South Carolina Rep. and current Trump OMB chief Mulvaney scoffed at the warnings, despite his own admission that he didn't know what would happen if the U.S. defaulted on its debt. As ThinkProgress reported:
Yesterday, newly-elected Rep. Mick Mulvaney (R-SC) appeared on Fox Business to talk about his own intention to vote against raising the debt ceiling. The host asked Mulvaney if he was willing to "risk the possibility of a default on our debt." Mulvaney responded that he has "no difficulty in" voting against raising the debt limit and that it's worth it to "force a discussion" about spending. The host then followed up by asking, "What do you think would happen if the debt ceiling wasn't raised?" Mulvaney responded, "Well, I don't know. I've asked that question a lot. I've heard Goolsbee on Sunday say it'd be catastrophic, I've heard others say that. I did some research last night from [the Congressional Research Service], they don't know what that means. I think they're guessing."
People like Bachmann and Mulvaney could have just talked to Ezra Klein, who called their brand of default denialism "the scariest thing I've ever heard on television:"
It makes perfect sense unless you, like me, had spent the previous few days talking to economists, investors and economic policymakers about what could happen if we start playing games with the debt ceiling. Their answers were across-the-board apocalyptic. If the U.S. government is so incapable of solving its political problems that it can't come to an agreement on the debt ceiling, they said, that's basically the end of the United States as the world's reserve currency. We won't be considered safe enough to serve as the investment of last resort. We would lose the most important advantage our economy has in the global financial system -- and we'd probably lose it forever. Skyrocketing interest rates would slow our economy and, in real terms, make it even harder to pay back our debt, which would in turn send interest rates going even higher. It's an economic death spiral we associate with third-world countries, not with the United States.
Ultimately, the United States didn't default on its debt in the summer of 2011. The Budget Control Act, the same agreement that imposed the "sequester" on future federal spending, included a deal to raise the debt ceiling. Nevertheless, America paid a price, as the GOP's manufactured uncertainty over the economy stifled job creation, drove down consumer confidence, and led Standard & Poor's to lower Uncle Sam's credit rating. It's with good reason the Republican blackmail came to be known as the "Tea Party Downgrade."
To understand why the insanity of 2011 earned that moniker, just listen to the folks from Standard & Poor’s:
A Standard & Poor's director said for the first time Thursday that one reason the United States lost its triple-A credit rating was that several lawmakers expressed skepticism about the serious consequences of a credit default -- a position put forth by some Republicans. Without specifically mentioning Republicans, 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," Mukherji said. "That a country even has such voices, albeit a minority, is something notable," he added. "This kind of rhetoric is not common amongst AAA sovereigns."
That rhetoric may not be common among AAA sovereigns, but is just part of the daily talking points from what former Bush Treasury Secretary Paul O’Neill called “our version of al Qaeda terrorists.”
Remember, the United States did not default in the summer of 2011. But just the prospect of that calamity created by the Republicans was sufficient to do serious damage to the economy in general and to working Americans in particular.
During the tense summer of 2011, U.S. job creation faltered, consumer confidence plummeted, and borrowing costs jumped as Republicans threatened to bring the global economy to its knees.
The obvious lesson should have been that Congress should never again flirt with debt-ceiling denialism. Instead, then-Senate Minority Leader Mitch McConnell called the GOP’s hostage-taking a blueprint for the future. As the Washington Post reported at the time:
"I think some of our members may have thought the default issue was a hostage you might take a chance at shooting," he said. "Most of us didn't think that. What we did learn is this -- it's a hostage that's worth ransoming. And it focuses the Congress on something that must be done."
McConnell, the Post revealed, "said he could imagine doing this again." And as he explained to CNBC's Larry Kudlow, McConnell's future hostage-taking wasn't a threat, but a promise:
"What we have done, Larry, also is set a new template. In the future, any president, this one or another one, when they request us to raise the debt ceiling, it will not be clean anymore. This is just the first step. This, we anticipate, will take us into 2013. Whoever the new president is, is probably going to be asking us to raise the debt ceiling again. Then we will go through the process again and see what we can continue to achieve in connection with these debt ceiling requests of presidents to get our financial house in order."
Democrats reached a different conclusion. After regaining the House in the 2018 midterm elections, Democrats, led by Speaker Nancy Pelosi, have pushed for returning to the “Gephardt Rule,” under which budget bills impacting the debt limit automatically triggered the limit’s increase. The contrast with the GOP House takeover could not be starker. After all, if they simply followed the GOP rules, Democrats could insist on tying the next debt-ceiling increase to comprehensive immigration reform, new funding and enhancements to Obamacare, legislation protecting special counsel Robert Mueller, the release of Donald Trump’s tax returns, or even his resignation. But they won’t do any of those things. And as Senator Minority Leader Charles Schumer said, Democrats certainly don’t want to link the resolution of Trump’s border-wall temper tantrum to the next hike in the debt limit: “No more hostages. No, I think that’s not a good idea. We ought to be negotiating to get an agreement, not add added elements into it.”
Who could blame Schumer and his allies in Congress? After all, both Donald Trump and his head of the Office of Management and Budget, Mick Mulvaney, are proven “default deniers” who have made statements like this about not raising the debt ceiling: "I have heard people say that if we don't do it it will be the end of the world. I have yet to meet someone who can articulate the negative consequences."
Of course, there’s one more reason why Democrats won’t play a game of chicken that could result in national economic suicide. Both sides don’t do it.
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