House Republican says growing deficits will have "dire" consequences

A leading House budget hawk says continuing massive budget deficits are just as serious as the “scare tactics” coming from the Obama administration about a possible default on the national debt.

“We don’t believe that if Aug. 1 or 2 comes and we don’t raise the debt limit, that the next day the skies will all be black and the ground beneath us and the buildings will all be crumbling here in Washington,” Rep. Scott Garrett, R-N.J., said during a National Press Club Newsmaker event Tuesday. “We do believe that if you raise the debt limit and you don’t take care of the spending problems at the same time you will face some of those dire predictions."

Garrett is chairman of the House capital markets subcommittee and of the budget task force of the Republican Study Committee, the most conservative group in the House. He also serves as vice chairman of the House Budget Committee.

U.S. Treasury Secretary Timothy Geithner has said Congress must raise the government's debt limit above the current $14.3 trillion limit by Aug. 2 to avoid a first-ever default on U.S. obligations, an event that he says would have traumatic effects on the national and global economies.

Garrett said the government could avoid calamity if a law was passed forcing the government to use the cash that would continue to come into the government after Aug. 2 to pay interest and principal on existing notes, bills and bonds ahead of other obligations.

Garrett is a prime sponsor of the Full Faith and Credit Act, H.R. 421, which would give investors in U.S. securities top priority for federal spending when the statutory debt limit is hit.

“If we were able to pass this bill and the president signed it into law …. all those scare tactics now would be off the table. All those threats of collapsing national and global economies because the US for the first time in history not paying its debts, would be off the table. And that would be a good thing,” Garrett said.

The Treasury Department has said debt prioritization is not practical, however, because it would still require the government to not make some payments on a broad range of other obligations, such as rent on federal offices, payments to power companies or contractors, salaries to employees or soldiers, or benefit payments to Social Security and Medicare recipients.

The prioritization theory also anticipates the government could continue to roll over existing debt as it matures, such as the roughly $500 billion in six-month Treasury bills that mature in August. Administration officials questions who would buy those bills, and what kind of interest premium they would expect in return, if the government is not paying other creditors and beneficiaries at the same time.

Garrett dismissed those concerns, saying that the Wall Street credit rating agencies that have threatened to downgrade the government’s rating are concerned only with investors.

“They’re not looking at whether Greece is paying the contract on the lease for the cars over there or Italy’s paying for the food service program,” he said. “That’s how, as far as our understanding, is how the credit rating agencies would be looking at any action by this administration. They wouldn’t be looking into the subtext of some of these other areas.”