The Last Word | January 07, 2013
>>> i believe that that government shutdown actually gave us the impetus as we went forward to push towards some real serious compromise. i think it drove bill clinton in a very different direction, a very bipartisan direction, in fact, we passed welfare reform . these are good things, we also balanced the budget for the first time in 40 years in 1997 , 8 and 9. and when i left we had over a $230 billion surplus, this was with a democratic president.
>> so you think it is a good idea?
>> yes, i think it is about time.
>> no, not a good idea, republican congressman of arizona, not a good idea at all. look, this is not '95. we're not talking about a government shutdown . we're talking about the united states of america going into default. the most powerful economy in the world saying our political system , our system is too disfunctional for us to reliably pay our bills. that would be anything but good for this country. if congressman salmon had been with me this morning, he would understand it. this morning i attended a briefing by the bipartisan policy on the debt ceiling. they did amazing work on this issue and really got into the weeds on it more than anyone i have seen before. they looked at how many checks the government sends out a month. how the payment software works, and i want to tell you, and maybe congressman salmon five of the things they had. because after you hear this you wouldn't want to bust for the debt ceiling, they project right now that the debt ceiling doomsday, really the final day for it would happen sometime between february 15th , and march one. either congress figures out the debt ceiling before then or things get very bad, real quick. first it means the federal government will have to default on 40% of our obligations, 40% of what we do will be gone. let's say they make decisions on medicaid, medicare, defense, food stamps , kind of just the bare services there. doing all that will mean defaulting on everything, and really i mean everything else. the fbi will shut down, people responsible for tracking down loose nuclear weapons, the court system closes its doors. the faa off line, parks closed, food safety inspections, they stop, nobody gets tax refunds or fixes your roads. it is bad, second, meanwhile, too, the financial markets will go into complete chaos, u.s. government debt is after all the safest investment in the world, so it is used as the benchmark for all other types of debt. what that means, when you buy a mortgage the government looks at what it pays to borrow and begins your estimate there. if we spike the treasury rate because nobody trusts our government anymore that spikes credit card rates and mortgage rates . not to mention all manner of trillions and trillions of dollars of weird financial derivatives that are also bench marked to treasuries. the damage to the economy on that would be unbelievable. and it would occur at every level from individuals looking for a loan to get a house to hedge funders trying to play the markets. so it would be like 2008 all over again, and if we breach the ceiling for long, maybe even worse . all of what i have mentioned, amazingly is a best case scenario. it is what happens if we reach the debt ceiling in an orderly way. but what if it is not orderly? that gets to the third point, the government's payroll system could go haywire. the federal government needs to make more than 100 million individual payments between february 15th and march 15th , 100 million, that is not done with a clerk in an office somewhere whose hand doesn't get tired. that is a computer system , built to stop making half of them. there is a real question if the government can re-program the software, to choose which bills to pay and ignore. if there is a glitch, it could assure the bond holders that we would never miss a payment. it throws them into a panic because they can no longer trust our work. as far as the consequences, they won't go away. we will have done something we told the markets and world we would never do under any circumstances. the u.s. would have proven itself a more risky borrower with a more broken system than anybody thought. the last debt fight, cost us $119 billion in borrowing over the next decade. if we breach it this time the cost will of course be much higher, and the damage much longer lasting. the fifth, the fifth and final point is for those who want to use it as leverage, busting through the debt ceiling would almost certainly make the debt ceiling so much worse, the damage to the economy would be so much worse, when the economy flags we just saw this during the recession. and the higher borrowing costs later because nobody trusts america anymore. that would also increase the debt ceiling. so no, congressman salmon, it is not about time that we have a debt ceiling shut down. it is about time we do something to make sure that never happens. [ laughs