Here's Why Republicans Are Serious About a Default (Update1)
NEW YORK (TheStreet) -- Investors should understand why some Republicans are willing to allow the U.S. to default on its debt.
President Barack Obama on Monday took a preemptive approach to criticize Republicans on the looming debt-ceiling clash, as he said they had the choice between acting responsibly and paying Congress' bills, or acting irresponsibly by allowing the economy to crash.
"Investors will ask if the U.S. is a safe bet. ... Markets would go haywire, interest rates would spike for anyone who borrows money," he said.
The comments came after a Politico report emerged Monday morning that House Republicans were "seriously" considering allowing the country to default on its debt.
House Republicans and Obama clashed in the summer of 2011, when tea party conservatives refused to caucus with Speaker John Boehner to raise the debt ceiling. The House, at that time, eventually garnered enough votes to avoid a default, but it triggered Standard & Poor's to downgrade the United States' credit rating from AAA for the first time in history.
Republican lawmakers find themselves in a tough political position as the president's re-election has afforded Obama a powerful bargaining chip -- he repeatedly argues that his 2012 victory signaled Americans' willingness to side with his policies -- and as their Jan. 1 agreement to increase taxes in order to avoid the so-called fiscal cliff could lead many constituents in deeply conservative districts to question their representatives' commitment to fulfill campaign promises.
"People are fed up with the Republicans they elected not doing what they were elected to do," a national Republican operative said in an interview. "They wanted them to cut the debt, they wanted them to get rid of some of these programs, they wanted them to make sure taxes don't go up."
Though the president paints a grim portrait of what could happen if Congress fails to reach a deal, some analysts say Republican calls for spending cuts in exchange for a debt-ceiling agreement have legitimate standing.