Senate Democrats

Reid Remarks On The Catastrophic Economic Consequences Of Default

“A vote to avert default is simply a vote to pay the bills… It’s a vote to pay the bills the federal government has already incurred – bills for roads and bridges we’ve already built and warships we’ve already commissioned, as well as wars we’ve waged with borrowed money and tax breaks we’ve charged on the national credit card.”

“Some Republicans today argue that we should not raise the debt limit… During the Bush administration, these Republicans were happy to run up America’s credit card to the tune of trillions of dollars. But now the very same Republicans are howling about the debts they created – the debts they voted for.”

“Now that the bill for Republicans’ own excesses has come due – the bill for wars they supported and tax cuts they created – they want to walk out on the check.”

Washington, D.C. – Nevada Senator Harry Reid spoke on the Senate floor today regarding the importance of averting a first-ever default on the nation’s bills.  Below are his remarks as prepared for delivery:

In 1983, the President issued a warning to Congress: “The full consequences of a default by the United States — or even the serious prospect of a 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 in exchange markets.” The President went on to warn of the “risks, the costs, the disruptions, and the incalculable damage” of failing to avert such a default.

That President? Ronald Reagan.

Four years later, Reagan again warned Congress about the impacts of a default on the economy.  This is what he said: “This brinksmanship threatens the holders of government bonds and those who rely on Social Security and veterans benefits. Interest rates would skyrocket, instability would occur in financial markets, and the Federal deficit would soar.”

And yet three decades later, an alarming number of Republicans have denied or downplayed the seriousness of a first-ever default on the full faith and credit of the United States. To these default deniers, up is down, black is white and right is wrong. So first I feel I must explain what raising the debt ceiling actually means.

A vote to avert default is simply a vote to pay the bills. It’s not a vote to spend more money, to authorize new programs or to buy new things and more. It’s a vote to pay the bills the federal government has already incurred – bills for roads and bridges we’ve already built and warships we’ve already commissioned, as well as wars we’ve waged with borrowed money and tax breaks we’ve charged on the national credit card. A vote to avert default is a vote to pay the bills for all those things.

Some Republicans today argue that we should not raise the debt limit. These same Republicans who argue that we should default on the nation’s bills voted time and time again to spend borrowed money without regard for the country’s long-term fiscal health. These Republicans voted to sell government bonds to China, Saudi Arabia and Japan to pay for the wars in Iraq and Afghanistan. They voted to borrow money from the American taxpayers to fund tax breaks for the wealthy.

During the Bush administration, these Republicans were happy to run up America’s credit card to the tune of trillions of dollars. But now the very same Republicans are howling about the debts they created – the debts they voted for.

Never mind that President Obama, with little help from Republicans in Congress, has reduced the ratio of deficit to gross domestic product from nine percent to four percent. Now that the bill for Republicans’ own excesses has come due – the bill for wars they supported and tax cuts they created – they want to walk out on the check.

Many of these same Republicans also say we can avoid a default by prioritizing whom to pay first. They say we should pay foreign debt holders, such as China and Japan. But we shouldn’t pay Social Security recipients, veterans or Medicare benefits. In addition to having shockingly skewed priorities, Republicans are also using flawed logic.

Here’s a real-world example. If you have a mortgage, a car payment and a cell phone bill, but you only pay the mortgage, you’ve still defaulted on your bills. And it’s unlikely you’ll ever be able to buy another house or a car or a cell phone anytime soon. Your credit would be ruined.

The same thing would happen if – one week from today, when the United States runs out of money to pay the bills – the federal government paid China, but failed to pay Social Security recipients, unemployment benefits or the salaries of our brave men and women in uniform. The damage not only to our crediting rating but also to our global reputation would be profound and irreversible. The risks, the costs, the disruptions and the damage would be incalculable, to use President Reagan’s words.

The stakes could not be higher. Global economic recession – and possibly even depression – are at risk.

That’s why President Obama reached out to House Republicans, inviting them to the White House for a serious discussion of the consequences of default and how we can solve this impasse. I was disappointed to hear that the same intractable Republican leaders who caused the current government shutdown were unwilling to even allow their members to meet with the President for a constructive conversation. Republican leaders say they want to talk. Their actions tell another story.

Republicans have caused enough economic turmoil with their reckless shutdown of the federal government.  A Republican-forced default on the nation’s debts would be magnitudes worse.

Yesterday, Fidelity, the nation’s largest mutual fund manager, announced it would sell of all of its short-term government bonds because of the threat of default. U.S. government bonds are considered the safest investment in the world.  But if the United States fails to pay its bills, that safe haven will disappear.

Economists say the consequences would be immediate and catastrophic. Even Republican economist Douglas Holtz-Eakin said debt deniers are dead wrong. This is what he said: “A failure to raise the debt ceiling leads to very bad economic outcomes and chaos in financial markets.” Fidelity’s move is only the first sign of this economic chaos, which will continue to spread the closer America comes to defaulting on its bills.

With every day that passes, it is more and more important for Republicans to stop denying the reality of default and start working with Democrats to find common ground.

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