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Boehner Says A U.S. Default Isn't Worst Fiscal Woe; Democrats Beg To Differ

House Speaker John Boehner.

House Speaker John Boehner. AP hide caption

itoggle caption AP

The posturing between Republicans and Democrats over raising the debt ceiling continued apace Monday.

Excerpts released late in the day of what was being billed as a major policy speech by Speaker John Boehner at the Economic Club of New York Monday evening revealed a fairly hardline position likely to resonate with the Tea Party movement segment of the party but leave Democrats cold.

Boehner will say, for instance, that while not raising the debt ceiling would be "irresponsible," even more irresponsible would be to not make real cuts in federal spending.

Here's one excerpt:

"It's true that allowing America to default would be irresponsible. But it would be more irresponsible to raise the debt ceiling without simultaneously taking dramatic steps to reduce spending and reform the budget process. To increase the debt limit without simultaneously addressing the drivers of our debt — in defiance of the will of our people — would be monumentally arrogant and massively irresponsible. It would send a signal to investors and entrepreneurs everywhere that America still is not serious about dealing with our spending addiction. It would erode confidence in our economy and reduce certainty for small businesses. And this would destroy even more American jobs."

And another:

"Without significant spending cuts and reforms to reduce our debt, there will be no debt limit increase. And the cuts should be greater than the accompanying increase in debt authority the president is given. We should be talking about cuts of trillions, not just billions. They should be actual cuts and program reforms, not broad deficit or debt targets that punt the tough questions to the future. And with the exception of tax hikes — which will destroy jobs – everything is on the table. That includes honest conversations about how best to preserve Medicare, because we all know, with millions of Baby Boomers beginning to retire, the status quo is unsustainable. If we don't act boldly now, the markets will act for us very soon. That's the warning we got from Standard & Poor's a few weeks ago."

Boehner will say, as he has routinely for months, that the "mere threat of tax hikes causes uncertainty for job creators."

Of course, one obvious question would be, wouldn't the threat of, or, actually not increasing the debt ceiling create the mother of all fiscal uncertainties, bigger than tax hikes even, for those same job creators?

After all, a U.S. default is such a black swan event that it has never happened before. How the world would respond would be anyone's guess.

Which is sort of the point Sen. Charles Schumer was getting at in a teleconference meant as a pre-buttal to Boehner's speech.

Schumer began by using Boehner's own words, saying that after the mid-term election, Boehner described the debt-ceiling decision as the first "adult moment" the House's new Republican majority would have. Monday night's speech was an important opportunity for the speaker to have such a moment, the New York Democrat said.

Schumer added:

In an interview just two weeks ago, Speaker Boehner refused to even guarantee he would bring a bill raising the debt ceiling up for a vote in the House unless certain demands are met. This is playing with fire. During the debate about the 2011 budget, Speaker Boehner took the negotiations to the brink of a shutdown before finally striking an agreement to keep the government open at the 11th hour.

But the speaker will not have the same luxury of taking the country
down to the wire on the debt ceiling, and for two reasons. First, the
stakes are higher, in that a default would be even more catastrophic
than a shutdown. Consequences are far — more far-reaching and
disastrous for the economy. It would cause a recession even worse
than the one we just had, if not a depression.

And in case that wasn't calamitous enough, Schumer brought in Roger Altman, the chief executive officer of Evercore Partners and former Clinton Administration deputy Treasury secretary who said a default would be the "financial equivalent of suicide. He added:

So if America were to default, even for 24 hours, that would have
an unprecedented and a catastrophic impact on global financial markets and on American markets. Secretary Geithner has referred to this as, quote, "unthinkable." And it's important to stress that there can't be any head fakes or demonstration shots with default, just as there can't be with the use of nuclear weapons. You either default or you don't. There's no saying, sorry, I didn't mean it. And that makes it totally different, as Senator Schumer said, from a government shutdown.

Anyway, this war of words is likely going to continue for many weeks still since Treasury Secretary Geithner has said his department can use accounting maneuvers through early August that would prevent the nation from defaulting until then at the earliest.

So far, there doesn't seem to have been much movement in this stare down by either side to move much towards the other. Eventually, both sides are going to have to to blink. It always happens. But this isn't the week.

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