Truth behind Democrats' warnings of default

Would shutdown really lead to default?


This is a rush transcript from "Your World," September 30, 2013. This copy may not be in its final form and may be updated.

NEIL CAVUTO, HOST: Well, amid the fighting, Democrats are warning.


REP. STENY HOYER, D-MD., HOUSE MINORITY WHIP: The Republican C.R. also lays the groundwork for a default on our debt.

PRESIDENT BARACK OBAMA: We can't have any kind of meaningful negotiations under the cloud of potential default, the first in U.S. history.

UNIDENTIFIED MALE: It's the Republicans who are willing to default on paying Americans' debts.

REP. NANCY PELOSI, D-CALIF., HOUSE MINORITY LEADER: Threats and willingness to default.

OBAMA: They would push the button, throw America into default for the first time in history, and risk throwing us back into a recession.


CAVUTO: By the way, a quick update here. You don't default with a government shutdown. You default if you don't make good on an interest payment, some interpret, a Social Security or Medicare check. But you don't default when the government shuts down.

We have got market watcher Dave Maney here to explain.


DAVE MANEY, FOUNDER, ECONOMANEY.COM: Well, Neil, there's something called conflation going on here, which is the act of intentionally confusing two different issues for purposes of making a point.

The point is that the Democrats want people to think that we have got a full faith and credit issue going on here in this government shutdown thing. In fact, the shutdown, which is not really a shutdown, only affects about a third of the roughly almost three million government -- federal government employees this country.

So what you get is something that I call sort of the sequester writ large, meaning that you get lots of bureaucrats and regulators going home, but you get food safety and Social Security checks and military payments and everything you can think of, the women and children thing, food stamps, all of that...


CAVUTO: Then when do you have a default? Help us with that. When do you technically get a default, Dave?

MANEY: So you could get a -- so, the debt ceiling thing is a completely different discussion, and they're only going on right now by an accident of timing that they're happening at the same time.

CAVUTO: Right.

MANEY: So, the debt ceiling thing says, once you have racked up bills, we're going to say how much you can borrow to try to pay them.

And that's a full faith and credit discussion. That's not today's discussion. Today's discussion is, in effect, about continuing to rack up the bills.

CAVUTO: Gotcha.

MANEY: And so you have got to sequester that didn't matter much. Here you have got a sequester writ large which is going to affect some people, but not that many, but it isn't, is not, about full faith and credit discussion.

But if you're a Democrat who wants to scare people or to make them fearful of this situation or to demonize Republicans, you will work very hard to conflate those two issues and make people thing they're the same.

CAVUTO: Dave, thank you very, very much.

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