The idea that failing to raise the debt ceiling wouldn't be such a big deal has gone mainstream in the Republican Party, with only eight days to go before the date it must be raised. Sens. Richard Burr, Bob Corker and Rand Paul, and Reps. Paul Broun, Trent Franks, and Justin Amash have all joined their friend Rep. Ted Yoho in the default deniers caucus. Burr told The New York Times Wednesday that the U.S. could just use the money it's saving by shutting down the government to pay its debts.
Burr does some quick math to dismiss the notion that it would be catastrophic to breach the debt ceiling:
We always have enough money to pay our debt service. 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.
Furloughed federal employees are sure to love this strategy. However, the House has already passed a bill guaranteeing backpay for furloughed workers, so that money isn't really up for grabs.
Corker thinks the October 17 debt ceiling deadline is made up: "I think the real date, candidly, the date that’s highly problematic for our nation, is November 1." Amash similarly dismisses the idea of a deadline: "There’s no way to default on October 17." Broun says that Obamacare is bigger threat to the economy than default.
Yoho thinks the American government should take notes from his large-animal veterinary practice.
Everybody talks about how destabilizing doing this will be on the markets. And you’ll see that initially, but heck, I’ve seen that in my business. When you go through that, and you address the problem and you address your creditors and say, ‘Listen, we’re going to pay you. We’re just not going to pay you today, but we’re going to pay you with interest, and we will pay everybody that’s due money’ — if you did that, the world would say America is finally addressing their problem.
As stellar as it might be, Yoho's animal clinic does not play the same role as the United States does in the world. As Adam Davidson explained in The New York Times, "The U.S. benefits enormously from its status as global reserve currency and safe haven." (Yoho's large-animal veterinary practice does not have that status.) If the U.S. misses a interest payment on its bonds, "It would be, by most accounts, the largest self-imposed financial disaster in history," Davidson writes. "If we miss an interest payment, that would blow Lehman out of the water," former Treasury official Tim Bitsberger told Bloomberg, referring to the collapse of Lehman Brothers at the start of the financial crisis in 2008. "Lehman was an isolated company, and now we are talking about the U.S. government."
Other lesser-known Republicans in Congress have espoused their default-denying views this week as well. Rep. Raul Labrador claims that it's Democrats who want to default, and he's still pushing for an Obamacare delay in shutdown negotiations (something most Republicans have given up). Sen. Tom Coburn thinks there's "no such thing" as a debt ceiling.
To be clear, economists do think that default would be big deal. IMF Director Christine Lagarde said Thursday, "The government shutdown is bad enough, but failure to raise the debt ceiling would be far worse, and could very seriously damage not only the U.S. economy, but the entire global economy." European leaders are highly concerned that America's debt ceiling debate mess with their fragile markets.
The reason American markets haven't responded to the threat of default yet is because Wall Street doesn't believe Congress would actually not raise the debt ceiling. It would be the first time in history. Douglas Kass, the owner of the hedge fund Seabreeze Partners Management, explained on Tuesday, "The markets are sending this complacent message, and I think the politicians are interpreting it incorrectly and they have no sense of urgency."
According to Franks, default fears are just "hyperbole."