A lot will be written about Fed chairman Ben Bernanke’s speech today. But I wanted to flag this part in particular, where he flatly states that the brinkmanship around the debt ceiling may have damaged the recovery, and says efforts to use the debt ceiling as leverage down the road could create more serious problems in the future:
Bouts of sharp volatility and risk aversion in markets have recently re-emerged in reaction to concerns about both European sovereign debts and developments related to the U.S. fiscal situation, including the recent downgrade of the U.S. long-term credit rating by one of the major rating agencies and the controversy concerning the raising of the U.S. federal debt ceiling. It is difficult to judge by how much these developments have affected economic activity thus far, but there seems little doubt that they have hurt household and business confidence and that they pose ongoing risks to growth...
The negotiations that took place over the summer disrupted financial markets and probably the economy as well, and similar events in the future could, over time, seriously jeopardize the willingness of investors around the world to hold U.S. financial assets or to make direct investments in job-creating U.S. businesses.
That’s some pretty scalding criticism of the debt ceiling standoff — he blames it for posing an ongoing risk to growth and warns that repeats in the future could create serious problems. Bernanke doesn’t name any names.
But in this context, it’s worth reiterating that some GOPers, including the leader of Senate Republicans, view this summer’s standoff as a good thing. McConnell actually sees it as a Republican innovation that they have set a precedent for using the debt ceiling as leverage again in the future. McConnell has said:
I think some of our members may have thought the default issue was a hostage you might take a chance at shooting. Most of us didn’t think that. What we did learn is this — it’s a hostage that’s worth ransoming. And it focuses the Congress on something that must be done.
McConnell has also explicitly said he hopes this happens again:
What we have done, Larry, also is set a new template. In the future, any president, this one or another one, when they request us to raise the debt ceiling it will not be clean anymore. This is just the first step. This, we anticipate, will take us into 2013. Whoever the new president is, is probably going to be asking us to raise the debt ceiling again. Then we will go through the process again and see what we can continue to achieve in connection with these debt ceiling requests of presidents to get our financial house in order.
I assume some on the right would argue that Democrats and the White House also used the threat of default as leverage for policy ends. But the simple fact is that at the outset of the battle, they repeatedly insisted that a “clean” debt ceiling hike was preferable for the good of the country. It’s clear they would have preferred that outcome and that they view the prospect of such standoffs in the future as a bad thing.
By contrast, the leader of Senate Republicans says that the use of the threat of default to leverage policy ends is a good thing that should be employed again in the future. Even if you agree with McConnell’s assessment — as I’m sure many conservatives do — it’s still a matter of plain fact that the Republican Fed chairman clearly thinks the possibility that this will happen again remains an active threat to the economy.