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Debt Ceiling: Senate Republicans Flirt With Default

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WASHINGTON -- Forget the warnings of economists and the treasury secretary that a default of United States debt would be catastrophic. Senior Senate Republicans are flirting with the idea anyway, saying the nation can breach the fast-approaching debt ceiling without calamitous results.

They base that on a theory from tea party House members, who argue that the nation can simply prioritize which debts it pays if Congress fails to lift the borrowing limit above the $16.7 trillion that the Treasury Department has estimated the country will hit on Oct. 17.

"I think they're right on that," said the top Republican on the Senate Finance Committee, Utah's Sen. Orrin Hatch, speaking to reporters Monday evening. "I think the administration could work on who gets paid and who doesn't in a way that would pull us through."

"There is no reason for us to default," said Sen. Ron Johnson (R-Wis.). "A responsible administration, a responsible president, wouldn't try and scare the markets. He would be calming markets. The treasury secretary should be calming markets, saying, 'Guys, we have more than enough tax revenue coming in.' There's no reason for the U.S. to default on its debt at all."

Economists have warned that even coming close to default would be playing with fire, and failing to hike the debt limit may spark a new recession, worse than the last. Senate Democrats are reportedly getting set to offer a bill that would raise the debt limit without any extraneous riders in order to avoid that possibility.

The idea did not seem to be getting support from Republicans. Just one, Sen. Mark Kirk of Illinois, indicated to reporters that he would back a "clean" bill.

Even senators who voted for a similarly clean spending bill that would have kept the government from shutting down seemed to favor a fresh standoff as Oct. 17 nears.

"I think you gotta take [Treasury Secretary] Jack Lew at his word, but from the standpoint of does that put us in default? Technical default?" said Sen. Richard Burr (R-N.C.), who called the government shutdown a stupid idea. "No, because the federal government still has about 85 percent of the revenues that we spend coming in, and all they have to do is prioritize that we're going to pay debt service first."

The United States pays about $250 billion a year to maintain its debt.

Burr flatly said, "No," he would not back a clean debt ceiling hike.

Even Sen. Lisa Murkowski (R-Alaska), who has walked a moderate line in the ongoing fiscal battles and voted for the clean government funding bill, declined to say if she would back a similar debt ceiling measure.

Republicans seem to be banking on two theories in standing for a strategy that is if anything riskier than closing the government over Obamacare. One is that President Barack Obama will blink, in spite of his repeated assertions that he will not negotiate with a party that is threatening the economy and the credit of the United States.

"The reality is you're not going to get anything until the president engages in the process," Burr said. "There's nobody in America that believes that the president is not going to negotiate something to get an overall deal."

The second theory is the Republican belief that Obama will waver as he has not in the government shutdown. That idea seems to stem from belief that the administration is more concerned about default than Republicans, giving the GOP leverage.

"I'm not as concerned as the president is on the debt ceiling," Burr said. "The only people buying our bonds right now are the Federal Reserve," he said, referring to the Fed's efforts to spur the economy by keeping interest rates low. "It's
like scaring ourselves."

While analysts predict markets will tank and the nation's credit rating would be downgraded again -- as it was in the 2011 debt showdown -- Republicans think such talk is over-hyped.

"The credit rating went down, according to Standard and Poor's, as I recall it, because Congress wasn't doing anything to get the spending under control. It had nothing to do with the debt ceiling," said Sen. Roy Blunt (R-Mo.). "Of course, you pay the interest on the debt. It's part of the debt obligation. Prioritize the order in which you pay your bills? That's no definition of default I've ever heard used in any way. Default is when you don't pay your loan. Prioritizing how you pay your bills is prioritizing how you pay your bills." (Update: Standard and Poor's did cite the debt ceiling and "brinksmanship.")

And some think the markets will be forgiving.

"I don't think the markets have been spooked so far," said Hatch, adding that if markets realize there's an ongoing "legitimate attempt to try and make government work," they'll grant the nation leeway.

Not all Republicans seemed to agree.

Sen. John McCain (R-Ariz.), one of the harshest critics in his party over the attempts to attack Obamacare by linking it to must-pass bills, said Monday night that his colleagues were not listening to the right people.

"More important than what some of my colleagues think is what the markets think," McCain said. "And everybody I've talked on Wall Street, they will believe that it's very serious. As much as I appreciate all the elder statesmen in my party, what I respect more is what I'm hearing from my friends on Wall Street."

Still, McCain did not back moving straight to a vote to raise the debt limit, even for a brief period.

"I want to see what the dynamics of it are," McCain said. "There are too many variables for me to absolutely decide. But anything I decide will be based on the fact that we are not repealing Obamacare until we have 67 Republican votes in the United States Senate. Then we will repeal Obamacare," he said, referring to the number of lawmakers required to override a presidential veto.

Michael McAuliff covers Congress and politics for The Huffington Post. Talk to him on Facebook.

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Around the Web

Debt ceiling breach means default. - Slate

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