Democrats Using Debt Ceiling Scare Tactics?

This is a rush transcript from "Your World," January 17, 2011. This copy may not be in its final form and may be updated.

NEIL CAVUTO, HOST OF “YOUR WORLD”: Well, keep talking the repeal up, you might as well watch the government shut down, some in Washington saying it. But the do-or-die pitch does have a familiar ring to it, doesn’t it? We have also heard it for stimulus, TARP, the debt ceiling.


PRESIDENT OBAMA: Our nation will sink deeper into a crisis that at some point we may not be able to reverse.

SEN. CHARLES SCHUMER D-N.Y.: Create a recession worse than the one we have now or even a depression.

REP. NANCY PELOSI D-CALIF., HOUSE MINORITY LEADER: Hardship for that family. It’s a hardship for businesses. It’s a hardship for our economy.

OBAMA: Endanger the entire economy.

REP. STENY HOYER D-MD., HOUSE MINORITY WHIP: Our country will plunge further and further into debt.


CAVUTO: And we will all blow up in a nuclear cloud.

They didn’t say that, but you get the -- the gist of it.

Well, you know, Alan Simpson has heard it all as well. Scare them, but, in the end, do not do squat for them. The former Republican Wyoming senator, debt commission co-chair, joins me right now.

Senator, what do you make of this latest sort of scare dare?

ALAN SIMPSON, CO-CHAIRMAN, NATIONAL COMMISSION ON FISCAL RESPONSIBILITY AND REFORM: Well, I tell you, Neil, I haven’t heard of the nuclear cloud. That was...


SIMPSON: But let me tell you...

CAVUTO: That was my little alliteration there.

SIMPSON: I know -- I know it was.

But I will tell you, that cat who was just on there before, let me tell you, he set the scenario brilliantly as to what may or may not happen.  But, for me, it’s going to be the debt limit. And it’s going to be a fascinating time.

They’re going to drag that cat out and it will -- it will -- they will say now we have to raise the debt limit to $14.1 trillion, $14.2 trillion, or $14.3 trillion, depending if it’s already passing 1,400 -- $14 trillion -- $14 trillion -- within days. And these new guys will say I’m not voting for that. And they will say, well, you know, if you don’t do this, we will lose the full faith and credit of the United States. We might even have to close the government.  And they’re going to say, that’s why I came here. Then they’re going to say, what do we -- what do we have to do to get your vote?

And they are going to say, cut spending. And then, then comes the moment of truth, because if they say we can cut spending without touching Medicare, Medicaid, Social Security, or defense, just stick your finger down your throat and leave the room.

CAVUTO: So, you do not think even if they do follow up on their threat not to raise the debt limit, they’re not going to make good on -- on the reason why they’re not?

SIMPSON: They will be faced with the same thing the commission was faced with. And all 18 of us, whether we voted for the package or not, agreed that deficit denial is dead, dead as the dodo bird. And if you want to still listen to the economists say deficits mean nothing, grow our way out of it, we didn’t have a single person that told us, if we had double-digit growth for 30 years, we couldn’t grow out of this hole.

CAVUTO: Alan, could I ask you just a simple question of how Washington proceeds from here? Let’s say they don’t raise the debt ceiling. They take their time addressing these spending cuts you talk about. Give them the benefit of the doubt they get around to talking about them. How long is it before we are in deep trouble?

I’ve heard it explained that you could prioritize, much as average folks do when they’re pushed up against the wall. They try to pay the mortgage or the rent to keep the roof over their head, food on their plates, but -- but then they let others go by the wayside.

Can the government do that with those buying treasury notes and bonds to make good on them, so they do not see the government default? In other words, how long can we continue operating in an environment where the ceiling has not been raised?

SIMPSON: Well, the herd of sacred cows will continue to graze creatively. And they go up and dig up a little few packets here. It happened under previous secretaries of treasury, Republican and Democrat.

They’ll range around and then finally all the grass is gone in five, six, or seven months. But then the important thing is, the creditors, half of whom are one country, are going to say, look, we thought you guys got the message and could get off your duffs and do something correct, long-range, deficit, debt, interest. You didn’t. And now we would like some money for these pieces of paper and we would like it.

And when that happens, it wouldn’t -- it could not be six days. It could be six hours, could be six months, but it will be -- interest rates go up. And the guys that get hurt the most are the little guys who everybody always talks about.

CAVUTO: We should say, Senator, when you’re referring to interest rates going up, in other words, the pound of flesh to be exacted would be higher interest rates to entice people to own and buy our -- our debt, something that could be happening sooner than we -- we feared or thought.

But, having said that, is it your view that we can sort of delay paying Peter and Paul this -- this half-assed way, in other words, go ahead, make sure you pay -- in the event there is a government shutdown, you make good on your payments? Because the taxes are still coming in to your debtors, even though other things fly by the wayside.

It is hardly fiscal propriety or -- or -- or any sort of -- anything remotely resembling it, but it gets you by. You keep getting by.

SIMPSON: In my mind, it won’t be how we perceive it here in the United States. It is how it is perceived by the guys that loaned us money, including a lot of private people in the United States who have loaned us money.

CAVUTO: Good point.

SIMPSON: And at that point, they will say, this isn’t valid. Maybe the euro will have stabilized. Maybe the Chinese will have stabilized.

There -- may be a lot of things will happen where they will say we are just taking our bucks and getting out, because you jerks said you were going to do something significant. You went around the edges. You didn’t deal with the heavy stuff. You didn’t go where the money was. And we’re out of here.

CAVUTO: How likely do you think a default is, Senator?

SIMPSON: I don’t know. I’m not an economist.


SIMPSON: All I know is if you are dealing with your sweet old Uncle Henry and you needed to have a few months or a few years; he would be a good guy to deal with. Well, they ain’t dealing with Uncle Henry. We’re dealing with a country that, right or wrong, wants to be number one and put us in number two, together with a lot private investors and public investors who feel the same way.


Alan Simpson, always a pleasure, despite the words that are not a pleasure.


SIMPSON: Well...


CAVUTO: But good seeing you and hearing you.

SIMPSON: I won’t say anything more about...


CAVUTO: All right.


Alan Simpson, thank you very much, the co-chair of the debt commission -- Alan Simpson.

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