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June 02, 2011 4:35 PM Even the threat of default is dangerous

By Steve Benen

A couple of weeks ago, Senate Minority Leader Mitch McConnell (R-Ky.) said he’s looking for a debt-reduction plan that makes credit rating agencies happy. The irony, of course, is that the rating agencies Republicans are so eager to impress are not at all fond of Republicans’ approach to the debt ceiling.

Two of the biggest ratings agencies, including Standard & Poor’s, recently said they would downgrade the United States’ credit if the government missed even one debt-service payment. Today, a third rating agency said the country’s rating would be at risk if Republicans push this game of chicken just a little more.

Moody’s Investors Service said Thursday there is a very small but rising risk of a short-lived default by the United States if the country’s debt limit is not increased in coming weeks.

In a statement, Moody’s said it would put the AAA U.S. credit rating on review for a possible downgrade if lawmakers in Washington do not make substantive progress in budget talks by the middle of July.

“Since the risk of continuing stalemate has grown, if progress in negotiations is not evident by the middle of July, such a rating action is likely,” Moody’s said.

It’s worth appreciating exactly what Moody’s is saying here. The message isn’t that the United States would suffer after it missed a payment on its debt obligations; the message is that the United States would suffer well before this if it looks like the country might miss a payment on its debt obligations.

There’s a certain beauty to the Republicans’ clinical insanity: they’re eager to impress rating agencies, so they’re pursuing a strategy that would aggravate rating agencies. If you’re reading this and thinking, “Wait, how could anyone in a position of power be that dumb?” then you and I are on the same page.

Also note, there’s a growing number of congressional Republicans who are “under the spell of an unorthodox group of financial experts who dispute the views of their peers and say that the U.S. could default briefly on debt payments without major, lasting consequences to the U.S. economy and international markets.”

Literally all of the “Big Three” ratings agencies are now flashing a bright red light in the GOP’s direction, hoping cooler heads prevail.

House Speaker John Boehner (R-Ohio), oddly enough, seems to understand this, and told the White House yesterday he wants to work out a deal by the end of June, precisely to avoid making the markets nervous.

One right-wing lawmaker, Rep. Devin Nunes (R-Calif.), recently said, “By defaulting on the debt, in the short and long term, it could benefit us.” Not even Boehner believes such rampant stupidity.

As for the rating agencies, in April, when S&P issued a weak warning, Republicans freaked out and said it’s incumbent upon all federal officials to take these warnings seriously. Well, now all of the rating agencies are pleading with Washington not to default. Will the GOP listen?

Steve Benen is a contributing writer to the Washington Monthly, joining the publication in August, 2008 as chief blogger for the Washington Monthly blog, Political Animal.

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  • Michael on June 02, 2011 4:50 PM:

    "Moody's said it would put the AAA U.S. credit rating on review for a possible downgrade if lawmakers in Washington do not make substantive progress in budget talks by the middle of July."

    I can guaran-damn-tee that Mitch McConnell, John Boehner and the rest of the GOP hostage-takers will take this to mean that "substantive progress in budget talks" = "significant bipartisan spending cuts." Of course, that's not at all what that means, but Republicans don't care. They've decided that the worst will only happen if they don't get their way. They've got their narrative and they're sticking to it, reality be damned.

  • Sadaqat on June 02, 2011 5:00 PM:

    Wait, how could anyone in a position of power be that dumb?”

    Because idiotic and overweight middle America allows them to be.

  • Patrick on June 02, 2011 5:02 PM:

    Republicans are proving that they are anti-American traitors, willing to sell out their country on a gamble that they can do whatever they want. They are a clear and present danger to this country.

  • Redshift on June 02, 2011 5:02 PM:

    This is the price Americans pay for electing a party (even to one house of Congress) who live in a bubble where as long as they can find even one "expert" who agrees with them, it means they're right.

    We saw the same thing in spades during the Bush administration, but for a single instance, this is arguably worse.

  • blondie on June 02, 2011 5:03 PM:

    And the ratings agencies themselves have some major responsibility for this f*cking mess - first for their shameful role in the financial collapse of 2008, and now for thinking they have any credibility left on either side of the aisle. (Although the root causes on the left and right for that lack of credibility are different. Dems are angry over their 2002-08 failings, Repugs won't listen to anyone who contradicts their alternative reality.)

