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Context of 'August 6-9, 2011: Republicans Blame Obama Administration for Credit Downgrade Triggered by Debt Ceiling Legislation'

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Representative Michele Bachmann (R-MN), a contender for the 2012 Republican presidential nomination, says Congress should not raise the nation’s debt limit (sometimes called the “debt ceiling”) even though many economists and financial leaders warn of economic catastrophe if the US does not raise that limit. Bachmann says Congress is considering bills that would force the government to make payments on debts even if the debt ceiling remains unchanged. [Associated Press, 4/30/2011]

Entity Tags: Michele Bachmann

Timeline Tags: Global Economic Crises

Alan Binder.Alan Binder. [Source: PBS]TPMDC reporter Brian Beutler notes that many Congressional Republicans, led by but not limited to those who consider themselves “tea party” members (see April 30, 2011), are heeding the advice of a small number of unorthodox financial experts who go against the “common wisdom” that a possible credit default by the US would lead to potential catastrophe among national and global financial markets. The issue centers on Congressional Republicans’ insistence that they will not raise the US debt limit, or debt ceiling, unless the Obama administration gives them a wide array of draconian spending cuts; in the past, raising the US debt limit has been a routine matter, often handled with virtually no debate and little, if any, fanfare. Beutler says that the most influential of these advisors is Stanley Druckenmiller, who made billions managing hedge funds. Druckenmiller’s advice was that the US could weather several days of missed interest payments if the US debt ceiling were not immediately raised without serious consequences. House Budget Committee chairman Paul Ryan (R-WI), House Majority Leader Eric Cantor (R-VA), and Senator Pat Toomey (R-PA) are all echoing Druckenmiller’s claims in media interviews and in Congress. Beutler writes that the newfound popularity of Druckenmiller’s claims “alarms everyone from industry insiders to Treasury officials to economists, conservative and liberal, to non-partisan analysts who say the consequences of the US missing even a single interest payment to a debt-holder would be catastrophic—even if it was followed immediately by a legislative course correction.” Former Federal Reserve chairman Alan Binder, now a Princeton economist, warns that if the US were to default on its debt even for a few days, the US dollar would crash in value, interest rates would spike, and the US economy would find itself spiraling into a full-blown recession. Binder writes: “For as long as anyone can remember, the full faith and credit of the United States has been as good as gold—no one has better credit. But if investors start to see default as part of US political gamesmanship, they will demand compensation for this novel risk. How much? Again, no one can know. But even if it’s as little as 10-20 basis points on the US government’s average borrowing cost, that’s an additional $10 billion to $20 billion in interest expenses every year. Seems like an expensive way to score a political point.” JPMorgan CEO Jamie Dimon agrees, telling PBS viewers: “Every single company with treasuries, every insurance fund, every—every requirement that—it will start snowballing. Automatic, you don’t pay your debt, there will be default by ratings agencies. All short-term financing will disappear. I would have hundreds of work streams working around the world protecting our company for that kind of event.” JPMorgan issued a statement after Dimon’s comment saying that even a brief default would trigger “a run on money market funds… that would leave businesses unable to meet their short-term obligations and teetering on the bring of bankruptcy.” JPMorgan compares the money-market run to the aftermath of the 2008 Lehman Bros collapse, which sent the US into a recession. Analyses and reports by the Treasury Borrowing Advisory Committee and Government Accountability Office have warned of dire consequences following a default even of a day or two. Toomey and others insist that a credit default would simply make the Treasury Department find other ways to avoid missing interest payments, but, economists and financial leaders warn, the consequences of that would be enormous. Binder writes: “If we hit the borrowing wall traveling at full speed, the US government’s total outlays—a complex amalgam that includes everything from Social Security benefits to soldiers’ pay to interest on the national debt—will have to drop by about 40 percent immediately. That translates to roughly $1.5 trillion at annual rates, or about 10 percent of GDP. That’s an enormous fiscal contraction for any economy to withstand, never mind one in a sluggish recovery with 9 percent unemployment.” Druckenmiller and some Republicans believe that forcing a credit default would end up benefiting the country, as the Obama administration would give in to Republican demands for enormous spending cuts in return for Republicans’ agreement to raise the debt ceiling. Business Insider reporter Joe Weisenthal recently wrote: “Of course, a default by the world’s most stable nation would probably have impacts in ways nobody can imagine, but one thing seems to be clear. The notion—as some people suggest—that a default would somehow increase US credit-worthiness is absurd.” [Business Insider, 4/20/2011; New York Times, 4/26/2011; TPMDC, 5/20/2011]

