Friday, April 22, 2011

Welch letter to staff and members on debt ceiling

Dear Staff of my Colleagues:



I hope you are enjoying a well-deserved rest during this recess. 



As you well know, when Congress returns in May, we will have our work cut out for us with the fiscal year 2012 budget.  So, enjoy the rituals of recess while you can -- wearing jeans, 8 hour days, and some quality time to think and plan ahead.



But if you do nothing else during this break, I hope you will carefully read the attached analysis by JP Morgan (“The Domino Effect of a US Treasury Technical Default”) of what will happen to America’s economy if Congress fails to raise the debt ceiling, or even threatens not to raise the debt ceiling.  It is a chilling account of the consequences of a failure to act on America’s obligation to pay its bills.



If you find yourself too busy with recess distractions, here are just two of JP Morgan’s important conclusions:



“Our analysis suggests that any delay in making a coupon or principal payment by the Treasury – even for a very short period of time – would almost certainly have large systemic effects with long-term adverse consequences for Treasury finances and the US economy.”



And:



“Finally, we emphasize that even if the debt ceiling is ultimately raised before a technical default occurs, the delay in raising the debt ceiling is likely to negatively impact markets, as investors undertake risk-management actions in preparation for a potential Treasury default.”



Perhaps this report explains the recent comment by JP Morgan CEO Jamie Dimon that:



“If the United States actually defaults on our debt it would be catastrophic… and unpredictable. If anyone wants to push that button… they’re crazy.” (Jamie Dimon, at a US Chamber of Commerce event, March 30, 2011)



I hope you will also share this report with your boss as soon as possible.



Sincerely,





Peter Welch

MEMBER OF CONGRESS

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