Republican lawmakers have played down the significance of hitting the debt limit, saying the U.S. can avoid default by putting aside funds to pay bond holders. Economists affiliated with the party aren’t so sanguine.
Glenn Hubbard, Douglas Holtz-Eakin and Donald Marron, all of whom served in President George W. Bush’s administration, voiced concern that such a strategy could end up hurting the economy even if default were averted.
“I would still worry about it,” said Hubbard, who was chairman of Bush’s Council of Economic Advisers from 2001 to 2003. “It signals that we have an inability as a nation to get our budget process in order.” That could “do damage to U.S. growth potential and credibility,” he added.
The U.S. government is in the 11th day of a partial shutdown and less than a week away from Oct. 17, the day the U.S. will run out of room to borrow more unless Congress acts to raise the government’s debt ceiling, according to President Barack Obama’s Treasury Department.
Republican leaders in the House of Representatives were in talks with Obama yesterday over their proposal for a short-term increase in the $16.7 trillion debt ceiling.
U.S. stocks jumped the most since January and Treasury bill rates tumbled yesterday on the signs of progress toward an agreement. The Standard & Poor’s 500 Index soared 2.2 percent, the biggest advance since Jan. 2. Rates on Treasury bills scheduled to mature on Oct. 17 dropped for the first time in six days.
Republican Argument
Some Republican lawmakers have argued that the U.S. can continue to meet interest payments on its debt, even if the government is unable to borrow more money from investors.
“The country will not default if we don’t raise the debt ceiling,” Representative Ted Yoho, a Florida Republican, said in an interview on Oct. 8. “We’ve got enough revenue coming in to pay our bills.”
The U.S. takes in about $250 billion a month in tax revenue while paying out $20 billion in interest, said Senator Rand Paul.