Now that the Republican House majority has lost its mind and passed the “The Full Faith and Credit Act,” it’s a perfect time to revisit why this is such a dumb bill and bad policy. In the event the United States cannot meet its obligations because the GOP refuses to raise the debt ceiling, the legislation allows the nation to borrow just enough money to pay its creditors and the Social Security Trust Fund.
Let me say upfront that the bill pushed by Rep. Tom McClintock (R-Calif.) isn’t going anywhere in the Democratic-controlled Senate. And even if it did, President Obama issued a very direct veto threat. “This legislation is unwise, unworkable, and unacceptably risky,” read the statement of administration policy from the Office of Management and Budget on Tuesday. But since the House passed the ill-fated bill anyway, we can’t pretend it and its harmful effects don’t exist.
“The problem with the bill is that it assumes the government could stiff a significant portion of the people it is obligated to pay — contractors, Medicare doctors, federal pensioners, service members and other federal employees — without a peep from the financial markets,” wrote Jon Healey of the Los Angeles Times yesterday. “That’s, umm, wrong.” Noting that the financial markets “would react fiercely” to this, Healey went on to say, “Investors would view it as a technical default, even if the government continued to make its debt payments.”
None of this should come as a surprise. According to the Wall Street Journal, when the full faith and credit of the United States was on the line during the debt-ceiling crisis of 2011, a managing director of the bond rating agency Standard & Poor’s issued a downgrade warning to Senate Democrats.
John Chambers, an S&P managing director, told top Senate Democrats and officials from U.S. Chamber of Commerce and the Financial Services Forum trade group that U.S. debt could be downgraded even before the government misses an interest payment, people who attended the meeting said.
He said this could occur if the U.S. began skipping payments to other creditors, such as veterans or vendors, which would throw into question its ability to meet its obligations.
The debt ceiling was raised in 2011. But the circus surrounding that action still led Standard & Poor’s to downgrade the credit rating of the United States for the first time in this nation’s history. That the prioritization craze won’t die is further proof that the Capitol is the Land of Make-Believe, where reality is held hostage.
Follow Jonathan Capehart on Twitter.