Entity Tags: Government Accountability Office, Eric Cantor, US Department of the Treasury, Alan Binder, Treasury Borrowing Advisory Committee, Stanley Druckenmiller, US Congress, Brian Beutler, JP Morgan Chase, Jamie Dimon, Paul Ryan, Pat Toomey, Joe Weisenthal, Obama administration

Timeline Tags: Global Economic Crises

Representative Michele Bachmann (R-MN) tells a CBS News viewing audience that the Obama administration is lying when it says the US government would default on its loans if Congress refuses to raise the US debt ceiling. Bachmann accuses the Obama administration of using “scare tactics” to push for a debt-ceiling increase. Bachmann has said previously that Congress should not raise the debt ceiling (see April 30, 2011). Treasury Secretary Timothy Geithner and other Obama adminstration members, along with a bevy of economists and financial leaders including Federal Reserve Chairman Ben Bernanke and former Chairman Alan Greenspan, have urged Congress to raise the debt ceiling by August 2 to avoid the US defaulting on its outstanding loans and engendering what many call an economic catastrophe (see May 20, 2011). The US Treasury has used accounting steps, what it calls “extraordinary measures,” to avoid default since the nation reached its debt limit on May 16. The final deadline for the US to raise its debt limit is August 2. Bernanke and others have said that even a brief US default could cause an uproar in the global economy. But Bachmann says she has “no intention” of voting for a hike to the limit, saying instead: “It isn’t true that the government would default on its debt. Because, very simply, the Treasury secretary can pay the interest on the debt first, and then, from there, we have to just prioritize our spending.” Face the Nation host Bob Schieffer asks Bachman: “Experts inside and outside the government say that, if we don’t raise the debt ceiling, we face the United States having to default on its financial obligations. Are you saying these are scare tactics? Or are you saying that’s not true? How can you say that?” Bachmann replies: “It is scare tactics. Because, Bob, the interest on the debt isn’t any more than 10 percent of what we’re taking in. In fact, it’s less than that. And so the Treasury secretary can very simply pay the interest on the debt first, then we’re not in default.… What it means is we have to seriously prioritize. It would be very tough love. But, I have been here long enough in Washington, DC, that I’ve seen smoke and mirrors time and time again.” Bachmann says if elected president, she would end the nation’s deficit problem by making extreme cuts in spending. “I would begin very seriously by cutting spending,” she says. “President Obama, again, he spent a trillion dollar stimulus program that’s been an abject failure. We need to seriously cut back on spending first and foremost, and then prioritize.” Her only recommendation to handle the job crisis is to cut corporate tax rates; she explains: “We have one of the highest corporate tax rates in the world; we need to drop that significantly, so that we have a pro-business, pro-job creation environment. So if we cut back the corporate tax rate, if we would zero out the capital gains rates, allow for 100 percent expensing when a job creator buys equipment for their business, that would go a long way toward job creators recognizing that this is a pro-business environment.” She says that the administration’s health care package, which she calls “Obamacare,” will cost “800,000 jobs.” Schieffer says, “That is data that other people would question,” and she retorts by saying the Congressional Budget Office (CBO), not she herself, has made that claim. A recent analysis by the St. Petersburg Times’s PolitiFact showed that Bachmann’s claim of “Obamacare” costing 800,000 jobs is an “exaggeration” of the CBO’s figures, and is “misleading.” Bachmann dodges questions about the elimination of the minimum wage, which she has advocated since 2005, and the elimination of farm subsidies, from which she and her family have benefited. [CBS News, 6/26/2011]

