Rep. Chris Van Hollen, the top Democrat on the House Budget Committee, issued an urgent warning Tuesday night about the consequences of a partial government default, declaring: “The economy is on the edge of a waterfall.”
“If we cross those deadlines, you have a real risk that you’re plunging down very rapidly and the world economy would suffer greatly,” Van Hollen told ABC News. “Interest rates would spike, which would hurt all American consumers in fact really hurt the world economy. This is a very clear sign, very big warning sign – don’t keep going along this road. Pass a clean debt ceiling and we should reopen the government.”
The credit rating agency Fitch has put the United States on a “negative ratings watch.” While it reaffirmed the AAA credit rating, the agency said that the budget impasse in Congress threatens the full faith and credit of the government.
The announcement from the credit rating agency on Tuesday came at the same time as a deal to reopen the government and prevent default stalled yet again in the House and the action shifted back to talks in the Senate between Majority Leader Harry Reid, D-Nev., and Minority Leader Mitch McConnell, R-Ky.
“This is a big warning sign that damage is actually already being done right?” Van Hollen said, adding, “This is a huge flashing red sign. Stop, cut it out, get an agreement, get it done.”
Several prominent conservative groups, however, downplayed the negative credit rating threat.
“The ratings agencies have all said that they will downgrade us if we do not deal with the long-term drivers of our debt,” Barney Keller, a spokesman for Club for Growth, the conservative group told ABC News. “We must stop kicking the can down the road.”
Dean Clancy, legislative counsel at the Tea Party-allied organization, FreedomWorks, said: “Nobody wants a true default but experts know that going pass x day is not the same as a default. Its only if you go way past x day by many days or weeks that you have the risk of missing some politically sensitive payment like Social Security checks. If you look at the market you haven’t seen a big sell off, I think because folks know this, default won’t happen. But it certainly can’t be encouraging that Washington is playing mumblety-peg with the debt ceiling.”
A spokesman for another powerful group on the right, Americans for Prosperity, told ABC News that news of the Fitch Warning was “embarrassing.”
“It’s shameful … the debt ceiling exists to scrutinize spending and the only time in a decade, the only real cuts is through the sequester,” the spokesman said. “The CR we are seeing emerge erases the sequester spending levels and allow it to grow. That sets us up for another debt ceiling hike and another extension of it without an honest assessment of what got us here.”
And Sal Russo, the co-founder and chief strategist of Tea Party Express, blamed the Fitch warning on “excessive debt.” Russo said he accepts that the “approximate cause” is the current showdown in Congress, but says the “underlining problem is that we have excessive debt and not a plan to get out of it.”
On Tuesday Fitch assigned the blame to Congress, saying lawmakers have not “raised the federal debt ceiling in a timely manner.”
While the credit rating agency said it believes “the debt ceiling will be raised soon,” the “political brinkmanship and reduced financing flexibility could increase the risk of a U.S. default.” The agency did not signal whether it would consider downgrading the country even if Congress reached a last-minute deal, as Standard & Poor’s did in 2011.
Democrats said the warning was real.
“The problem is there are a lot of folks especially some members of the house Republican caucus who simply don’t believe it,” Van Hollen told ABC news. “In fact, some of them have said it would be a good thing if we went over this waterfall. That somehow that shock therapy would be good for the budget.”
ABC’s Shushannah Walshe and Abby Phillip contributed reporting.