As the focus on Capitol Hill shifts from the fiscal cliff to the upcoming debt ceiling fight, the debate over the consequences of not raising the federal borrowing limit looks to ramp up again -- and House Budget Committee Chairman Paul Ryan (R-Wis.) said he thinks default can be prevented.
“What happens if the Congress and the president can’t come to an agreement on the spending reforms that are necessary by March 1, and we do not raise the debt limit?” radio host Hugh Hewitt asked the Wisconsin Republican and former vice presidential nominee. “What do you think happens?"
Ryan responded that “technically speaking,” the country would not be able to make good on its bonds – although he later added, “I don’t believe we’re going to default on our bonds. I believe that we can do things to prevent that from happening."
A Ryan spokesman said that the congressman meant that he's confident congressional leaders and the White House will broker a debt-ceiling deal and thus avoid default.
“As he stated in the interview, Chairman Ryan believes that leaders will act responsibly to ensure that the federal government would not default on its bonds,” Ryan spokesman Conor Sweeney said. “As Chairman Ryan made clear earlier this week, ‘We must return our attention to the real problem: out-of-control spending.’”
During the last Congress, some conservative Republicans expressed skepticism about the consequences of not raising the federal debt limit. In the summer of 2011, “default deniers” such as Rep. Jim Jordan (R-Ohio) and Sen. Pat Toomey (R-Pa.) argued that Treasury Secretary Tim Geithner had options at his disposal for avoiding default, such as prioritizing certain payments by the government.
In the House, Jordan was one of 101 co-sponsors of a measure last Congress requiring Treasury to do just that. Ryan was not among the legislation’s co-sponsors.
In contrast, House Speaker John Boehner (R-Ohio) said in January 2011 that not raising the debt ceiling would lead to global economic calamity. “That would be a financial disaster, not only for us, but for the worldwide economy,” Boehner said on “Fox News Sunday.” “I don't think it's a question that's even on the table."
Previously, Ryan has taken varied positions on the question of whether failing to raise the debt limit would lead the U.S. to default.
In a January 2011 appearance at the National Press Club, Ryan struck a similar tone to Boehner, suggesting that not raising the federal borrowing limit would result in the country defaulting on its debt obligations.
"Will the debt ceiling be raised – or, does it have to be raised?” Ryan said at the time. “Yes. You can’t not raise the debt ceiling. Default is the unworkable ... alternative. But we don’t want to just pass some naked debt ceiling increase.”
A few months later, in an April 2011 appearance on ABC, he appeared to reiterate that point.
“Default is not our option or strategy but we also want to make sure that ... as this debt limit increases -- which is based on past spending -- we get something in place to address future spending, and that’s the kind of stuff we’re talking about: spending cuts, spending control,” Ryan said.
In a May 2011 appearance on CNBC, Ryan appeared to change course and said that he had spoken to some in the business world who assured him that U.S. debt holders would be willing to miss a few days of payments if Congress and the White House ultimately approved a deal that included significant cuts to the federal budget.
“They all say whatever you do, make sure you get real spending cuts. ... If a bondholder misses a payment for a day or two or three or four, what’s more important is that you’re putting the government in a materially better position to pay its bills going forward,” he said.
Ryan’s full response to Hewitt from Wednesday night's interview is below:
RYAN: “Well, I don’t want to get into an elaborate default discussion. Technically speaking, what happens is Treasury does not have the authority to go out and borrow money to pay our bills, and they can’t redeem bonds. So the problem with ‘default’ is you can’t make good on your bonds. And that means you’ll have a triggering event where your interest rates shoot skyrocketing up. And it will cost us a whole lot more money to borrow money, and it will cost us a whole lot more money as individuals to borrow money. It hurts our economy, and it will cost our government a lot more money to borrow money, and it triggers a debt crisis. That’s the horror scenario that is played for people when you entertain the idea of whether or not we would default on our bonds. I don’t believe that that would happen. I don’t believe we’re going to default on our bonds. I believe that we can do things to prevent that from happening.”