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Brian Lehrer: It's The Brian Lehrer Show on WNYC. Good morning, everyone. Here we are on the precipice of a US government default on paying its bills and providing its services, which the experts say would likely come in early June if the President and the Republican House of Representatives can agree on terms for raising the debt ceiling, right? Most of the coverage right now is focusing on the negotiating positions of President Biden and Speaker of the House Kevin McCarthy. We'll start today a little differently, looking mostly in some detail at what default might actually entail, who gets hurt, how, and how quickly.

We will get into the negotiations too, which are at a very interesting point right now with both sides reportedly ready for some compromises, but also some new Republican demands. My guest for this is Jeff Stein, White House economics reporter for The Washington Post. Since joining The Post in November 2017, he has covered the Republican tax law, the government shutdown, and the administration's economic response to the coronavirus, among other topics. He has an article ominously titled 7 Doomsday Scenarios if the US Crashes Through the Debt Ceiling." Jeff, thanks for coming on. Welcome to WNYC.

Jeff Stein: My pleasure as a New Yorker at heart. Thanks so much for having me on.

Brian Lehrer: First, this June 1st date we've all been keying on, it's more accurately as early as June 1st, I think, and different experts are predicting different dates for actual default, but are they all landing on some time in the first half of June?

Jeff Stein: Yes, so tax revenue and tax payments are notoriously volatile. It's very hard to predict precisely how much will go out or come into the US Treasury every day or every week. That's created this quite unfortunate situation where lawmakers on Capitol Hill don't know exactly what the drop-dead deadline is and it's created this little bit of uncertainty. Our best guess right now is probably June 8th, June 9th, in that range, but what Treasury Secretary Janet Yellen has said is that she cannot guarantee that the US government will not default any time after June 1st.

Brian Lehrer: You reported on Treasury Secretary Yellen asking federal agencies if they can delay payments for a while without cutting the actual services. Any agencies that are most important to that and how would that delay the so-called X-date?

Jeff Stein: What we reported is that the Treasury Department sent out this memo to the federal agencies. It's important to be clear here. What they were not saying was, "Take some payments and see if you cannot make them." What they were saying is, "What flexibility might you have legally without any impact to services? If a bill could be paid, I guess, between Wednesday and next Tuesday, if there is no impact otherwise, maybe we'll make it next Tuesday to give us a little bit more breathing room." I think it set off a bit of a hilarious response on Twitter when I pointed this out. It's really just managing your checking account day-to-day and seeing what payments you can put off by a little bit.

Brian Lehrer: Yes. Gee, the government, just like us regular folks. An article by your Washington Post colleague, Amber Phillips, says, "If the government defaults, it would not be pretty," the words in the title. "It would not be able to borrow money to pay for Social Security, issue tax refunds, or pay the salaries of federal workers and members of the military." That's pretty dire. Would all that happen at once on X-date plus one?

Jeff Stein: That's a great question because when you talk to economists about this, what they really stress is the degree, the severity of the impact, the financial harm from a default really magnifies, really grows the longer this goes on. I'll just say quickly. When we had the 2011 debt ceiling stand-off under President Obama, the stock market fell by close to 20%. That was without the default, right?

What happens if we're in a scenario where not only do we get close to the precipice but we go beyond it possibly for weeks? Which I don't think is likely, but in that scenario, that's why we call it a doomsday scenario. The US government is the foundation of the US economy and the US economy is the foundation of the global economy. So much of economics is psychological. What you would really see is a worldwide crisis of confidence.

The White House has estimated, more than eight million jobs could be lost. We've been looking at projections that suggest an economic contraction on the level of the Great Recession. We've seen estimates of a 45% or more decline in stock values and $3 or $4 trillion in lost household net worth. These are obviously terrifying numbers if we get to the impasse and they resolve it or they go a little bit beyond. Maybe this will sound hyperbolic in retrospect, but this is the magnitude and the scale of the problem we're looking at.

