Will GOP Vote to Raise Debt Ceiling Before U.S. Default?
ALI VELSHI, CNN ANCHOR: America has hit the debt ceiling. So now what happens? I'm Ali Velshi. Welcome to YOUR MONEY. Treasury Secretary Tim Geithner has begun a series of what he's calling "extraordinary measures" to prevent default. He wants to make sure lawmakers know that the clock is ticking. Yet some Republicans argue that there are other means to fund the government after Geithner's drop-dead August 2nd deadline. They say they're willing to withhold a vote to raise the debt ceiling if they don't get some serious concessions from Democrats.</s>SEN. MITCH MCCONNELL (R-KY), MINORITY LEADER: We have over $50 trillion in unfunded liabilities, very popular programs, Medicare, Social Security, Medicaid. All of them are unsustainable. I think we need to do something in connection with the decision to raise the debt ceiling that deals with the debt, both medium -- both short term, medium term, and long term. That's what it would take to get my vote.</s>VELSHI: Will Cain is a CNN contributor. Will, Secretary Geithner has said that not raising the debt ceiling would be catastrophic for the economy. Now he concedes that no one knows for certain what could happen in the event that it's not raised. Are Republicans willing to risk sending this fragile recovery that we're in into chaos to find out if they're right?</s>WILL CAIN, CNN CONTRIBUTOR: No. But neither are Democrats. Let me tell you why I'm so certain about this. A, the debt ceiling has been raised 74 times since 1962. So I've got that in my pocket. Second, the consequences for not raising the debt ceiling are dire and everyone knows it. I have got my Tim Russert my prop here. Let me show you. The issue is, if we don't raise the debt ceiling, the government cannot issue new debt. Well, the problem is we take in 60 cents for every dollar we spend. We spend 40 percent more than we take in. At that point, the government has a choice to make. You can choose to not pay the interest on your current debt, which amounts to effectively a default. How would the markets react to that?</s>VELSHI: And that's bad.</s>CAIN: That's bad -- well, we think so. Currently the U.S. is used as the dollar as the safe haven. Would markets continue to think of us that way? We don't know. But we don't want to find out. The second choice is even more scary to me, even as a conservative. And that is, if we choose not, we have to cut spending by 40 percent. And that comes from Social Security, Medicare, defense.</s>VELSHI: That's a big, big cut.</s>CAIN: Ali, it's a huge number.</s>VELSHI: And where does your arrow go after that, if you do that?</s>CAIN: It goes to depression, Ali. Now listen, I want to cut government spending but I don't want to do it overnight. If you have to cut spending by 40 percent, you're looking at a 10 percent contraction in the economy. You're looking at depression. That's a pretty clear choice. Raise the debt ceiling.</s>VELSHI: All right. Well, that's not exactly what we're hearing from a whole lot of other conservatives. But you lay that argument out very well. Gloria Borger is a CNN senior political analyst. Gloria, 60 percent of Americans say they oppose raising the debt ceiling, just 37 percent would be in favor of raising it. Now that would seem to bolster the Republican argument that they want severe cuts in exchange for their vote to raise that credit limit. So let's say the debt ceiling is not raised and the U.S. does, as Will postulates, possibly default on some of its payments. Are the consequences as dire as Secretary Geithner warns? Is the public going to blame Republicans who voted no or Democrats who wouldn't give them the cuts? What's going to happen?</s>GLORIA BORGER, CNN SENIOR POLITICAL ANALYST: Well, you know, the public will blame everyone. I think, first of all, the Congress, and that means Democrats, Republicans, and also the president of the United States needs to go out there, as the secretary of the treasury has, and explain just what the consequences are. Because it's very clear from looking at that poll that people may be saying, debt ceiling, we don't want to pay more money. They're not quite sure. Part...</s>VELSHI: Right. You're absolutely right about that.</s>BORGER: Part of the burden of leadership is explaining these things. But I would also say that this is really a test of leadership because when you look back at votes on the debt ceiling, they're always political votes. Go back to 2006. None other than Barack Obama and his fellow Senate Democrats...</s>VELSHI: Voted not to do it.</s>BORGER: 2004, unanimously, all House Democrats voted against it. Why? George Bush was in power. So this, again, is another test. And if it doesn't get done and there are real problems in the economy, then the American public will turn very quickly and blame all of the members of Congress and the president.