U.S. Default will have Serious Consequences
In a speech on the floor of the House of Representatives, Congresswoman Maxine Waters, Ranking Member of the House Financial Services Committee, today highlighted the serious consequences of the U.S. defaulting on its debt. Waters also urged Republicans to stop using the debt ceiling to push extremist ideology, calling for a vote on a clean debt-limit increase. She delivered the following remarks.
As prepared for delivery:
"Thank you, Mr. Speaker. I rise today to discuss the irresponsibility of the Republican Party in holding hostage the full faith and credit of the United States.
"As hundreds of thousands of federal workers go without pay; as homebuying slows to an eventual halt; and as federal agencies remain unable to complete the important work of implementing the Wall Street Reform Act, Republicans are threatening another crisis that could have significant impacts on our financial markets and the economic security of all Americans. They do this in pursuit of an ideological agenda. The result is continued instability and uncertainty for our economy and fragile recovery.
"We should not default on our obligations. The ramifications of doing so would be serious. The underpinnings of the entire financial system could be affected, with the possibility of triggering a financial crisis reminiscent of the days following the failure of Lehman Brothers. Only this time, it could be far worse.
"If the U.S. defaults on its debt, lending – the lifeblood of our economy— would dry up. The dollar's value could drop and we could see dramatic increases in interest rates on everything from mortgages and auto loans to credit cards. Not only that, but every US corporation and municipality would likely see their borrowing costs climb as well. Unemployment rates would rise precipitously, just as we are beginning to recover.
"If Congress cannot do its job in a timely manner, in the future the government's ability to pay its debts will be looked upon with uncertainty by investors and the markets – leading to higher borrowing costs in the future and, in turn, an increase our nation's deficit.
"Worst of all, we could see another dramatic loss of wealth for working Americans.
"History tells us that even the threat of default can send shockwaves through our financial system. In 2011, just the prospect of defaulting on our debt caused a drop in consumer and business confidence, a 17 percent decline in the S&P 500 index of equity prices, and increased volatility in the stock market. And, of course, we received a downgrade in U.S. government debt.
"The drop in equity caused by the 2011 debt ceiling fight had serious consequences for American families. The months following saw a $2.4 trillion dollar decline in household wealth and an $800 billion dollar drop in retirement assets. The cost of homeownership also increased, as risk-averse lenders increased the cost of borrowing money to purchase a home.
"The 2011 debate showed us the very serious consequences of even debating whether we should pay bills already incurred. But no one knows with certainty the full extent of the damage to the economy should the U.S. actually default on its debts. We have heard speculation ranging from the bad to the catastrophic.
"I, for one, do not want to find out.
"What I do know is that everyone from Wall Street CEOs and the U.S. Chamber of Commerce to small business owners and prominent conservative economists are concerned with the significant damage that could result from a debt ceiling standoff. Warren Buffett, Ben Bernanke, Hank Paulson, and the heads of the nation's largest financial institutions have been outspoken about the need to end this hostage crisis now.
"Mr. Speaker, the American people have been through enough. We remain in the midst of a government shutdown with no end in sight. It is hurting real people and damaging our economic recovery.
"At this tenuous time, defaulting on our nations' debt could create the perfect storm that may roil financial markets and undermine the credibility of the United States. But most importantly, it could be devastating for American families, who are already suffering in the aftermath of a major recession, foreclosure crisis and now, a government shutdown.
"I urge my colleagues to stop using the debt ceiling to push extremist ideology and vote now on a clean debt-limit increase.
Thank you Mr. Speaker and I yield back the remaining balance of my time."