Despite the damage inflicted on our economy two years ago, and against the renewed warnings of economists, Republicans are once again steering our nation toward default. Indeed, they are preparing for default. That’s what this bill is all about. Because let’s be clear: prioritization by any name is default.
Treasury has made it clear that it is impossible to prioritize the bills it pays.
Instead of playing with fire, the Republicans should fulfill their responsibilities and call a conference committee on the budget so that we can reach a budget agreement.
Apparently it has been forgotten by proponents of this legislation that the last time Republicans turned our nation toward default, in the summer of 2011, the damage was serious and lasting.
* Aug. 2011 was the single worst month for job creation in the last three years.
* The Dow Jones Industrial Average plunged 2,000 points in July and August of 2011
* The Treasury was forced to spend $1.3 billion more in interest payments, according to a Government Accountability Office estimate. The Bipartisan Policy Center estimates the higher costs will be almost $19 billion over the next decade.
* And of course, who could forget that the U.S. credit rating was downgraded for the first time in our history.
* This legislation appears to have been designed to give the veneer of credibility to the notion that it might be appropriate, thinkable, or manageable to default on our debt.
It is none of these.
The Treasury makes 80 to 100 million payments per month, and their computer systems are set up to pay bills in the order they come in. Both the Bipartisan Policy Center and the Council of Inspectors General for Financial Oversight, as well as the Department itself, have concluded that it would be simply impossible for them to pick and choose which bills get paid and which do not.
Economists from across the political spectrum have further warned about the economic calamity that would ensue.
Keith Hennessey, a former Bush administration economist, wrote that it would be “the first step to becoming a banana republic" and would turn the economy into a “bloody mess."
Another Bush administration official, Tony Fratto, said that “prioritization is impossible," and asked, “Is the government really going to be in the position of withholding benefits, salaries, rent, contract payments. … in order to pay off Treasury bondholders?"
Yet that’s precisely what this bill aims to do.
This default preparation legislation would allow Treasury to continue paying private bondholders, including Chinese investors, while perhaps having to default on salaries for our troops in harm’s way, medical care for our veterans at home, or payments to American businesses. It would allow Social Security to continue spending it’s own money to pay earned benefits, but would perhaps force Treasury to default on payments to the doctors and hospitals that serve seniors.
Aug. 2011 showed us the economic mess that results from playing games with the debt ceiling. For the sake of American workers and businesses, I urge my Republican colleagues to avoid repeating their mistakes.