Entity Tags: CBS News, Alan Greenspan, Barack Obama, Bob Schieffer, US Department of the Treasury, PolitiFact (.org ), Congressional Budget Office, Ben Bernanke, Obama administration, Michele Bachmann, Timothy Geithner

Timeline Tags: Global Economic Crises

Three members of the US House of Representatives’ “tea party” caucus introduce a measure to force the federal government to pay the principal and interest on the debt, and to continue to pay military personnel, even if the government goes into default because Congress refuses to raise the debt ceiling. The Obama administration and a bevy of economists and financial leaders have warned that if Congress refuses to raise the debt ceiling by August 2, the US will go into default on its debt, sending the nation’s economy into a tailspin and perhaps triggering a worldwide economic downturn (see May 20, 2011). Representatives Michele Bachmann (R-MN), Steve King (R-IA), and Louis Gohmert (R-TX) introduce House Resolution 2496, the PROMISES Act (Payment Reliability for Our Obligations to Military and Investors to Secure Essential Stability Act). All three accuse the Obama administration of lying about the potentially disastrous effects of a national default (see April 30, 2011 and June 26, 2011). President Obama recently said he could not promise that Social Security and disability checks would go out to senior citizens and veterans on August 3 if the nation defaulted on its debt on August 2 (see July 11-12, 2011); Bachmann and the others accuse Obama of lying and “fear mongering.” Bachmann says, “Don’t allow military men and women to dangle over a fire and claim they won’t get paid.” All three say that even if the government defaults on its loans, there is enough money to pay the Defense Department, Medicare, Medicaid, and Social Security benefits. Gohmert says that Obama should have told the nation, “The only thing that you have to fear is fear itself,” and says House Speaker John Boehner (R-OH) should “not… trust the president anymore.” King says of Obama, “I can’t imagine what his argument would be against paying our military and keeping our credit rating up.” Obama has offered Congress a package containing $4 trillion in spending cuts and small tax increases on the wealthy, a package that has been rejected by Congressional Republicans. Instead, Bachmann says, “President Obama is holding the full faith and credit of the United States hostage so he can continue his spending sprees.” Bachmann refuses to say who would not get paid if the nation went into default, saying instead, “We want to take the politics out of this issue.” [Minnesota Independent, 7/13/2011]

Entity Tags: Obama administration, US House of Representatives Tea Party Caucus, John Boehner, Michele Bachmann, Payment Reliability for Our Obligations to Military and Investors to Secure Essential Stability Act, US House of Representatives, Louis Gohmert, Steve King