</s>VELSHI: Chrystia Freeland is the editor of Thomson Reuters Digital. Chrystia, what Gloria says is exactly right. No one has been able to actually explain, beyond Tim Geithner saying it's going to be catastrophic, what happens if we don't make those payments. But let's go back to September 14th, 2008. A whole lot of smart people sat around a table and said, it's not going to be all that bad if we let Lehman Brothers collapse. We didn't know what the consequences are either. You are a global financial journalist. What happens?</s>CHRYSTIA FREELAND, EDITOR, THOMSON REUTERS DIGITAL: Well, I think actually this isn't something we need to debate that much. It is absolutely clear that if the U.S. defaults on its debt, that is a catastrophic event for America and for the global economy. That is a moment when people stop having faith in the U.S. government and they should stop having faith in fact U.S. government. The U.S. government would not be paying its creditors. And so new creditors are not going to be knocking on America's door. And if they do come in, they will require much, much higher rates of interest.</s>VELSHI: Right. And that's -- by the way, for viewers out there, that's how it affects you. Because if the U.S. pays more to borrow money, you pay more for your mortgages, your companies and employers pay more to borrow money. And what that tends to do is give them less available cash to hire people.</s>FREELAND: And you would have to pay higher taxes, right? I mean, right now, the trick -- America actually is in a fabulous position in the global economy because even though America has very high debt, it is being charged very, very low rates of interest by the rest of the world.</s>VELSHI: Right, right. Because our credit is thought to be very good.</s>FREELAND: Because America's credit is good.</s>VELSHI: Gloria?</s>BORGER: But, you know, Republicans want to get something out of this. And in a way, I don't blame them. They're saying, OK, you want our votes to raise the debt ceiling, Mr. President, fine, how about dollar for dollar we talk about spending cuts? Mitch McConnell was talking about some grand bargain on entitlements. I don't think they're going to get that. But I do think you are going to get substantial deficit reduction or promises of deficit reduction.</s>VELSHI: But, Will Cain, Will Cain, this is not the last word or the last debate on how to cut spending. So if you are a conservative, if you are a fiscal conservative, if you are a Republican and you really believe strongly that there need to be cuts, like many Americans do, we have the 2012 budget to discuss. We've got until October to sort that out. Why are some Republicans picking this as the fight and not that, which is really the place to have this discussion?</s>CAIN: Because I've said this to you before, Ali, Democrats have shown no willingness to cut at any point in time. So it's almost like you have to put them, and the country for that matter, in these positions of emergency to make decisions. But let me agree with something that Chrystia said, in the end, this is barely worth a debate because it is going to be raised. It is that clear to everyone what the problems are. Here's the perfect metaphor. In "Braveheart," remember before William Wallace comes along, the two armies get up on the battlefield and look at each other like they're about to shed all kinds of blood. And the young soldier turns to the older one and says, what's going to happen? He said, the nobles will negotiate and then we'll go home. That's what's going to happen here.</s>FREELAND: I don't want to paint nightmare scenarios here, but Ali made a reference to Lehman Brothers, and that was absolutely correct. So we've been talking about if America defaults, then you would see higher interest rates charged to the U.S. government. That's absolutely true. What we don't know but what I think we can really predict with high probability is you could plunge the world into a new financial crisis.</s>VELSHI: Right. It may not happen, but there's some chance that it could happen.</s>VELSHI: Gloria?</s>BORGER: I have to tell you, there are, you know, 80 freshmen Republicans, 60 of whom have never held elected office before. And, you know, a lot of those folks are saying, you know what, I'm not sure it's going to be so terrible, there are a lot of Chicken Littles running around. And these are the people that John Boehner...</s>VELSHI: Dangerous thinking. That's a negotiating...</s>BORGER: These are the people that John Boehner has to talk to.</s>VELSHI: That's negotiating talk.</s>BORGER: For some of these people, it's not negotiating talk. But it is the burden of leadership right now because John Boehner runs the House of Representatives.</s>VELSHI: And John Boehner and Eric Cantor are not freshmen, so hopefully they'll be able to convince...</s>BORGER: Exactly.</s>VELSHI: ... their team otherwise. Gloria, great to talk to you, as always, thank you. Chrystia will stick around. Coming up next, the other most important economic issue facing Americans today. And is it being ignored as a result of all of this focus on the deficit?