Brian Lehrer: Listeners, your questions and comments welcome here on what would happen if the government actually hits the debt ceiling for Jeff Stein, White House economics correspondent for The Washington Post. 212-433-WNYC, 212-433-9692. You can ask about details of the negotiations too, but we're mostly focusing on scenarios in an actual default.

We also are experimenting with something with our phone number. We think we've set up a system by which you can text our phone number your question or comment as well, so call or text 212-433-WNYC and we'll see if it works. Of course, your call is welcome. If you want to hear your voice on the air, we want to hear your voices on the air, so let's have actual conversations with our voices, 212-433-WNYC.

We're also testing out this system where you can text a comment or a question and we'll see if we see it. Same number, 212-433-WNYC, 212-433-9692 for Jeff Stein, White House economics correspondent for The Washington Post. Jeff, Amber's article says the government might have to choose if there's a default between paying members of the military or paying investors in China. Why could those two things specifically become an either/or choice?

Jeff Stein: I think this is a useful shorthand that reporters have used similar language to just exemplify the stakes. There's nothing about those two things that would necessarily be pitted against each other. The situation we would be in, in the event of a default, is that the US government would not be able to borrow to close the gap between its spending and its revenue. In that scenario, every day, the US government gets an influx of, basically, bills from all of the thousands of different services and contractors and people that it employs.

The way it works out is if they need more money to make those payments because it exceeds the amount of incoming revenue, they go in the market and borrow some money, and then they can make all the payments. This is a scenario in which that is not possible. We really have no idea what that would look like. This is a process called "payment prioritization." It's never been done before. Treasury Secretary Janet Yellen says it would be really a nightmare because you're looking at some degree of payments that the federal government regards as critical.

The volatility in that is such that, some days, maybe the government would have enough money because of incoming tax revenue, and then the next day, it wouldn't. I think it's useful for people who are just trying to wrap their heads around this to use the debt payments on the principal, what you're referring to with the bondholder payments to China versus the military versus Social Security. The reality is just nobody really knows exactly what that looks like.

Brian Lehrer: Let's take a phone call. Here's Robert in Brooklyn who has, I think, a basic question. Robert, you're on WNYC. Hi there.

Robert: Oh, thank you. Yes, I keep hearing on the news on TV. The Republicans are demanding deep cuts in Medicare, Medicaid, and food stamps. With regards specifically to Medicaid and food stamps, they're demanding work requirements, but they don't specify on TV who would be required to work. Would it apply across the board for work requirements or would anybody be exempt like senior citizens or people with children? Again, it's mainly about Medicaid and food stamps.

Brian Lehrer: Robert, thank you very much. That's one of the negotiating positions of Speaker Kevin McCarthy. This is not on a scenario if the default actually happens, but we are talking about the negotiations too. Jeff, do you know the answer to Robert's question about the work requirements that McCarthy wants?

Jeff Stein: Yes, so on the question of Medicaid, President Biden and the Democrats I have talked to have been extremely adamant there's a red line that they will not accept new work requirements on Medicaid. I believe the Republicans have essentially proposed allowing states to tighten them. If you're in a blue state, you're less likely to be exposed. This is something I've been focusing on less because everything I hear from the negotiators is that that is not an option. That is not going to happen.

However, the White House has been open quietly to the idea of work requirements on food stamps. My understanding of what they've discussed primarily is, primarily, either more strict requirements around paperwork to basically require people to fill more paperwork to prove that they're looking for work because there are some existing food stamp work requirements, and then separately changing some of the age eligibility. This is a bit of a pop quiz for me, so I'm doing my best.

My recollection is that it only applies to people of a certain age bracket and they could maybe expand that. More people who are slightly older would also be exposed to work requirements. I think that actually is a part of active discussion right now. We don't know exactly where this will go at the end of the day. I will say it is the case that Republicans have pushed quite strenuously for Medicaid work requirements. Even though it's not going to be in the deal, that is something certainly the party stands for.