Timeline Tags: Global Economic Crises

Mo Brooks.Mo Brooks. [Source: Public domain / Wikimedia]Many Congressional Republicans, particularly “tea party” freshmen, believe that not only is the Obama administration lying about the potentially catastrophic consequences of a US credit default that would follow the failure of Congress to raise the nation’s debt ceiling (see April 30, 2011, May 20, 2011, June 26, 2011, and July 11-12, 2011), but some even say that a credit default would be ultimately good for the nation. President Obama is joined by House Speaker John Boehner (R-OH), the chairman of the Federal Reserve, and Moody’s credit rating agency in saying that Congress’s failure to raise the debt ceiling by August 2 would be an economic disaster and must be avoided. But Representative Eric A “Rick” Crawford (R-AK) says otherwise. Crawford says all Obama would have to do to handle a default and the subsequent halt in US borrowing would be to use existing tax revenue to pay for what Crawford sees as “essential” federal services: the military, Medicare and Social Security, and interest on existing debt. If other government services, programs, and agencies such as the FBI, veterans’ benefits, and others would be interrupted, Crawford says that would be acceptable. “That wouldn’t work for just a few days. That would work for a few years,” he says, adding that he will not vote for a debt ceiling increase unless it is coupled with massive federal spending cuts. Budget deficits require “that we take some painful measures now. I’d rather swallow that bitter pill today.” Most of the cuts Crawford and fellow Republicans want would be in social safety-net programs, from Social Security, Medicare, Medicaid, and disability benefits to funding for education and veterans programs. Crawford and a number of House Republicans simply refuse to accept statements that economic calamity would result from a missed deadline, the Washington Post reports. That opinion, the Post says, will make raising the debt ceiling far more difficult than similar ceiling raises of previous years. Representative Mo Brooks (R-AL) says that not raising the debt ceiling would actually benefit the economy in the long run. Raising the debt ceiling, he says, just enables the federal government to spend itself into more debt. “A debt ceiling problem, as large as it is, is not anywhere near as a big or as bad as” more debt, he says. He adds that the government can continue paying creditors even if it is refused further credit. “There should be no default on August 2,” he says. “In fact, our credit rating should be improved by not raising the debt ceiling.” Most financial leaders in government and the private sector believe that the US credit rating will be dropped, perhaps significantly, if the US defaults on its debt, and the consequences of that drop could send the nation’s economy into a full-blown recession or even a depression. Even Boehner says the debt ceiling must be lifted. “Missing August 2nd could spook the [stock] market,” he says. “And you could have a real catastrophe. Nobody wants that to happen.” An Obama official recently said of legislators like Crawford and Brooks, “These are the kinds of people who get eaten by bears.” Washington Monthly editor Steve Benen writes: “The problem that plagues the nation is not about competing parties, ideologies, or creeds. It comes down to a dispute between those who believe empirical reality exists and deserves to be taken seriously vs. those who don’t. With Republican members of Congress and their supporters choosing the latter, it’s increasingly difficult to imagine the United States thriving in the 21st century.” [Politico, 5/13/2011; Washington Post, 7/14/2011; Washington Monthly, 7/15/2011]

Entity Tags: Morris Jackson (“Mo”) Brooks, Jr., Barack Obama, Eric A. (“Rick”) Crawford, Moody’s Investors Service, US Congress, John Boehner, Washington Post, Obama administration, US Federal Reserve, Steve Benen

Timeline Tags: Global Economic Crises

In an interview with CBS News’s Scott Pelley, House Speaker John Boehner (R-OH) says that he got “98 percent” of what he wanted in a deal with Senate Democrats and the White House in the just-concluded debt ceiling extension legislation. Boehner says he and his House Republicans successfully blocked a comprehensive “grand bargain” with the Obama administration because, as he says, the “president was insisting on more taxes [and] never got serious about the kind of spending cuts that were necessary in order to get America back on a sound fiscal footing.” He tells Pelley that he “walked away” from Obama’s final proposal. “We had a lot of productive conversations, a lot of tense conversations,” Boehner says. “But it became pretty clear to me that I wasn’t going to be for higher taxes, and the president wasn’t going to cut spending as he should.… I told the president: ‘I’m not going there. I can’t do that.’” Boehner says that he has no intention at this time of ever supporting revenue increases of any sort, whether it be tax increases, closing of corporate tax loopholes, or other ways to bring more revenue into federal government; instead, he hopes that the future focus of Congressional debate “will be on reducing expenditures coming out of Washington.” Asked if Republicans would ever support tax increases, Boehner says: “I think that would be a stretch. It doesn’t seem likely to me that that would be recommended, much less supported, but I’ve been surprised before.” He concludes: “When you look at this final agreement that we came to with the White House, I got 98 percent of what I wanted. I’m pretty happy.” Sixty-six House Republicans voted against Boehner’s final plan, though it passed both chambers and was signed into law by Obama hours before the US would have defaulted on its debt. According to the Congressional Budget Office, the deal cuts federal deficits by $2.1 trillion over 10 years while also raising the debt limit by an equal amount. The deal also creates a joint, bicameral committee of legislators charged with finding additional cuts. [CBS News, 8/1/2011; The Hill, 8/1/2011] Days later, Standard & Poor’s cuts the US credit rating (see August 5, 2011). Republicans, including Boehner, will blame Obama for the legislation and the resulting credit reduction (see August 6-9, 2011).

