VIDEO: At Budget Committee Hearing, Boyle Questions Chief Economist of Moody’s Analytics on GOP’s Economic Schemes, Consequences of Default

Mar 29, 2023

WASHINGTON, DC — Today, at the House Budget Committee hearing on the “Fiscal State of the Union,” Ranking Member Brendan F. Boyle questioned Dr. Mark Zandi, Chief Economist at Moody's Analytics, on Republicans' mathematically unworkable plan to balance the budget in 10 years, the tremendous consequences of breaching the debt ceiling, and why so-called “debt prioritization,” an idea put forward by Republican lawmakers, is just “default by another name.”



Ranking Member Boyle began by asking Dr. Zandi about many Republicans’ intentions, including Speaker McCarthy, to balance the budget in 10 years while at the same time, not increasing revenues or making changes to Social Security, Medicare, or defense spending:


“Can you talk about what level of cuts would have to go to everything else government does if you were to attempt to pursue a policy like that?,” Boyle asked.


“CBO actually released a memo very recently documenting the severity of the cuts that would be necessary to achieve a balanced budget 10 years from now, under the restrictions that you articulated. And pretty clearly, it's not realistic,” Zandi replied. “It would require a complete cut of all discretionary, non-defense spending to achieve that. And that probably understates things in the sense that it's a static score, meaning it doesn't account for the impact of those changes on the economy and what that would mean for revenue, and what that would mean for the automatic stabilizers and spending. So it's probably not even possible to achieve that over a 10 year period… I don't think that proposal is at all feasible or realistic.”


Next, Ranking Member Boyle asked Dr. Zandi to describe some of the consequences that would come to pass if the U.S. government were to breach the debt ceiling for the first time in American history:


“There's immediate consequences and longer term consequences,”Zandi replied. “The immediate consequence — I think under any scenario — would be we would go into recession, it would be severe, financial markets would be upended.”


“What would be the effect on the status of the dollar as the world's reserve currency?,” Boyle asked. 


“It would be significantly diminished,” Zandi replied. “How could it not be? I mean, the reason why the rest of the world wants to put their savings into dollars as a reserve currency is because they feel it’s money good… If we break that, then interest rates will be higher forever, and the cost — interest expense — to us would be higher, and our fiscal problems more significant.”


Finally, Ranking Member Boyle asked Dr. Zandi how financial markets and the rest of the world would interpret so-called “debt prioritization,” as outlined in a bill recently passed out of the GOP-led House Ways and Means Committee:


“Would they interpret it as legitimate, or would they in fact interpret as basically default by another name?,” Boyle asked. 


“They would view it as… ‘I'm not going to get my money on time as is agreed to,’” Zandi replied. “They would stop buying bonds, which would already send interest rates up because foreign investors are big purchasers of bonds — and then ultimately start selling bonds, depending on how things kind of unfold. But they would not remain as investors in US treasuries, certainly not to the degree that they are right now.”