Brian Lehrer: Here's a question that has come in via text. Listeners, I just want to say as an aside that I love you all so much. A bunch of you are jumping in just as friends of the show to text us things like, "Testing, Brian. Just seeing if the system works." [laughs] Thank you for being our volunteer beta testers. The system does appear to be working and we have a number of substantive texts coming in as well on the issue, so that's awesome.

Looks like we have a new way to receive your questions and comments. Some of you know that we decided to look for some alternatives to Twitter. We're still using Twitter, but some of you don't like using Twitter anymore. We are setting up alternatives to Twitter in addition to Twitter, so just saying. That's the context for this text messaging service that we now have. This text, Jeff asks, "Why do they have to borrow to make Social Security payments?" It's a good question.

Jeff Stein: That is a great question.

Brian Lehrer: Are we that out of money? On June 1st or whatever the X-date actually turns out to be, the government has $0?

Jeff Stein: It is a great question. I think in the event that we actually hit a default, depending on what the Treasury Secretary wanted to do, you would have some very difficult choices because the US bond, the government debt, the debt that the US has issued is such a safe asset that it has really become the building block of the global economy. Investors worldwide, countries around the world, they use this as a safe asset, as a reserve asset to build their financial portfolios.

The fear is that if we miss a payment on the bond, you could trigger a collapse in the global economy. When pitted against the prospect of not making Social Security payments, maybe that takes precedence. I'm not saying anyone at the administration has said that. I'm saying that's one potential calculation that someone could make. That said, the amount of revenue, especially the first few days of a default, would be probably enough to make most Social Security payments.

I think another interesting wrinkle to this that I actually got curious of because I didn't understand it just a few days ago and I was trying to understand this question is the Social Security and Medicare programs are run as trust funds. You and I, we pay money out of our paychecks every two weeks or whatever to the trust funds. My question was, why would payments be impacted when our money is already going separate to the Treasury Department?

This is not actually how the programs work in practice. They actually take the money that we send to them and they convert it into Treasury bonds. Every time Social Security and Medicare send out money for benefits, what actually happens is the Treasury Department is basically redeeming the bonds that are held by the trust fund. It's not like the money we are spending or paying via tax collection to the trust funds actually ends up directly in the trust funds that are just there waiting to be reapportioned to people's benefits.

Brian Lehrer: There are a few steps there, but that's a pretty clear explanation. Thank you for that. I want to drill down a little further on something you brought up a couple of times already, which is effects on the private sector, not just the things the government pays for directly. In your article called 7 Doomsday Scenarios, the first words are, "Federal workers furloughed. Social Security checks for seniors on hold," but then, "Soaring mortgage rates. A global financial system sent reeling." On those last two, soaring mortgage rates and the global financial system reeling, can you take us into the global financial system piece and the soaring mortgage rate piece just because the government can't pay its bills for maybe a short time?

Jeff Stein: Yes, it's a great question. This goes back to what I was saying earlier about the centrality of US debt to the global economy and also, in particular, the US housing market. Forgive me if this is too long-winded of an answer. Essentially, the way the housing market works is that people get loans. Those loans are tied in part to the overall interest rate environment. Interest rates are closely correlated with the interest rate on government debt.

If we had a debt ceiling crisis, what would happen according to The Economist is that the investors would be demanding a much higher premium on government debt because they would not be sure that that debt would be repaid, right? In that scenario, interest rates are tied broadly in the economy to the rate of the government bonds that are issued. What you're looking at in that situation is a real spike in interest rates throughout the economy.

Zillow did a report on this recently looking at how the housing market would be impacted. What they first found was that mortgage rates would rise above 8% in that event, right? We had this incredible runup of housing prices in a housing bubble that was triggered by the Federal Reserve's rate cuts to combat COVID. This would be that in extreme in the other direction where you would have mortgage rates brought up very quickly with interest rates.

As a result, housing sales would collapse. The Zillow report found a 23% decline in housing sales, which would be unprecedented historically. Again, these are worst-case scenarios, which is what my story was about. I'm not saying this will happen immediately or anything. There are so many sectors that are dependent on the housing market running quickly, and so construction and renovation and all that stuff could be impacted.

