Schumer: Defaulting on debt a recipe for 'economic nightmare'

WASHINGTON — Senate Majority Leader Chuck Schumer on Wednesday warned that if Congress fails to raise the debt limit by summer and the federal government defaults on its debt, it will be an “economic nightmare,” especially for Long Island.

Schumer issued that cautionary note the day before the U.S. debt is set to hit its statutory limit Thursday, triggering extraordinary Treasury Department measures to delay a default until June. Schumer, of New York, pinned his hopes of avoiding a default on “mainstream” Republicans.

“The vast majority of Republicans, mainstream Republicans, far more conservative than the average Democrat, know that default is a disaster,” said Schumer as he sat by his lit wood-burning fireplace in his Senate office in the Capitol building.

“It’s an economic nightmare for Long Island,” Schumer told Newsday. “It would hurt homeowners. It would hurt Social Security recipients. It would hurt students. It would hurt people buying cars. It would hurt anyone who has an IRA or 401(k).”

Avoiding catastrophe

But Schumer said Congress can avoid that catastrophe.

“We should come together on a bipartisan basis and not play any brinkmanship and get it done,” Schumer said. “We did it for four times in the last five years, whether it's Democratic control, Republican control and mixed control.”

Democrats and the White House insist that Congress should simply raise the debt ceiling, without any conditions or negotiations — just as it did in 2021.

“That’s totally off the table,” House Speaker Kevin McCarthy (R-Calif.) told reporters Tuesday. “We’re six months away. Why wouldn't we sit down now and change this behavior, so that we would put ourselves on a more fiscally strong position?”

Conservative Republicans say they will not vote to raise the debt limit unless Congress agrees to make deep cuts in fiscal 2024 discretionary spending and possibly accept the Republican Study Group’s plan to slash $14.4 trillion in spending over 10 years.

“Any debt ceiling increase has to include cuts,” said Rep. Andy Ogles (R-Tenn.) on Wednesday on Fox Business News.

“For too long, the government spending has been out of control. And we must hold the line as we move forward,” said Ogles, a member of the conservative House Freedom Caucus.

Playing with fire

“The MAGA Republicans are playing with fire,” said Schumer, referring to Trump loyalists such as Ogles. “The bottom line is it's needless and nasty and gratuitous. It just makes no sense.”

Schumer added, “I want the GOP to work with us. And if the MAGA Republicans stop paying the bills, Long Islanders are going to pay the price.”

William Hoagland, a senior vice president at the Bipartisan Policy Center and a former Republican budget and appropriations director, said Congress looks like it is headed for a replay of the 2011 debt-limit standoff.

“It's the same almost identical exercise. We ended up with tenure caps on discretionary spending,” he said.

After protracted negotiations, the Obama White House and congressional leaders agreed to a cap on spending, called sequestration in Congress lingo, that lasted a decade.

“We learned from that, that brinkmanship is really scary, number one,” Schumer said. “And that, even though we avoided default, we came so close that the credit rating went down and interest rates went up. And it hurt people, not as much as it would in default, but it hurt. So even trying to go right up to the line causes real problems for Long Islanders and for American people,” he said.

“The deal that was cut with sequestration was so bad, that everyone howled, and it had to be lifted because it hurt … health care and education and cops on the beat, and firefighting, but it also hurt defense,” Schumer said. “Those cuts were mild compared to the cuts that these MAGA Republicans are suggesting.”

In 2021, Senate Minority Leader Mitch McConnell (R-Ky.) for months told Democrats to raise the debt limit themselves through a budget reconciliation bill. Schumer refused. In the end McConnell let Democrats pass it with their slim majority.

“That's another thing I've learned from 2011 versus 2021,” Schumer said. “If we stay strong and say we're not fighting a deal, eventually mainstream Republicans will come to their senses.”