The inability to govern as defined by the Republican Majority is following the same failed strategy over and over again. When you insist session after session in passing unpaid for permanent tax cuts that are not going anywhere - that’s one thing. But your repeated efforts to put at risk the full faith and credit of the United States is reckless and irresponsible, and has had real consequences.
The first bill before us today would signal that the United States does not plan to pay all of our bills on time and in full. It says that once the debt limit prevents us from paying all our bills, Treasury must pay our obligations to China and other foreign bondholders first - before American troops, before our disabled veterans, before researchers searching for cures for deadly diseases, before providers who treat Medicare patients, and before small businesses holding contract obligations from the United States.
Let me be clear - this is not a bill to address the budget deficit or reduce our national debt. It is a bill setting forth a plan for not paying for obligations that Congress has already authorized.
This bill is reckless and indefensible. Indeed, according to the Treasury Council of Inspectors General on Financial Oversight, prioritizing some legal obligations over others in this way would be very difficult or perhaps even impossible. Treasury’s computer systems, they wrote in a letter to Congress, are designed to “make each payment in the order it comes due."
Even if such prioritization were possible, it would put China and other foreign bondholders before our own citizens at a time when they can least afford it. Some of those potentially impacted by default would be military service members - including those currently deployed; doctors and hospitals that wouldn’t receive Medicare payments; and hardworking Americans who wouldn’t get payments for school lunches, veterans’ benefits, or student loans.
If Republicans proceed on this course, it will be the third time they have done serious damage to our economy by threatening to default. When the Republicans brought us to the brink of default four years ago, the stock market plunged and S&P downgraded our credit rating for the first time ever. In 2013, Republican default threats and the government shutdown cost us 120,000 jobs and slowed GDP growth just as the economic recovery was taking hold.
The GAO estimated that the 2013 impasse cost the U.S. around $70 million due to an increase in the cost of borrowing. It also increased the borrowing costs for businesses and for individuals with home mortgages, car loans, and other debt. GAO also noted that it cost us credibility - for the first time in our history, investors concluded that short-term Treasury bonds might be too risky to buy, because of the risk of default.
That should not have come as a surprise. MIT economist Simon Johnson said in a hearing in this very room that if the U.S. were to default on any obligation, it would have a catastrophic effect on the credit market in the U.S. and much of the world. Without access to credit, businesses would close their doors, unemployment would skyrocket, and our GDP would decline sharply.
Secretary Lew wrote in a letter to Speaker Boehner in 2013 that “any plan to prioritize some payments over others is simply default by another name." We should be acting responsibly to make sure that the United States continues to pay all its bills, on time and in full. We should not even be considering a bill that would prepare for default, damaging the entire global economy and putting foreign investors above hardworking Americans.