Your second question about the global economy, I think, is really important for people to understand and it's a little abstract. Foreign nations really base their currency reserves-- currency reserves is not the right word, but base their financial reserves, their safe assets in US dollars because the US government is so widely assumed to be able to pay back their bills.

In Latin America, in Asia, we've already seen the Federal Reserve's rate hikes have had a really big destabilizing impact on geopolitical-- The geopolitical instability has risen because a lot of countries are facing this balance-of-payments crisis where the rate of their repayment on the assets that they're holding in US government debt is going up with higher interest rates, right?

This could be a similar scenario to what the Federal Reserve's impact is having on poor and middle-income countries throughout the world but all at once and magnified. This could affect the ability of other countries to pay their citizens the stipends and health care and whatever that they need. We've already seen not directly, but in some countries, governments potentially fall because of the declining value of the dollar.

Brian Lehrer: Can you cite one or two of those? That's so interesting. I'm sure our listeners would like to be taken into specific on that. I don't think that makes the news so much. You're telling me that governments have fallen because the US government raised interest rates in the last year?

Jeff Stein: Yes, the value of the US dollar-- Sorry, just give me one second. I'll find it. I apologize.

Brian Lehrer: I know your article cites Sri Lanka and Pakistan as countries that are potentially susceptible to protests and geopolitical instability if there's a default. We know a former president of Pakistan is now being put on trial. I don't know if that's related to this at all. Just curious if you know, but I think we understand the theoretical possibility and the links there.

Jeff Stein: Yes. No, no, there was a huge revolt in Sri Lanka. This is a while back now. This is a few months ago, but they were widely attributed by economists to be, at least in part, tied to the financial crisis that the government there had. Sri Lanka was unusually exposed to US government debt. In normal times, that's not a sign of financial mismanagement.

Remember, as the government issues debt with a higher yield, which is what the interest rate hikes are doing, the value of their existing store of US dollars declines because, now, investors can get better, more quickly appreciating dollars elsewhere. You're seeing the financial floor get cut out from under them very quickly. Sri Lanka was the country I was thinking of that's already been troubled by this, but there's lots of others.

Brian Lehrer: Jeff Stein with us, Washington Post White House economics correspondent, as we talk about what might happen if there is actually a US government default if we hit the debt ceiling without a negotiated agreement to raise it. We're talking about the politics of that too. I think Joe in Pound Ridge is going to try to connect these two, some of the effects you were just laying out on the private sector. and why they are or are not causing certain political reactions. Joe, you're on WNYC. Hi there.

Joe: Thank you, Brian. Yes, my question is that if the prediction is that if the US defaults, it can make the stock market tumble 40% or whatever like it did in '08. I'm wondering why Kevin McCarthy and Mitch McConnell, I'm sure they're hearing from, but rich Republicans, millionaires, and billionaires who are going to lose millions and billions maybe if that happens, and why rich Republicans aren't telling those guys, "Hey, cut it out. Don't make this happen," or maybe they are and it's a lot of gamesmanship and bluffing going on, but don't rich Republicans stand to lose tons of money?

Brian Lehrer: It's a great political question. Jeff, do you know the answer?

Jeff Stein: That is a great question. I think you're going to start to see it now. I had a story yesterday that got into this a little bit. I think the key dynamic so far for the first few months until maybe a week or so ago in the talks was that President Biden was saying, "I will not negotiate over the full faith and credit of the US government. Republicans were saying, "Yes, you will."

I think where the White House may have miscalculated is that they expected exactly the kind of people you're talking about to have their back, that the White House thought they could split the Republican coalition by getting rich people in business groups to yell at Republicans and fold. That really didn't happen. It's such a good point you bring up because, to me, the mystery is why. I think the core of it is that Wall Street and business groups and rich Republicans have gotten accommodated to or used to these debt ceiling standoffs.

