Right-wing media are accusing President Obama of using “scare tactics” to score political points with the upcoming debt limit deadline, but professional economists agree that debt limit brinkmanship could end in disaster.
On October 2, President Obama sat down for an interview with CNBC correspondent John Harwood in which he said that Washington's political posturing was “different” this time, and that major financial institutions “should be concerned” by Republican threats to not raise the debt ceiling before October 17. But the right-wing media response to President Obama's caution has been to downplay the looming deadline while accusing the president of engaging in “scare tactics.”
On the October 3 edition of Fox News' Fox & Friends, co-hosts Steve Doocy and Brian Kilmeade questioned if the president was hoping to “trigger a stock market sell-off”:
In a later segment, the Fox & Friends crew was joined by Fox Business host Stuart Varney to discuss the effect the president's statements might have on financial markets. Varney and the hosts agreed that the president's rhetoric was designed to drive markets down and thus provide him with “extra leverage” in the debt ceiling fight:
On the October 3 edition of Fox Business' Varney & Co., Varney discussed the president's approach with Fox contributor Elizabeth MacDonald who accused Obama of engaging in “scare tactics.” Varney alleged that it was unprecedented for the president to issue a warning to Wall Street that a political impasse in Washington might threaten corporate interests. Meanwhile, MacDonald contended that previous government shutdowns actually had a positive impact on financial markets. Joining the segment was Harvard economist Jeffrey Frankel, who proceeded to debunk every claim made by the Fox team concerning the impact of the ongoing shutdown and the role President Obama ought to play in ameliorating political concerns to avoid a debt crisis:
FRANKEL: First off on regular government shutdowns, the statistics I've seen are quite different than what we just heard. What I've seen is that the stock market on average goes down, but the risk of a default on the national debt is much worse. The president doesn't have any control over it. If that happens, there is going to be a huge crash in the markets and there will probably be a seizing up of world financial markets, we'll probably be back in the global financial crisis and not only that, even if they reverse it before too much damage is done, we'll never recover. We, the United States, will never recover our complete, full credibility that U.S. treasury securities are completely safe. We've already been downgraded last time with the threat of a shutdown from “AAA” to “AA”, and it will be much worse than that. We will be paying higher interest rates forever, a hundred years, as a result of this even if they fix it. The markets are going to go down if the Republicans don't cave. The only question is, is it going to happen before October 17 or after October 17?
Frankel also discredited the notion that the president could be “pressured into doing some negotiating” with Republicans given the financial and economic repercussions of not raising the debt limit:
FRANKEL: Nobody can negotiate on paying our obligations that we have already legally incurred. The idea that, as the president says, that a faction within one party within one branch of Congress, which is one branch of the government, has taken the pin off the hand grenade and is going to say, “I'm going to blow us all up unless you give me what I want on this completely irrelevant thing, which is Obamacare,” you can't run a democracy that way.
Varney closed the segment by disagreeing with the Harvard economics professor and capital market expert on the unprecedented nature of Republicans' threats to default on American sovereign debt obligations in exchange for political concessions, stating, “dare I say it, I think you're wrong on this one.”
The United States Department of Treasury is addressing the threat of default with a more serious tone. According to a Treasury report released October 3 titled, “The Potential Macroeconomic Effect Of Debt Ceiling Brinkmanship,” a default could create an economic downturn outweighing the Great Recession. From the report:
A default would be unprecedented and has the potential to be catastrophic: credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse.
The Treasury Department, echoing Frankel's statement, went on to conclude the negative effects could linger “for more than a generation.”
Right-leaning business analysts have downplayed the severity of a debt default after October 17 many times in recent weeks. However, Varney's refusal to accept independent economic expertise reveals the lengths to which the right-wing media will go to maintain their anti-Obama talking points.