  • kindness on June 02, 2011 5:04 PM:

    Congradulations Wall Street. Look at the feeble critters you got elected.

  • Peter C on June 02, 2011 5:17 PM:

    Rich people like higher interest rates; they make their income from investments. Republicans hate the government (when they don't control it). In an economic collapse, we've always made them whole (since they are too big to fail). These are powerful incentives. Are we to assume that their 'sense of responsibility' will outweigh that??? They haven't demonstrated that level of responsibility in recent memory.

  • just bill on June 02, 2011 5:34 PM:

    as a finance officer for municipal government, all i've got to say is........DON'T FUCK WITH THE RATING AGENCIES!!!!

  • T-Rex on June 02, 2011 5:35 PM:

    An economic collapse will hurt Obama in 2012, and absolutely nothing else matters to the GOP. Got it?

  • davidi on June 02, 2011 5:54 PM:

    Am I crazy? Why aren't more folks pointing out that a new economic downturn would take even more value out of my meager 401k's and my house that still is worth less than 50 percent of what it was apprased for five years ago?

    And, now they want to take my Social Security and state pension, too! Go figure, you work and save for 40+ years and a year after you retire it all begins vanishing....

    Can't even find the words for how much I love these Reps and their bogus ideas.

  • meander on June 02, 2011 6:24 PM:

    With the Republicans acting crazy and putting their own interest above that of the party, it would seem like a good idea for the President to give a national prime-time address to spell out the following:

    1) the debt ceiling is not to be messed with, it's just a formality. It should not be a hostage situation.
    2) The proper place for discussion of long term finances is in the budget and normal legislation. The FY2011 budget, for example, is a place to start. The Ryan plan, flawed as it is, is another place to start.
    3) if the debt ceiling is not raised, this is what you can expect: higher interest rates for home mortgages, student loans, car loans, credit cards, and more; more expensive borrowing for schools, cities, states and other municipalities; delayed social security checks; and so forth.

  • Neil B on June 02, 2011 7:18 PM:

    The thread of debt-ceiling default ... Remember when Teabaglicans were griping about the "uncertainty" that Obama and crew were causing about minor variations in taxes, or minor for most people, as a drain on business' ability to make decisions? Oh, that was supposed to be horrible ...

  • Bernard on June 02, 2011 7:45 PM:

    just watch Obama "cave" on Medicare to stop debt ceiling default. this is all part of his "bipartisan" game plan. and of course Social Security too. suckers, American are just all day suckers for the Ponzi scheme Obama and the Republicans call "bipartisanship."

    this is just how it is. lots of drama and theatre to keep up appearances. but in the end being "bipartisan" is all that matters. oh quick look over there!

    the debt ceiling lifted, Medicare and Social Security gone. Bipartisanship a la Obama.

    want to bet me?

  • Outis on June 02, 2011 7:48 PM:

    I have always said that there is one key difference between Democrats and Republicans:
    - When Democratic candidates run, they promise lots of good things, but if actually elected, they tend not to do them.
    - When Republican candidates run, they promise not to do lots of terrible things, but if actually elected, those terrible things are exactly what they do first.
    I think the debate over the debt ceiling may be the test case for the theory that the system is so utterly broken that it can no longer work.

  • Mimikatz on June 02, 2011 7:58 PM:

    Everyone seems to forget that Obama was elected in the first place during an economic collapse. He was elected because he was perceived to be much more steady and competent than McCain.

    Now tell me, is there anyone among the GOPers running for Pres, or who might run for Pres, who comes off as more competent and cool and inspires more confidence than Obama? Didn't think so. You can't beat someone with no one, and that is what the GOP keeps forgetting.

  • Take Them at Their Turd on June 02, 2011 8:08 PM:

    Again, I renew my request: Someone needs to strongly suggest (or forcibly demand; I'm flexible on the approach) that Druckenmiller et al. disclose what their financial strategies will be in the event of a default or near-default. What will they be investing in? Where will they be decreasing their exposure? How are they planning to take advantage of this financial situation?

