Speaking to the Economic Club of New York House Speaker John Boehner (R-OH) said:
It’s true that allowing America to default would be irresponsible. But it would be more irresponsible to raise the debt limit without simultaneously taking dramatic steps to reduce spending and to reform the budget process.
Wrong.
Defaulting would be irresponsible. It would lead to banking and currency crises of substantial proportions, not to mention a severe recession. The government would be forced to go to the credit markets to borrow money to pay for the increased unemployment compensation and welfare benefits caused by the recession. Of course, by this time, borrowing costs for a shaky creditor (the US government) will have increased substantially, further worsening our budgetary situation.
Even a bad budget deal, combined with an increase in the debt ceiling, would not be as damaging to the economy. The consequences might be similarly dire, but they might not. By forcing a default, a bad outcome is guaranteed.
The above is in no way an argument in favor of a bad budget deal. Repealing the Bush-era tax cuts would be a good start toward fixing the budget mess.