This weekend, Business Insider politics reporter Brett LoGiurato went to Gainesville, Florida to interview Rep. Ted Yoho (R-Fla.) who has insisted that hitting the debt ceiling would “bring stability to the world markets.”
In his interview with Business Insider, Yoho elaborated on this idea:
What the Washington Post said, and what got picked up is, ‘Ted Yoho thinks default is good for the government and for the economy.’ And that’s just an outright falsity or lying. Because what I said was, not raising the debt ceiling does not automatically trigger a default.
And if we address our problems, and we say, ‘Brett, I owe you money — you know I owe you money, and I’m going to pay you. I’m going to pay you with interest. But we just need a little breathing room here to reorganize our debt.’ I don’t know if you’ve ever been in business with people who have owed you money…
And if you had someone that owed you money, and if they were to call you up and tell you that — instead of just trying to hunt them down, you’re not going to feel better about that?
So, Yoho is proposing a restructuring of U.S. debts along the lines of a Chapter 13 bankruptcy. What he’s describing — going to your creditors, saying “we just need a little breathing room,” and getting new terms on your debt that allow you to pay — is the bankruptcy process.
I used to be a banker, and in every loan agreement I ever worked on, filing for bankruptcy was high on the list of defaults.
It is also possible to engage in a voluntary restructuring outside of bankruptcy. When a debtor calls up a creditor and asks for a reorganization, that might make the creditor “feel better” — relative to a scenario where the debtor hides from the creditor and makes no payment at all. It does not make the creditor feel better compared to a scenario where the debtor pays as agreed.
When a borrower comes to you asking for a restructuring on the grounds that he needs “breathing room,” that is a sign of financial distress that warrants a high interest rate to compensate the lender for risk. If the U.S. is going to keep its world’s-lowest borrowing costs, it can’t be going to creditors saying it can’t afford to pay as agreed.
I understand why Republicans are frustrated. They were sure that President Obama’s deficit spending would cause a debt crisis. Creditors would flee Treasuries out of fear that the U.S. will be unable to pay its debts. Or at least they would demand higher bond yields out of fear of inflation. But the bond markets have not cooperated; interest rates are very low and investors think the U.S. is a great credit.
So Republicans have been forced to invent a debt crisis, either in their own minds, or in the real world by pushing the government into a default created by political circumstances instead of economic ones. They are sure that we can’t afford to go on spending this way, and they will make sure that’s the case, even if they have to break the financial system to do it.
It’s crazy. But then, these people are crazy.
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