One of the more concerning developments in the debt-ceiling fight is the growing contingent of Republicans who just aren’t that worried about raising the debt ceiling in a timely fashion.
The most famous remark came from Tea Party Congressman Ted Yoho who said he thought that hitting the debt ceiling would be a calming force for world markets, since it would signal that the U.S. is getting its debt under control.
Slate’s Dave Weigel was the first to put together a grand unified overview of the situation. The key observation is that the “Debt Ceiling Trutherism” is in large part the result of a lot of over-hyped events in the past (like the government shutdown) that didn’t turn into a total catastrophe; so they’re skeptical of claims that the debt ceiling is this huge deal. Yesterday, Jonathan Weisman at The New York Times also surveyed the GOP skeptics in an article headlined: Many in G.O.P. Offer Theory: Default Wouldn’t Be That Bad.
But, the truth is that there’s a lot of imprecise language being thrown around, and there are a lot of strains of debt-ceiling skepticism.
For example, in Weisman’s piece, he spotlights the comments of North Carolina Senator Richard Burr:
“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.”
Saying that the U.S. has more money coming in each day than it pays out in interest payments is NOT saying that default wouldn’t be that bad. Burr is saying he doesn’t think hitting the debt ceiling would immediately lead to default. There’s a difference. Now, Burr’s stance is problematic for two reasons: One is that prioritization of interest payments may be technically impossible. The other is that there are some days when the U.S. has to pay more in interest payments than it takes in in tax revenues. So, while what Burr says is true for most days, it’s not even vaguely sustainable. But still! Burr is not saying default wouldn’t be that bad. He’s saying something else.
Weisman then quotes Tennessee Senator Bob Corker, who has a slightly different take:
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.
Again, this is not denying the importance of the debt ceiling, and it’s certainly not the same as being okay with default. It’s just saying, Treasury is too conservative with its U.S. cash balance estimates. And actually that’s probably true. A chart from the Bipartisan Policy Center puts the true “X-Date” as being somewhere between Oct. 22 and Nov. 1. Now Corker is being pointlessly blasé about this (the debt ceiling should be raised ASAP) but there’s a huge gap between what he’s saying (that there’s some wiggle room on the debt) and not worrying about default. Or even being worried about the debt ceiling.
In fact, in the NYT piece, the only TRUE default heretic is Ted Yoho. Everyone else is somewhere between Corker and Burr.
So what we really need is a taxonomy of trutherism.
The basic categories look like this:
Oct. 17 skeptics: This crowd thinks the Treasury has more time than its publicly admitting. They’re probably right, to some extent.
People who believe a debt ceiling doesn’t equal default: This crowd believes that the U.S. has plenty of money coming in each day. It’s generally true that the U.S. could cover interest payments without issuing new debt, but there are also legal, technical, and scheduling challenges that they’re too chill about.
Actual people who don’t care about a debt default: So far it seems like it’s only Ted Yoho of Florida who is in this boat.
And frankly, there is a non-insane defense of not freaking out too much about a debt default. HSBC points out in a note that a default on short-term T-Bills would not affect the mechanics of trading on all other non-defaulted securities, which means that for the most part the world’s most important asset class could function as normal.
And if you want a real trip, read liberal economist Dean Baker, who argues that a debt default would help the U.S. because it would weaken the dollar (making exports more competitive) and also accelerate the shrinkage of the financial system, which he regards as parasitical.
All this being said, there are huge risks associated with all these more optimistic scenarios. Maybe Oct. 17 is the drop dead date. Maybe there’s literally no way to technically pay Treasury holders first, and we do default on the debt, causing a stock market crash and a seizing up of every bank connected to the Federal Reserve system. There are very plausible ways this could be catastrophic. We don’t know and testing this is irresponsible, not just because it could all go bad, but the process of looking like we might test it is hurting economic confidence right now.
The government shutdown isn’t good for the economy, but it can be reversed, and there’s no risk of a financial system blowup. That’s a legitimate avenue for debate. The debt ceiling should not be negotiated. Just hike it.
ADDENDUM: One last thing that’s important here. None of these “Debt Ceiling Truthers” matter in any substantial way. When Boehner (who believes that breaching the debt ceiling would be bad) wants the debt-ceiling hike to happen, he’ll be able to get the votes.