Standard & Poors has a specific justification for downgrading the U.S. bond rating, and it’s deadly for Republicans. It wasn’t just that Congress showed itself to be reckless and dysfunctional, or that the GOP shows no sign of ever ending their anti-tax jihad. It’s that for a period of weeks, some lawmakers (read: Republicans) were quite literally shrugging off the risks of blowing past the August 2 deadline, running out of borrowing authority, and missing payment obligations.
“[P]eople in the political arena were even talking about a potential default,” said Joydeep Mukherji, senior directior at S&P. “That a country even has such voices, albeit a minority, is something notable,” he added. “This kind of rhetoric is not common amongst AAA sovereigns.”
This is unambiguous, and leaves little room for obfuscation. S&P’s original, lengthy statement explaining the downgrade cited political dysfunction in Congress quite broadly, but did not mention this specific element of the debate. 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.
Of course, that doesn’t mean the GOP won’t try to sweep the mess they’ve made down the memory hole. Here’s Rep. Tom McClintock (R-CA), who sponsored legislation that would’ve forced the Treasury to prioritize interest payments on U.S. debt in the event of a lapse in borrowing authority. “No one said that would be acceptable,” he said of a 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.”
That may be true for McClintock. Others were much more relaxed about the consequences of ignoring the August 2 deadline.
House Budget Committee chairman Paul Ryan said if “a bondholder misses a payment for a day or two or three or four,” it’s preferable so long as “you’re putting the government in a materially better position to be able to pay their bonds later on.” (Video below)
Ryan and others, including Sen. Pat Toomey (R-PA), were echoing hedge-fund manager Stanley Druckenmiller, who was quoted in a widely cited Wall Street Journal article. Here’s Toomey: “The most high-profile advocate for this was Stanley Druckenmiller … one of the world’s most successful hedge-fund managers, extraordinarily wealthy from his knowledge of the markets, a big money manager now, and a big holder of Treasury securities — and he has said that he would actually accept even a delay in interest payments on the Treasuries that he holds. And he would prefer that if it meant that the Congress would right this ship.”
House Majority Leader Eric Cantor (R-VA) warned against default, but for a time was willing to go past August 2.
“The markets are not fooled by some date imposed to say that that is the trigger for the collapse,” he said at a Virginia jobs forum in May. “I think the markets are looking to see that there is real reform.”
Others, on the conservative wing of the GOP claimed loudly that President Obama and Treasury Secretary Timothy Geithner were being dishonest about the consequences of blowing past August 2, and refused to vote to raise the debt limit unless Democrats agreed to truly radical conditions.
When Speaker John Boehner acknowledged that missing the August 2 deadline would put the country in “an awful lot of jeopardy, Rep. Louie Gohmert reacted by saying, “[t]he problem with the Speaker, and him saying that, is he believes the President. And I would encourage the Speaker not to believe the President anymore when the President says things like that.”
This was a fairly common view among conservative Republicans, particularly in the House.
A number of other them tried to defuse the political time bomb they’d set under themselves by demanding that the White House prioritize not just creditors, but entitlement beneficiaries and the military as well, which would have left no money for just about any government services.
This extended beyond the halls of Congress, too. Taking their cues from the right, GOP Presidential candidates stood opposed to raising the debt limit. In response to a question from TPM, former Minnesota governor Tim Pawlenty said he wasn’t sure a temporary U.S. default would have calamitous consequences. “Maybe not. We don’t know,” he said.
Nebraska GOP Senate candidate Jon Bruning, who, if he wins, will be faced with a debt limit vote in early 2013 said, “[Default] may be something that has to happen to make the fundamental changes that are necessary in the American governmental system. We have to shrink it. And, if the Democratic Party that controls the White House and the Senate doesn’t understand it, default may be necessary.”
It’s worth noting as well that a protracted lapse in borrowing authority would have massive economic consequences even if the Treasury department prioritized U.S. debt, which would reduce incoming revenue, and likely lead to a debt default anyhow. So the notion that the U.S. could meet all of its obligations to bondholders indefinitely doesn’t hold water either.
Republicans will try to sidestep Mukherji’s claim that they were welcoming, or at least toying with the idea of, in his words, “potential default.” But they most certainly were.