We actually, to this day, see this on Wall Street. Markets have been relatively in check because they still believe that this is all Kabuki theater and they'll get a deal done. The urgency from rich Republicans has been muted by the expectation that this is all theater at the end of the day. Maybe they'll prove right and freaking out about it will have been ill-founded. The optimism that this is just showmanship has really, I think, undermined the White House's position in getting Republicans to fold.

Brian Lehrer: Felix in Roosevelt Park, New Jersey is going to be our next caller right after our break. Felix is asking a question that nobody else on the board is asking, which is, "Could there be some long-term benefits to a short-term default?" Stay with us.

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Brian Lehrer: Brian Lehrer on WNYC as we continue with Jeff Stein, White House economics reporter for The Washington Post, as we talk about what would actually happen if there's a government default if they don't resolve the debt ceiling negotiations by early June. We also will get into some of the negotiating details that are coming out. Now, I promised Felix in Roosevelt Park, New Jersey, but there actually is no such place. I misstated Roselle Park, New Jersey. Hi, Felix, you're on WNYC.

Felix: No worries. Good morning. I just want to preface my statement question that I'm not an anarchist. [chuckles] I did have a silly devil's advocate proposition of a question. If the government is constantly raising the debt limit, is it really a debt limit that's functioning that it keeps people or government officials from constantly taking on more debt and more loans and in perpetuity essentially? Are there long-term benefits aside from inflation and mortgage rates that were mentioned and Social Security issues, Medicare?

Something like this could actually rebalance the thought process as to us taking on constantly more debt, or not calling it debt because we're always raising the limit. Is there something long-term years down the line, maybe generational, that would actually help us to do this? The mortgage bust of '08 showed us that housing wasn't as prudent as it could have been. The banks had better financial policy in place thereafter. It was more stringent. Would this apply to a grand scheme of things in the long run?

Brian Lehrer: Thank you, Felix. Fair question, Jeff. In a way, that's the basis of Speaker McCarthy's negotiating position, isn't it?

Jeff Stein: I think that is a great question. It's funny you said anarchist because before the ad break when I heard the call previewed, I was thinking about a friend that I was joking with that this is like an anti-imperialist ploy to reduce the US power globally.

Brian Lehrer: [laughs]

Jeff Stein: To the real substance of the question, I think there are lots of economists, including Democratic economists, who look at our long-term spending trajectory as quite alarming. We face debt to GDP levels in the next 10, 20 years that are at unprecedented highs. Already borrowing costs, basically interest payments on the debt, which economists agree are just basically taking money and throwing it in the garbage that those costs are skyrocketing.

They're still relatively low as a percentage of GDP historically, but they are ticking up. That is, I think pretty clearly, a waste. I think a lot of economists think this part of it is overstated, but Republicans keep saying, "At some point, will people start to doubt the value of the US dollar if we just keep printing more money and getting inflation, that set of concerns, even though inflation has begun ticking down?"

I think this is really getting at the core issue that Republicans are raising and the reason they're willing to risk all this US economic instability, assuming that you dismiss the cynical motives that this is all about making life more difficult for a Democratic White House. To me, the thing that a lot of Democrats would say and I think fairly is that every year, the government does have to decide in a bipartisan way what they're going to spend on the government appropriations.

You might be familiar with the government shutdown. That's when they fail to come to an agreement on government spending levels for that year. I think it's very reasonable for critics of the Republicans to say, "You could have had this fight in September." The government is set to run out of funding in September. That would've been a time where you could have had this debate over whether the government will shut down. That debate would be taking place in the context of a government shutdown.

It is scary. It can hurt people, but it is not the geopolitical calamity that going through the debt ceiling would be an order of fight significantly with significantly less collateral damage. That would still present an opportunity to reign in long-term debts, at least partially. The other thing is the Republicans and the White House, to be fair, they've put aside huge factors here for the debt. Taxes are off the table. We're not even talking about potential revenue increases as part of the debt ceiling deal to lower the debt.

We're not talking about, by far, the biggest drivers of federal spending: Medicare, Social Security, Medicaid. The military, Republicans are talking about increasing spending on that, is about 15% of the federal budget. I think even if you agree that forcing a conversation about the debt limit might be wise because our long-term debt trajectory is unsustainable, there's lots of legitimate criticisms, I think, of the way they've gone about doing it.