Entity Tags: Standard & Poor’s, Congressional Budget Office, CBS News, John Boehner, Scott Pelley, US House of Representatives, US Senate, Obama administration

Timeline Tags: Global Economic Crises

The outside of the Standard & Poor’s office complex on Wall Street.The outside of the Standard & Poor’s office complex on Wall Street. [Source: Satellite Radio Playground (.com)]The US loses its top-rank AAA credit rating from the financial services company Standard & Poor’s; the firm drops the US credit rating one notch to AA-plus. The US has never had anything but top-tier credit ratings in its financial history, and has top credit ratings from S&P since 1941. S&P makes its decision based on the huge Congressional battle over raising the US’s debt ceiling, normally a routine procedural matter that was used by Congressional Republicans, who threatened to block the ceiling raise unless they were given dramatic spending cuts by the entire Congress and the White House. (House Speaker John Boehner (R-OH) boasted that he and his Republican colleagues got “98 percent” of what they wanted in the debt ceiling deal—see August 1, 2011.) Because of the dispute, the US was hours away from an unprecedented credit default until legislation was finally signed and the default avoided. S&P also cites the government’s budget deficit and rising debt burden as reasons for the rating reduction, saying in a statement, “The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.” The drop in the US credit rating will result in a rise in US borrowing costs for American consumers, companies, and the government. US treasury bonds, once seen as the safest securities in the world, are now rated lower than bonds issued by countries such as Britain, France, Germany, and Canada. S&P says the outlook on the US’s credit rating is “negative,” implying another downgrade is possible in the next 12 to 18 months. A senior investment officer with a West Coast management company says such a downgrade was “once unthinkable,” and says the entire global economic system will be affected. After the fierce Congressional battle, President Obama signed legislation mandating $2.1 trillion in spending cuts over the next decade, but S&P officials had asked for $4 trillion in savings as a “down payment” for restoring the US’s financial stability. Part of S&P’s rationale for the downgrade is its assumption that Congressional Republicans will not allow tax cuts implemented by the Bush administration in 2001 and 2003 to expire as scheduled by the end of 2012. The Obama administration immediately notes that S&P’s made a $2 trillion error in calculating the US debt, an error that the firm acknowledges but says does not affect its decision to downgrade the US credit rating. A Treasury Department spokeswoman says, “A judgment flawed by a $2 trillion error speaks for itself.” [New York Times, 8/5/2011; Reuters, 8/6/2011] Credit rating agencies such as S&P have suffered tremendous damage to their credibility in recent years; a Congressional panel called the firms “essential cogs in the wheel of financial destruction” after what the New York Times calls “their wildly optimistic models [that] led them to give top-flight reviews to complex mortgage securities that later collapsed.” [New York Times, 8/5/2011]
S&P Explains Decision: 'Political Brinksmanship' - S&P explains its decision in a press release. The firm is “pessimistic about the capacity of Congress and the [Obama a]dministration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government’s debt dynamics any time soon.” Fiscal policy decisions between Congress and the White House, the firm says, “will remain a contentious and fitful process.” The firm accuses Congressional Republicans in particular of “political brinksmanship” in threatening to allow a debt default if their conditions were not met, and says such tactics destabilize both the US and the global economy. “The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy,” the firm says. “[T]he majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the” legislation. “The outlook on the long-term rating is negative.” [Standard and Poor's, 8/5/2011] In an email before the debt ceiling was raised, S&P’s global head of sovereign ratings wrote: “What’s changed is the political gridlock. Even now, it’s an open question as to whether or when Congress and the administration can agree on fiscal measures that will stabilize the upward trajectory of the US government debt burden.” [New York Times, 8/5/2011]
GOP Presidential Candidates, Congressional Members Blame Obama - The day after the downgrade, Republicans in Congress and on the campaign trail blame the Obama administration for the downgrade (see August 6-9, 2011).
Economist Lambasts S&P, Blames Congressional Republicans - Nobel Prize-winning economist Paul Krugman lambasts S&P and blames Congressional Republicans for the downgrade (see August 5-6, 2011).

