The ratings agency Moody’s is threatening to reduce the rating of five states with AAA credit (along with the rating of the federal government) if Congress fails to raise the debt limit in early August. Now the governor of one of those states — Maryland’s Martin O’Malley — is publicly singling out the Republicans in Congress who are preventing swift action on the debt limit.
“All of this brinksmanship and these threats of the dinosaur wing of the Republican party led by Eric Cantor to drive us needlessly into a default have impacted confidence I think throughout the country,” O’Malley told me in a Tuesday interview. “It’s impacted consumer confidence, it’s impacted investor confidence, it’s impacted the confidence of small businesses who are the backbone of this economy and who need to hire again. In that respect it’s already had an effect. The closer we get to this deadline, and the more immediate ramifications that has for those of us that are going out into the bond market.”
These concerns will become very real if Congress doesn’t raise the debt limit in the next few days.
“It means that all of us will have to pay more or do less when it comes to the important investments that a modern economy requires in order to create jobs,” O’Malley said. “Where construction trades are concerned, one of the few that places we’ve been able to continue to employ people is in those basic rebuilding of our infrastructures, roads, and bridges, and also our schools. That’s just for starters…I don’t think there’s any economist who can fully calculate what sort of ripple effect this will have on markets, on consumer credit, on what a citizen will have to pay on credit card debt, to finance a car, or on other things.”
Right now, he says it’s complicating his ability to govern.
“Right now, for next year, I should be getting together our plan for closing our budget gap, and preparing for next General Assembly session,” O’Malley said. “I can’t do that — I doubt Gov. McDonnell, or any other state can — until we know whether or not extremists like Eric Cantor and his dinosaur wing of his party are going to compound our problems, make it twice as bad.”
According to the liberal Center for American Progress, a few weeks more gridlock on the debt limit will cost Maryland up to about $1 billion.
That might not matter to some of the country’s most conservative governors, who have made a point of slashing state services, infrastructure investments, and education. At a meeting of the National Governor’s Association last week in Salt Lake City, UT, O’Malley urged some of the more moderate governors to push their party in a less destructive direction.
“A couple of the more extreme governors — one of them said if I never issued another bond again for my state, I don’t care,” O’Malley said.
But according to O’Malley, most of the GOP governors acknowledged that an avoidable debt default would harm their states. One of those governors was Mississippi’s Haley Barbour. “I’m paraphrasing him … I think he said something to the tune of, ‘none of us in our party want to raise taxes, but if that’s what we need to do in order to get this done, then we might have to grin and bear it if there’s also some cuts as part of this.'”
I asked O’Malley how he, as a Democrat and a governor, would deal with a legislature that had taken a must-pass issue like the debt ceiling hostage. He said the situation’s fairly intractable.
“I think the only cure to that really is for more moderate members of the Republican party, including business leaders, to step up,” O’Malley sighed. “I think you’ve seen some of that starting to happen. It’s very late in the process though.”