    If they're such financial "experts" that they're influencing our national policy to this extent, they owe it to us to disclose their own skin in this game and to help us protect our own assets and interests, such as they are. Unless their plan is to create and capitalize on a financial crisis, a strategy that strikes me as treasonous; no financial expert would ever try to do something like that, of course ....

    At the very least, some intrepid journalists need to start digging into this. Or is the phrase "intrepid journalist" too far on its way to becoming an anachronism?

  • Paul on June 02, 2011 9:25 PM:

    I'm surprised the Republicans don't go even farther and privately tell the President: "You and Biden resign, or we won't raise the debt ceiling".

    Really, what would they have to lose by such a threat?

  • exlibra on June 02, 2011 9:36 PM:

    Today, a third rating agency said the country’s rating would be at risk if Republicans push this game of chicken just a little more. -- Steve Benen

    Er... That's *not* what they said. They said: "if progress in negotiations is not evident by the middle of July, such a rating action is likely,”. They don't give flying duck who's responsible for the lack of progress. Or for who caves, just as long as *someone* does.

    Meanwhile, as you yourself have written earlier in the day, Republicans are absolutely certain-sure that a) Obama and the Congressional Dems will do the necessary caving (for various reasons, unique to each) and/or b) that if they don't, they -- not the Repubs -- will be blamed for whatever catastrophe ensues. Hurrah! And on to November 2012!

    set EKeywass. The water is so full of chemicals that, when I set the beets for kvass, the whole thing tasted awful. Eeeek.

  • Texas Aggie on June 02, 2011 9:49 PM:

    "... they’re pursuing a strategy that would aggravate rating agencies.... “Wait, how could anyone in a position of power be that dumb?”

    Placating rating agencies was never their goal. It was only brought up a while back because McConnell thought it would be a plausible excuse. Now that the rating agencies aren't cooperating with the republican game plan, that excuse has gone by the wayside.

    Every excuse they ever use to justify any of their programs gets discarded just as soon as it becomes painfully clear that it is bogus. It is a mistake to focus on what they claim as reasons because correcting whatever they are wailing about at any moment isn't their real goal. Whenever republicans complain about anything, always, always, look for their ulterior motive. Nothing they do is on the up and up. There is always an ulterior motive somewhere that they don't want people to know about.

    To think that they are working in good faith is just an exercise in futility and will only result in painful psychological disorientation. Once you accept that they are hiding something, you can look for it rather than go crazy trying to deal with their excuse.

  • bob h on June 03, 2011 7:00 AM:

    The exit strategy for Macho Mitch, et. al. will probably be to raise the debt limit by the smallest amount feasible, so this nauseating psychodrama will be a yearly feature of our politics.

  • Jessica on June 03, 2011 7:49 AM:

    Yes, the Republicans are destructive, but perhaps we could consider the possibility that the ratings agencies are something other than infallible.
    The fact that ratings agencies that completely blew it on the entire recent financial crisis makes me wonder what their agenda is. I might even happen to agree with it this one time, but I don't trust them.

  • yellowdog on June 03, 2011 8:03 AM:

    With the likes of John Kyl in the room, the Obama Administration has to understand that negotiation in good faith is impossible. They saw that up-close in his efforts to sandbag a treaty designed to keep nuclear material out of the hands of thugs and terrorists. (In fact, he is still trying.) This came after months of good-faith talks with Obama people, after many assurances from Kyl, who was GOP point person on the treaty, that he was not out to block it. But he was, from the get-go. No substantive reason existed for Kyl's obstruction. No one in the land with any national security credibility doubted the necessity or soundness of the agreement. Obama went to great lengths to answer all of Kyl's questions and concerns--even as they got more and more ridiculous. He put up major dollars for nuclear projects at Kyl's request. But Kyl was just game-playing all along. He never had any intention of voting for that treaty. With the clock ticking, Obama had to sway a few Republicans to break with Kyl--and thank heavens they did. This is too important to get wrong.

    In short, the White House should know by now who they are dealing with. None of Kyl's statements are meant to be factual. That should save them a lot of time this time around. Liars will lie. Proceed from there.

  • steverino on June 03, 2011 10:04 AM:

    Two of the biggest ratings agencies, including Standard & Poor’s...

    Style note: if you are going to say "two of," and then name one of them, you may as well name the other, especially since you are naming a third later on. The mystery agency!

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