Entity Tags: US Congress, US House of Representatives, Timothy Geithner, Paul Krugman, Obama administration, Barack Obama, John Boehner, New York Times, Standard & Poor’s, US Department of the Treasury

Timeline Tags: Global Economic Crises

Stung by the recent decision by Standard & Poor’s to downgrade the US government’s credit rating (see August 5, 2011) and the economic turmoil triggered by that decision in response to Republican-backed debt ceiling legislation (see May 20, 2011), US Republicans begin blaming the Obama administration for the downgrade. After the legislation passed, House Speaker John Boehner (R-OH) boasted that he and his fellow Republicans had gotten “98 percent” of what they wanted from the legislation (see August 1, 2011). Boehner now says, “Democrats who run Washington remain unwilling to make the tough choices required to put America on solid ground.” He quotes the S&P report in making his criticisms of Washington Democrats, failing to note that the S&P report singled out Republicans as responsible for the legislative decisions that led to the downgrade. “This decision by S&P is the latest consequence of the out-of-control spending that has taken place in Washington for decades. The spending binge has resulted in job-destroying economic uncertainty and now threatens to send destructive ripple effects across our credit markets.” Senator Ron Johnson (R-WI) says the downgrade and subsequent stock market plummet “provide further evidence that President Obama’s agenda has been a disaster for our economy.” Mitt Romney (R-MA), the former governor of Massachusetts and a frontrunner for the 2012 Republican presidential nomination, says the downgrade is “a deeply troubling indicator of our country’s decline under President Obama.” Longshot GOP candidate Jon Huntsman (R-UT) says the downgrade is due to the spreading of a “cancerous debt afflicting our nation” and calls for “new leadership in Washington” to address the ongoing crisis. Republican presidential candidate Tim Pawlenty (R-MN) calls Obama “inept.” Michele Bachmann (R-MN), a House Republican who led the “tea party” fight to block the debt ceiling from being raised (and thereby triggering a government debt default—see April 30, 2011, June 26, 2011, July 13, 2011, and July 14, 2011), now blames the Obama administration and particularly US Treasury Secretary Timothy Geithner for the debacle. Campaigning for the Republican presidential nomination in Des Moines, Iowa, Bachmann says that President Obama should fire Geithner: “The president’s refusal to remove Treasury Secretary Tim Geithner shows the president has no plan to restore the AAA credit rating to the United States of America. The president is not listening to the people of this country, nor is he providing the leadership that is necessary to bring about economic recovery.… I once again, today, in Polk County, Iowa, call for Treasury Secretary Tim Geithner to resign immediately for the sake of our country and to return our economy to full status.” Bachmann accuses Obama of “destroying the foundations of the US economy one beam at a time.” In robocalls targeting House Democrats, the National Republican Congressional Committee (NRCC) pins the blame for the downgrade on House Democrats. One call targeting David Loebsack (D-IA) says: “… Loebsack continues to oppose a [Constitutional] Balanced Budget Amendment that would force Washington to live within its means. Loebsack and his fellow Democrats’ addiction to big government spending has led to a downgrade of America’s credit rating and a dramatic loss in the global markets that could force you to pay more for everyday expenses. While David Loebsack keeps standing in the way of real fiscal reform, middle-class families in Iowa could now see a loss in retirement savings while mortgage rates, car payments, and student loans could become even more expensive.” Democrats respond with criticisms of their own. Tim Kaine (D-VA), a Senate candidate, says that “the continuing resistance of Congressional Republicans to entertain the need for new revenue as part of a reasonable solution is a critical part of the downgrade decision.” Senator Chris Coons (D-DE) adds, “By refusing to negotiate in good faith, Republicans turned the debt-ceiling debate into a hostage crisis and last night we saw its first casualty.” Obama campaign spokesman Ben LaBolt says, “The Republican candidates would have put our economy at great risk by allowing the nation to default on its obligations.” Senate Majority Leader Harry Reid (D-NV) calls for a “balanced approach” to future economic decisions, which would include revenue increases such as tax hikes and the closing of tax loopholes for rich corporations as well as spending cuts. [Washington Post, 8/6/2011; Reuters, 8/6/2011; National Journal, 8/6/2011; Politico, 8/7/2011; Politico, 8/9/2011]