Brian Lehrer: To the negotiations, your report that after refusing to negotiate for months, President Biden's aide last week did offer substantial concessions on the federal budget, including a freeze on spending for two years that nonpartisan estimates have projected could cut deficits by as much as $1 trillion over the next decade. That's pretty big. You report House Republicans do appear willing to drop some of their demands, especially a call for Biden to abandon his student loan forgiveness program, and they did want him to cancel some green energy tax credits. You report they're also determined to push for more concessions that weren't even in that original Inflation Reduction Act legislation. What are some of those new Republican demands that you're reporting and how do you see the state of the negotiations?

Jeff Stein: The new demands really are on the work requirements for SNAP that we discussed earlier for food stamps. In terms of the state of negotiations, I want to just briefly explain what's going on because it does sound like a lot, $1 trillion over 10 years from a spending freeze. The Republican perspective is that that's not good enough because the majority of those savings, the deficit reduction from the one-year, two-year spending freeze, come from year 3, 4, 5, 6, 7, 8, 9, 10 where if we hold spending in place for year 1 and year 2, then every subsequent year, you are pocketing the difference between what it would've been and how it's rising.

Republicans are saying, "Well, we are not okay with merely keeping spending in place. We want an actual reduction." That's their line. "We have this uncontrollable spending and debt problem. We want to spend less money." McCarthy has said this a dozen times, if not more. "We want less spending next year than this year." A freeze doesn't do that, which they're corrected out. However, from the Democratic perspective, this seems like an outrageous ask, and I'll tell you why.

It's because they are supplementing their desire for an overall spending cut with a simultaneous desire and demand that the government spend more money on the military, on border security, and on veterans. When you do that when you shelve off veterans and those three programs from cuts, what you are essentially doing is for the overall number to still go down by 1%. You're acquiring everything else in this part of the federal budget to be eviscerated-

Brian Lehrer: To go down that much more.

Jeff Stein: -by 8% to 12%.

Brian Lehrer: You're telling us McCarthy is calling for more spending for his favorite programs while publicly saying this is all about spending less. I hear you, that estimate 8% to 12% of cuts from the other programs. A listener texts, "What about--" Oh, I have the wrong text up. [chuckles] I'm going to have to summarize it. Oh, here it is.

"Why not discussion about the flip side of debt tax cuts these past 50 years?" is what the texter says. What about just the Trump tax cuts for the rich? That, of course, contributes to the deficit as well and the accumulated debt because the government gets less revenue. Obviously, McCarthy doesn't want that, but any chance that some kind of rollback of the tax cuts for the wealthiest Americans will wind up in the final version of whatever they negotiate?

Jeff Stein: Yes, I had an exclusive on this question late last week where White House negotiators who I think really are looking at a deal that most Democrats are going to despise because of the cuts to vital programs, nutrition assistance for poor mothers, and rental aid for people in cities, and all these programs that they're desperate not to cut, they came to Republicans last week and said, "Can we please get--" not even the rollback of the Trump tax cuts, which they knew not to ask for, but really, really, really small, I think it's fair to say, tweaks.

Even nonpartisan tax experts would call loopholes. This is like changing the time horizon when crypto investors can claim deductions from losses on their crypto investments. That was the kind of thing. A few billion dollars in a deal that involves trillions of dollars. They came up with, we reported last week, a list of 12 of these demands, and Republicans just said, "No. No, we're not doing that."

I think the frustration for Democrats is that this is unlevel playing field, where the Republicans are okay with the brinksmanship over the federal debt limit that it could have such horrific consequences. The Democrats are in a bind because they're choosing to entertain these cuts rather than default. We asked some of McCarthy's top lieutenants, "What are Democrats getting these negotiations?" which I think gets to the listener's question. Their answer was the debt ceiling, that this doesn't get blown up.

