Talk about cognitive dissonance. I went to a breakfast this morning with Alice Rivlin and lunch with Michele Bachmann. How to put this politely? If men are from Mars and women from Venus, Rivlin is from Earth, Bachmann is from Saturn. Someplace way out in the solar system and removed from reality.
Rivlin, a Democrat, is a former director of the Congressional Budget Office, former director of the Office of Management and Budget, and former vice chairman of the Federal Reserve. She is, in short, a Very Serious Person and, like every serious person around, finds herself somewhere between disbelieving and aghast at the current crisis over raising the debt ceiling.
“Putting a limit on the debt and saying, ‘Hey, we made these decision but we didn’t really mean it, we’re not going to pay our bills,’ is just an unthinkable thing to do,” Rivlin said at an event sponsored by Atlantic Media.
“This is outrageous, folks,” she told interviewer Linda Douglass. “The greatest democracy, oldest democracy in the world should not be behaving this way.…It’s embarrassing for us to have a government that is so dysfunctional and that has created this artificial crisis.”
And the consequences could be catastrophic. “Suppose the world has decided that [debt ceiling crisis] might happen again and this democracy isn’t quite as solid or thoughtful as we thought it was, so we not going to stop lending to the untied state but we’re going to charge more interest. As the interest bill goes up, two things happen. One is it’s must more expensive for the government to carry this large debt….But more seriously it means that everybody’s interest payment goes up….So we would be paying more on our mortgage, more on our car loans, more on our credit cards, more for business loans and that’s not good for the economy.
It takes nothing away from Rivlin’s considerable intelligence and insight to say that she is expressing the conventional wisdom.
Fast forward a few hours to Bachmann, a congresswoman from Minnesota and Republican presidential candidate, addressing the National Press Club. Bachmann’s position is two-fold:
First, the debt ceiling should not be raised, under any circumstances. No deal could be good enough, Bachmann said, to induce her to do so. “I won’t raise taxes. I will reduce spending and I won’t vote to raise the debt ceiling,” she said. “And I have the titanium spine to see it through.”
Second, the United States will not default. “I want to state unequivocally I think for the world as well as the markets as well as for the American people, I have no doubt that we will not lose the full faith and credit of the United States,” Bachmann said.
Huh? Bachmann accused President Obama of employing “scare tactics” in warning of “catastrophic results for our economy.” But what do she and others in the titanium spine caucus think is going to happen when the United States can’t pay its bills?
Sure, Treasury Secretary Tim Geithner could manage to pay off bondholders. But as Rivlin and others explained, it won’t be too long before the checks due exceed the amount in the coffers. An analysis by former
George W. Bush George H.W. Bush administration Treasury official Jay Powell by the Bipartisan Policy Center shows that if the administration prioritizes payments to bondholders, Social Security recipients, Medicare and Medicaid providers, defense contractors and unemployment benefits (total $172.7 billion for the month) then it wouldn’t be able to pay another $134 billion worth of bills, including military active duty pay, veterans affairs programs, federal salaries and benefits, food stamps and Pell grants. You can shift around the numbers all you want but the bottom line is that refusing to increase the debt ceiling is not a sustainable option.
Bachman said that “saying no” to an increase in the debt ceiling would be “saying yes to job creation and to the next generation.” Up is down in Bachmann-world. The credit rating agencies are already threatening a downgrade. The grave implications of that are clear, for jobs now and stretching into the next generation with the hangover of higher interest rates.
Bachmann spent a lot of time invoking Ronald Reagan, so here’s one from the Gipper back at her. “The full consequences of a default—or even the serious prospect of default—by the Untied States are impossible to predict and awesome to contemplate,” he wrote to then-Senate Majority Leader Howard Baker in November 1983. “Denigration of the full faith and credit of the United States would have substantial effects on the domestic financial markets and the value of the dollar in exchange markets. The nation can ill afford to allow such a result.”