By Erik Wasson - 05/08/13 05:29 PM EDT
Ways and Means Committee Ranking Member Sander Levin (D-Mich.) read out the interview on the House floor.
“It’s not sound … it endangers our economy!” Levin said. “In a word this is irresponsible. Default is default is default … Republicans are playing with fire I think in order to gain leverage.”
“I give him an A for honesty but an F for priorities. He’s correct, the bondholders will be paid first and a significant bondholder is China,” Rep. Peter Welch (D-Vt.) said.
Welch said that the GOP House majority could be threatened.
“How can they not pay a political price?” he said. “The only thing that is saving them is these gerrymandered districts. The problem is what pleases the base in these districts works against them nationally.”
Welch said that were the U.S. only to pay bondholders, Wall Street would force Congress to act.
“The market will not accept it and external forces will pistol-whip Congress to do what it is reluctant to do,” he said.
Rep. John Delaney (D-Md.) said that considering the bill could permanently plant questions surrounding the U.S.'s commitment to all of its obligations.
"We may be potentially changing the framework permanently for how people think about the United States' credit because we want to send a political message or because we want to give ourselves more flexibility to handle a difficult decision," he told The Hill. "It just takes us down a troublesome path."
Delaney contended that no borrower willingly agrees to prioritize its payments. Rather, borrowers that need to assure the market that they are capable of meeting their most important obligations have prioritization forced upon them.
"When people believe that you are a very strong credit, your ability to pay back your debts are very good, they don't ask you to prioritize your debts. They expect you to pay them all back," he said. "The implicit message [of prioritization] is you should not always rely upon us to repay our obligations."
Rep. Tom McClintock (R-Calif.), the sponsor of the bill, said his measure is not meant to substitute for a debt ceiling increase.
“Delaying payments on our other obligations would do enormous damage – but one thing could do even more damage -- and that is the threat of defaulting on our sovereign debt," he said “H.R. 807 takes that threat off the table and assures credit markets that their investments in the United States are absolutely guaranteed no matter what political storms are raging in Washington."
The $16.4 trillion debt ceiling is slated to come back into effect on May 19. Under current projections, Treasury should be able to avoid defaulting on any payment obligations until September or October. The Bipartisan Policy Center estimates that if the Full Faith and Credit bill were enacted, Treasury would have until about November before it would have to miss some payments.
Obama has said he would not negotiate over the debt ceiling, even though he did in 2011 and agreed to $2.1 trillion in spending cuts.
Democrats say the GOP is trying to shield itself from criticism that using the debt ceiling to negotiate a budget deal is risky by muddying the waters over what a default consists in.
The House GOP will meet May 15 to decide what to demand for in exchange for a debt ceiling increase. A leading idea is to tie it to tax reform that boosts growth and thereby lowers the debt.
Peter Schroeder contributed.