Liberal Forum

Republican Senator Calls For Repeat Of 1995 Government Shutdown: If We Hold Strong We Can Do That AgainTea Party-aligned bagger Sen. Ted Cruz (R-TX), within days of being sworn in, is already calling for a government shutdown unless Congress agrees to massive budget cuts.During an appearance on Mark Levins radio show Friday, Cruz waxed poetic about the last time Republicans successfully shut down the government in 1995, arguing that a shutdown leads to better economic policies. Because Republicans stood strong in 1995, we saw year after year of balanced budgets, Cruz said. He went on to call for a repeat as Republicans hold the nations fiscal solvency hostage in the debt ceiling fight next month. If we hold strong we can do that again, the Texas Senator declared:CRUZ: What would happen if the debt ceiling isnt raised is it would be a partial government shutdown. Weve seen this before, we saw this in 1995, when Republicans in the House shut down the government. What happened was it was a partial shutdown, there was some political cost to be paid but at the end of the day, because Republicans stood strong in 1995, we saw year after year of balanced budgets and some of the most fiscally-responsible policies Congress has produced in the modern-era. If we hold strong we can do that again. It just comes down to Republicans. Are we willing to stand strong and face the wrath of the mainstream media criticizing us and the president saying nasty things about us?Ezra Klein explains what would happen if America defaults on it's debt.VIDEOTranscript:The Bipartisan Policy Center, or BPC, they project right now that the debtceiling doomsday, really the final day for it, would happen sometimebetween February 15th and March 1st. Either Congress figures out the debtceiling before then or things get very bad, very quick. First, it willmean that the federal government will have to default on about 40 percentof our obligations; 40 percent of what we do gone.So let`s say the government decides to pay off our debtors. They makepayments for Social Security, Medicare, Medicaid, defense, education andFood Stamps, kind of just the bare services there. Doing all that willmean defaulting on everything, and really I mean everything else. The FBIwill shutdown. The people responsible for tracking down loose nuclearweapons lose their jobs. The prisons don`t operate. The biomedicalresearchers aren`t funded. The court system closes its doors.Federal Aviation Administration offline. The parks close. Food safetyinspections, they cease. No one gets tax refunds. Nobody is fixing yourroads. It is bad.Second, meanwhile, two, the financial markets will go into complete chaos.The U.S. government debt is, after all, supposedly the safest investment inthe world. So it is used as the benchmark for all other kinds of debt.What that means, in normal language, is when you buy a mortgage, your banklooks at what the government pays to borrow. And it begins your interestrate there. Then they add on top of that how risky they think you are.So if we spike the Treasury rate because nobody trusts our governmentanymore, that spikes credit card rates. That spikes mortgage rates, not tomention all manner of trillions and trillions of dollars of weird financialderivatives that are also benchmarked to Treasuries.The damage to the economy on that would be unbelievable. And it wouldoccur at every level, from individuals looking for a loan to get a house tohedge funders trying to play the markets. It would be like 2008 all overagain. And if we breach the ceiling for long, maybe even worse.All of what I have mentioned so far, amazingly, is actually a best casescenario. It is what happens if we breach the debt ceiling in an orderlyway. But what if it is not simple? What if it`s not orderly? That getsto the third point.The government`s computerized payment system could go haywire. The federalgovernment needs to make more than 100 million -- 100 million individualpayments between February 15th and March 15th, 100 million. That is notdone by a clerk in an office somewhere whose hand doesn`t get tired. Thosepayments are computerized. Those computer systems are not built to stopmaking half of them. There is a real question as to whether the federalgovernment could actually re-program its software to seamlessly beginpicking and choosing which bills to pay and which to ignore.And if there is a glitch, then it could that after assuring our bondholders that we would never miss a payment to them, the governmentaccidentally does fail to pay them, throwing financial markets into panicbecause they can no longer trust our word.Fourth, the consequences of breaching the debt ceiling, they don`t go away.We will have done something we told the markets and the world that we wouldnever do, not under any circumstances. The U.S. would have proven itself ariskier borrow, with a more broken political system than anyone everthought possible.The Bipartisan Policy Center, they estimate the last debt ceiling fight, itcost us 19 billion in higher borrowing costs over the next decade. In thatcase, we didn`t actually go over the debt ceiling. We didn`t breach it.If we actually do this time, the costs will, of course, be much higher, andthe damage much longer lasting.The fifth -- the fifth and final point is, ironically, for those who wantto use the debt ceiling as leverage to reduce the deficit, busting throughthe debt ceiling would almost certainly make our deficit so much worse.The damage to the economy now would increase the deficit. Spending goes upand tax revenues go down when the economy flags. We just saw this duringthe recession.And the higher borrowing costs later because nobody trusts America anymore,that would also increase the deficit, as we would paying more to servicethe debt we already have than we`re expected to do.