[Congressional Record (Bound Edition), Volume 159 (2013), Part 11]
[Senate]
[Pages 15369-15370]
[From the U.S. Government Publishing Office, www.gpo.gov]




                           IMPACT OF DEFAULT

  Mr. SCHUMER. Madam President, I rise today with just 9 days left 
until the United States hits the debt ceiling. Never before in our 
history have we failed to pay our bills, but in 9 days that possibility 
will reach our doorstep.
  Even though defaulting on our debt could send our economy into a 
tailspin, even possibly another Great Depression, there are already 
those who are denying the impacts of default. The debt ceiling deniers 
try to claim that this won't be a big deal and that middle-class 
families won't be hurt. Well, these debt-ceiling deniers need a dose of 
debt-ceiling reality.
  The truth is that failing to pay our bills on time would most 
probably be worse than in 2008 when Lehman Brothers and AIG went under 
and the economy went into a tailspin. We still haven't recovered from 
that debacle. To this day there are people out of work. There are 
middle-class families whose income is lower than it was then because of 
what happened in 2008.
  Why could it be worse--in all likelihood would be worse? Because just 
as housing securities had to be marked down because of the Lehman 
crisis, if government bonds, which are much more widely held, have to 
be marked down in lower value, we could have a freeze where banks are 
not able to lend money.
  What happened in 2008 was simple. Banks and other financial 
institutions had all these mortgage securities on their balance sheets. 
All of a sudden their value seemed to be a lot less, so the banks' 
balance sheets were in the red. That meant they couldn't lend money, 
and not just for long-term mortgages and car loans but also for 
overnight lines of credit. Businesses were shaken. Many businesses 
couldn't function. Wire transfers weren't allowed to be made, and the 
whole financial system came to a startling and devastating halt.
  Now the effects would be worse, in all likelihood, and for this 
reason: Mortgage securities were widely held but not close to as widely 
held as U.S. Treasurys are. Imagine on the day of default or, God 
forbid, even a day or two before default, all of a sudden the markets 
determine--and they are mystical in some ways--that Treasurys should be 
written down significantly. There is a very real possibility that 
could--and not 5 percent but significantly higher than that; I would 
estimate a 30-, 40-, 50-percent chance--send us into a tailspin that 
might make the 2008 recession look like child's play.
  How would that affect the average family? Well, if the United States 
defaults, middle-class family paychecks would be raided by higher 
interest rates on everyday expenses. Already interest rates on short-
term Treasury bonds are creeping upward as the possibility of default 
looms over us. If we default, investors who always considered U.S. debt 
risk free will demand higher interest rates due to the heightened risk 
that they might not be paid. For the first time ever investors question 
whether the U.S. Government would honor its commitments.
  The domino effect on interest rates that affect family budgets would 
be endless and cataclysmic. Credit card interest rates would go up, 
adding hundreds of dollars to monthly bills. Young families seeking to 
take out a mortgage on a new home would be faced with thousands of 
dollars in higher payments over the life of the mortgage. Many might 
not even buy that home, putting a crimp in one of the bright spots of 
our economy--the housing market. Someone wanting to take out a loan to 
buy a new car should prepare to pay hundreds or thousands of

[[Page 15370]]

dollars more in higher interest rates. That means car sales would 
decline and automobile manufacturers could lay off people. Do you have 
privately held student loans? Prepare for monthly payments to shoot 
upward. Innocent families, millions of them--tens of millions--would be 
hit with thousands of dollars in additional bills through no fault of 
their own if U.S. Treasurys were devalued.
  The damage doesn't stop there. If we default on our debt, the dollar 
loses value, and a trip to the gas station or the grocery store gets 
more expensive. The dollar won't go as far. Americans will have to 
shell out more for gas and for milk to feed their kids.
  Think of the effect of a default on 10,000 baby boomers who are 
retiring each day. In 2011 the stock market lost 2,000 points. How much 
more might it lose now? We gained that back by the beginning of 2012, 
but that is no comfort to the thousands of people retiring every day. 
And when you are dealing with U.S. Treasurys--and these are not 
certainties, but these are possibilities--it could be a lot worse. You 
can check your 401(k) and see that political brinkmanship took a huge 
bite out of your retirement savings. Imagine the pain of saving wisely, 
making smart choices, only to have your retirement account and family 
budget wrecked by dangerous brinkmanship from tea party Republicans in 
Washington. If there were ever a governmental action that merited the 
words ``playing with fire,'' this is it.
  The devastation doesn't end there. If we don't raise the debt 
ceiling, the Federal Government will be faced with impossible choices. 
Do we pay foreign debts--because if we don't, those countries won't 
lend to us anymore--or do we pay veterans' benefits? Do we make sure 
Social Security benefits go out or Medicare? Do we pay our troops? Do 
we fund border security? What do we pay for education? These are all 
tough choices.
  Make no mistake about it. If the debt ceiling is not lifted, we can't 
meet all our obligations.
  So the chances of this are not 80 percent, but they are close enough 
to 50 percent that anyone who risks this, particularly for this forlorn 
goal: we won't raise the debt ceiling unless we repeal ObamaCare--which 
we know isn't happening--it is madness. Risk the economy of the United 
States, the possibility of going through worse than what we went 
through in 2008 because you demand ObamaCare be repealed when we know 
it won't happen? Wow. I have rarely seen such madness coming out of 
legislators, but it is coming out of a few.
  So the consequences of failing to raise the debt ceiling are crystal 
clear: interest rates on the middle-class expenses such as home 
mortgages, car loans, and student loans will shoot up. Housing markets, 
automobile markets, and others decline as many are laid off, and then 
others are laid off in a cyclical cycle. The dollar will lose its 
value, making everyday purchases more expensive, and the Federal 
Government faces terrible choices about who we pay--seniors, veterans, 
military, creditors. To risk these consequences would be a terrible 
mistake.
  In conclusion, I come here with a simple plea--not to our tea party 
activist colleagues but to mainstream conservative Republican friends. 
Please help us avoid the default crash. Please help us avoid an 
economic apocalypse. We are ready to talk. We are ready to negotiate on 
anything. But first open the government and pay our bills. Then we can 
sit down and debate our differences. The future of our financial 
system, the future of millions of Americans, is at stake. We don't play 
around with that. We don't hold that hostage.
  To my mainstream conservative Republican colleagues, please do the 
right thing. Let us pay our bills and take the threat of severe 
economic collapse off the table now.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Maryland.

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