Casey: Experts Agree that Consequences of Default Would be Catastrophic

Economists of Different Political Stripes Agree on Havoc a Default Could Have for Economy / Default Would Harm PA Economy, Jobs / Former Bush Economic Official, ‘It Would Be Worse the Lehman Brothers Collapse’

Casey: Experts Agree that Consequences of Default Would be Catastrophic

Washington DC- Today, U.S. Senator Bob Casey (D-PA) highlighted warnings from economists across the political spectrum about the grave consequences of a debt default. Today, Senator Casey attended a hearing of the Joint Economic Committee (JEC) where leading economist Mark Zandi said “The impasse in Washington over funding the federal government and increasing the Treasury debt ceiling is significantly damaging the economy…If policymakers are unable to reach agreement on these issues by the end of October, the economy will face another severe recession.”

“A default on our nation’s obligations would have dire consequences for Pennsylvania’s economy and jobs,” Senator Casey said. “A default would be an entirely self-inflicted wound that should be avoided. Both Republican and Democratic economists agree on the urgent need to avoid default. Tea Party Republicans in the House should immediately take this disastrous option off the table.”

Fact Sheet: The Catastrophic Consequences of Default

  • Tim Bitsberger, former Treasury official under Bush: “If we miss an interest payment, that would blow Lehman out of the water.  Lehman was an isolated company, and now we are talking about the U.S. government.” [Bloomberg, 10/6/13]
  • RBS Securities Economist Omair Sharif:  The last debt limit crisis “put the brakes on for a lot of businesses as far as hiring and capital spending decisions they were making at the time.” [Bloomberg, 8/19/13]

Experts of all Political Stripes Recognize a Default would be an Economic Disaster

Top Republican economists know the debt limit is off limits.  Top economic advisors to Presidents Ronald Reagan and George W. Bush have all publically stated that the United States should not even threaten to default on its debts by failing to raise the debt limit.

  • Reagan Economic Advisor Bruce Bartlett: “At the risk of stating the obvious, the debt limit is nuts. It serves no useful purpose to allow members of Congress to vote for vast cuts in taxation and increases in spending and then tell the Treasury it is not permitted to sell bonds to cover the deficits Congress created.” [New York Times, 12/3/12]
  • Bush and Romney Economic Advisor Glenn Hubbard: “The debt limit must be raised — not doing so is irresponsible.” [Washington Post,1/16/13]
  • Bush National Economic Council Director Keith Hennessey: “If the U.S. government legally commits to paying someone a benefit, or agrees to pay a firm for a good or a service, the U.S. government should fulfill that agreement in a timely fashion. To do otherwise is taking the first step to becoming a banana republic.” [Keith Hennessey, 1/14/13]

Economic and business leaders recognize the risks of debt limit brinksmanship.

  • Federal Reserve Chairman Ben Bernanke: “I think the right way to deal with this problem, as I said earlier, is for Congress to do what it's supposed to do and needs to do and authorize an increase the debt limit so that we can pay our debts, we can pay our bills…. But I do hope that Congress will allow the government to pay its bills, not raise the possibility of default which would be very, very costly to our economy.” [Ben Bernanke remarks, 1/14/13]
  • Moody’s Chief Economist Mark Zandi: If you don’t act on the debt limit in time, “you will be opening an economic Pandora’s Box.  It will be devastating to the economy…confidence will evaporate, consumer confidence will sharply decline, businesses will stop hiring, consumers will stop spending, the stock market will fall significantly in value, borrowing costs for businesses and households will rise…  We’ll be in the middle of a very severe recession and I don’t see how we get out of it.” [USA Today, 9/22/13; Reuters, 9/18/13]
  • Warren Buffett:  In an interview about the current debt limit brinksmanship, the Chairman & CEO of Berkshire Hathaway stated, “It ought to be banned as a weapon. It should be like nuclear bombs.  Too horrible to use.” [CNN, 10/4/13]
  • Honeywell CEO David Cote: “You don’t put the full faith and credit of the United States’ finances at risk,” said David M. Cote, chairman of Honeywell and a Republican member of the 2010 Simpson-Bowles fiscal commission. “The whole idea of using debt limit that way or saying ‘I’ll do this horrible thing to all of us unless you give in’ just doesn’t make any sense for anybody. It makes me very nervous. It’s not a smart way to run the country.” [New York Times, 1/3/13]
  • National Association of Manufacturers President and CEO Jay Timmons: The debt limit increase “needs to be clean.  Let’s just put that on the table.” [The Hill, 9/24/13]
  • Securities Industry and Financial Markets Association (SIFMA) CEO Judd Gregg: brinksmanship with the debt limit “is the political equivalent of playing Russian roulette with all the chambers of the gun loaded.  It is the ultimate no-win strategy… A default would lead to some level of chaos in the debt markets, which would lead to a significant contraction in economic activity, which would lead to job losses, which would lead to higher spending by the federal government and lower tax revenues, which would lead to more debt. [The Hill, 9/23/13]
  • President and CEO of Financial Services Forum Rob Nichols: “There’d by a host of severe economic consequences associated with default.  We’d have negative impact for growth, job creation, interest rates would spike, it would make our deficit problems even harder to tackle.  Raising the debt limit is a critical and urgent task.”  [Politico, 8/12/13]
  • Chamber of Commerce President Thomas Donohue: “Defaulting on U.S. debt would be a ‘mistake’ and lawmakers shouldn’t use the borrowing limit as leverage to force needed government spending cuts…It would be a mistake to default on the debt’ because doing so would lead to ‘so many unforeseen circumstances that that would be a bad thing to do.” [Bloomberg, 1/10/13]
  • Chief Economist for Credit Union National Association Bill Hampel: Failing to honor our obligations means “we basically would default on our debt, interest rates would go through the roof, and we’d fall into another recession, kind of like the one we went through in 2007 and 2008.” [Houston News 92 FM, 9/12/13]

***Fact Sheet is a product of the Democratic Policy and Communications Center (DPCC)***

###

 

Press Contact

April Mellody 202.228.6367