Brian Lehrer: Right, though that's not a policy or a tax and spend item similar to what McCarthy is asking for. One more call. Wendy in Springfield, New Jersey, you're on WNYC. Hi, Wendy.

Wendy: Hi. I have not done any research on these negotiations because they should not be happening. President Biden had a meeting with historians and he asked them, "How do I have a significant presidency like FDR or LBJ?" They said, "Bold moves will do it, not incremental." Pay the bills. Forget this. You do not negotiate on this. Over the years, as the other person said, the Republicans raise the debt and then the Democrats bring it down. The Republicans raise the debt and the Democrats bring it down.

This is all about destroying his presidency. I've called my senators and my congressperson. The White House comments line was not open yesterday temporarily, but it's 202-456-1111. It's available from 11:00 to 3:00, Tuesday through Thursday. Call everybody and tell them to pay the bills. He gets sued, "Go ahead. Sue me. I'm going to pay the bills." All right, let's see what happens. Do a bold move. That's the only thing that will work.

Brian Lehrer: Wendy, thank you very much. I think Wendy is specifically referring to this idea that the 14th Amendment, a particular clause in the 14th Amendment to the Constitution, enables Biden to order the bills to be paid, to order the debt ceiling to be risen, to meet the bills that the government has incurred without going through Kevin McCarthy, without going through Congress at all.

Later in the show, we're going to have a constitutional law expert, Professor Stephen Vladeck, from the University of Texas. One of the things we're going to ask him about is his take on the 14th Amendment and whether Biden can actually do that. You're not a constitutional law expert. You're an economics reporter for The Washington Post, but you're also following the politics of this. Might Biden invoke the 14th Amendment and let the chips fall where they may in court?

Jeff Stein: I actually think this. Even though it seems like a legal question, it actually is an economics question. I want to be very clear in this response that I am not coming down on one side of the debate, but I can tell you what my sources inside the administration and economists close to the administration have explained to me. Because to the listener's point, a lot of Democrats are furious that they have to entertain these draconian cuts because of this unilateral and this weird quirk of the US legislative system.

What the administration is saying is that even though they might think that they are on safe legal grounds, that the 14th Amendment is clear that they can continue to pay their bills or must continue to pay their bills rather than default. What they're worried about is that the economics of proceeding with the 14th Amendment almost has as severe financial consequences as defaulting on the debt. The reason that is is because you have to understand the mechanics of what's going on here, which is that the US government, in the event of a 14th Amendment invocation, would simply go ahead and issue debt.

This is the core question, right? What will happen to the debt issuance? If the US government were to issue debt without the approval of Congress, what would happen? That's the situation nobody knows. The fear among White House officials is that if they go forward with that, investors will still demand a premium on the uncertainty, on the legally dubious debt issuance.

Brian Lehrer: There's the word. That's the keyword, right?

Jeff Stein: Even if the White House--

Brian Lehrer: Uncertainty makes markets freak out. This would be such massive uncertainty that it might make markets freak, freak, freak out. It's really what you're saying, right?

Jeff Stein: The premium that investors would demand in theory on debt that Republicans in the Supreme Court are vowing to overturn, right? If you're buying a government bond and it pays back a 1% rate, what rate will you insist on if there's a 30% chance that the courts will invalidate that bond? That could raise the interest rate to three, four, five, who knows, right? The thinking in the White House is that maybe if our back is up against the wall and we're really at the precipice, maybe we try this. Until then, it's worse than a Hail Mary. I don't know what the right metaphor is here.

Brian Lehrer: Right, no. Really, really interesting economics answer to what I thought was a legal question, and there, we're out of time. Thanks, Jeff. You've been really, really informative. I enjoyed this. I think our listeners did. Jeff Stein, White House economics correspondent for The Washington Post, on these default scenarios and the negotiations to avoid them. Jeff, thank you so much.

Jeff Stein: It's a pleasure to get much more substantive questions than I do on TV.

Brian Lehrer: [laughs] Thank you for that. Brian Lehrer on WNYC. More substantive questions on other things after this.

 

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