Standard & Poors has a specific justification fordowngrading 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.”
- Ratigan: Republicans ‘want to burn the place to the ground’ (kaystreet.wordpress.com)
- Former Sen. Alan Simpson: Who is Grover Norquist a slave to? (kaystreet.wordpress.com)
- How Republican ‘Young Guns’ Created An Epic Clash (huffingtonpost.com)
- GOP on Defensive over Fiscal Policy (economistsview.typepad.com)
- For the GOP, the debt showdown was a failed ‘leverage moment’ (greenvalleyarkansas.wordpress.com)
- Anti-tax activist Grover Nordquist is the GOPs Supreme Being (theglobeandmail.com)
- Hardline Republican Stance May Be Self-Defeating (huffingtonpost.com)
- CNN Poll: Time to clean house in Congress? (politicalticker.blogs.cnn.com)