Entity Tags: Harry Reid, Timothy Geithner, David Loebsack, Ben LaBolt, Tim Pawlenty, Tim Kaine, Willard Mitt Romney, Obama administration, John Boehner, Jon Huntsman, Chris Coons, Ronald H. Johnson, National Republican Congressional Committee, Michele Bachmann

Timeline Tags: Global Economic Crises

Joydeep Mukherji, the senior director for the credit firm Standard & Poor’s, says that one of the key reasons the US lost its AAA credit rating (see August 5, 2011) was because many Congressional figures expressed little worry about the consequences of a US credit default, and some even said that a credit default would not necessarily be a bad thing (see May 20, 2011). Politico notes that this position was “put forth by some Republicans.” Mukherji does not name either political party, but does say that 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. This kind of rhetoric is not common amongst AAA sovereigns.” Since the US lost its AAA credit rating, many Republicans have sought to blame the Obama administration (see August 6-9, 2011), even though House Speaker John Boehner (R-OH) said that he and his fellow Republicans “got 98 percent” of what they wanted in the debt ceiling legislation whose passage led to the downgrade (see August 1, 2011). Representative Michele Bachmann (R-MN), running for the Republican presidential nomination in 2012, led many Republican “tea party” members in voting against raising the nation’s debt ceiling, and claimed that even if the US did not raise its debt ceiling, it would not go into default, a statement unsupported by either facts or observations by leading economists (see April 30, 2011, June 26, 2011, July 13, 2011, and July 14, 2011). “I want to state unequivocally for the world, as well as for the markets, as well as for the American people: I have no doubt that we will not lose the full faith and credit of the United States,” she said. Now, however, one of Bachmann’s colleagues, Representative Tom McClintock (R-CA), says that the media, and S&P, misinterpreted the Republican position. “No one said that would be acceptable,” McClintock says of a possible default. “What we said was in the event of a deadlock it was imperative that bondholders retain their confidence that loans made to the United States be repaid on schedule.” Treasury Secretary Timothy Geithner says of S&P’s response to the default crisis: “They, like many people, looked at this terrible debate we’ve had over the past few months, should the US default or not, really a remarkable thing for a country like the United States. And that was very damaging.” [Politico, 8/11/2011] TPMDC reporter Brian Beutler recalls: “For weeks, high-profile conservative lawmakers practically welcomed the notion of exhausting the country’s borrowing authority, or even technically defaulting. Others brazenly dismissed the risks of doing so. And for a period of days, in an earlier stage of the debate, Republican leaders said technical default would be an acceptable consequence, if it meant the GOP walked away with massive entitlement cuts in the end.” He accuses McClintock of trying to “sweep the mess they’ve made down the memory hole” by lying about what he and fellow Republicans said in the days and weeks before the debt ceiling legislation was passed. Beutler notes statements made by House Budget Committee chairman Paul Ryan (R-WI) and House Majority Leader Eric Cantor (R-VA), where they either made light of the consequences of a possible credit default or said that a default was worthwhile if it, as Cantor said, triggered “real reform.” Representative Louis Gohmert (R-TX), one of the “tea party” members, accused the Obama administration of lying about the consequences of default; Beutler writes, “This was a fairly common view among conservative Republicans, particularly in the House” (see July 14, 2011). [TPMDC, 8/11/2011]

Entity Tags: Michele Bachmann, Eric Cantor, Brian Beutler, Joydeep Mukherji, US Congress, Standard & Poor’s, Timothy Geithner, Paul Ryan, Obama administration, John Boehner, Tom McClintock, Politico

Timeline Tags: Global Economic Crises

Ethan Harris of Bank of America.Ethan Harris of Bank of America. [Source: National Association for Business Economics]Many prominent economists and financial leaders lay the blame for the US credit rating downgrade (see August 5, 2011) at the feet of Congressional Republicans. Republicans have been unified in blaming the Obama administration’s economic policies for the downgrade (see August 6-9, 2011), though House Speaker John Boehner boasted that he and his fellow Republicans received “98 percent” of what they wanted in the debt-ceiling legislation that led to the downgrade (see August 1, 2011). Nobel Prize-winning Paul Krugman, a self-described liberal, blamed Congressional Republicans for the downgrade hours after credit rating agency Standard & Poor’s announced it (see August 5-6, 2011), and S&P itself implied that Republicans were at fault for the downgrade for being willing to risk sending the nation into default if they were blocked from getting their way in the debt-ceiling legislation (see August 11, 2011). Even before the credit rating downgrade, the New York Times reports, “macroeconomists and private sector forecasters were warning that the direction in which the new House Republican majority had pushed the White House and Congress this year—for immediate spending cuts, no further stimulus measures and no tax increases, ever—was wrong for addressing the nation’s two main ills, a weak economy now and projections of unsustainably high federal debt in coming years” (see May 20, 2011). These economists and forecasters generally agree with the Obama administration’s wishes to immediately stimulate the economy to include greater private-sector spending and create more jobs, with spending cuts more useful as a long-term remedy. Republicans in Congress and on the presidential campaign trail, however, continue to insist that their policies are what will rescue the US economy; House Majority Leader Eric Cantor (R-VA) says that he and his fellow Republicans “were not elected to raise taxes or take more money out of the pockets of hardworking families and business people,” and will never consider tax or revenue increases of any sort. Even Republican economic figures such as Reagan advisor Martin Feldstein and Henry Paulson, the Treasury secretary under President George W. Bush, say that revenue increases should balance any spending cuts, a position Congressional Republicans—particularly “tea party” Republicans such as presidential candidate Michele Bachmann (R-MN)—refuse to countenance. Bank of America senior economics research official Ethan Harris writes: “Given the scale of the debt problem, a credible plan requires both revenue enhancement measures and entitlement reform. Washington’s recent debt deal did not include either.” Ian C. Shepherdson, the chief US economist for research firm High Frequency Economist, says, “I think the US has every chance of having a good year next year, but the politicians are doing their damnedest to prevent it from happening—the Republicans are—and the Democrats to my eternal bafflement have not stood their ground.” Joel Prakken, chairman of Macroeconomic Advisers, and Laurence H. Meyer, former Federal Reserve governor, both call the Republicans’ calls for spending cuts “job-kill[ers].” Bill Gross, head of the bond-trading firm Pimco, lambasts Republicans and what he calls “co-opted Democrats” for throwing aside widely accepted economic theory for Republican-led insistence that draconian spending cuts, largely in social safety-net programs such as Social Security and Medicare, will “cure” the US’s economic ills. Instead, Gross writes: “An anti-Keynesian, budget-balancing immediacy imparts a constrictive noose around whatever demand remains alive and kicking. Washington hassles over debt ceilings instead of job creation in the mistaken belief that a balanced budget will produce a balanced economy. It will not.” [New York Times, 8/12/2011]

Entity Tags: Ian Shepherdson, US Congress, Eric Cantor, Bill Gross, Standard & Poor’s, Henry Paulson, Paul Krugman, New York Times, Joel Prakken, John Boehner, Laurence H. Meyer, Martin Feldstein, Michele Bachmann, Ethan Harris, Obama administration

Timeline Tags: Global Economic Crises

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