Scarborough paints a picture of the day after Congress fails to increase the debt ceiling. The morning after

WASHINGTON, D.C.— Aug. 3, 2011

It was a financial storm that even an economics professor could see coming. The debt crisis that had gripped Washington for a month came to a sudden, horrifying climax that left America’s economy looking like a nuclear wasteland. Credit markets suffered life-threatening seizures as the stock market dropped a staggering 25 percent. U.S. Treasuries plummeted as Moody’s and Standard & Poor’s downgraded the United States’ credit rating — instantly adding trillions of dollars in interest costs to the national debt. Only gold was on the rise, and its price exploded past $2,000 an ounce.


European markets reacted with understandable alarm while shock waves raced across Asia despite the early morning hour. China remained still, issuing little more than bland assurances, while its leaders quietly relished the fact that the United States of America had undermined its economic standing in a way that the Middle Kingdom could never have done on its own.

The threat of exploding interest rates on home mortgages, cars, student loans and credit cards caused growing concerns. But it was the gutting of 401(k)’s and pension programs that would soon stir panic. Camera shots of citizens lined up outside banks, credit unions and Social Security offices caused commodity prices to collapse less than 30 minutes after those images began flickering on CNBC — and more than a few news commentators drew parallels between the chaos of this day and the early morning hours after the Sept. 11 attacks.

President Barack Obama went before TV cameras to try to calm Americans. Despite his shaky on-air performance, the president’s message was convincing and explained why the overwhelming majority of Americans surveyed in an overnight Gallup Poll blamed Republicans for the financial catastrophe that had quickly brought the world’s largest economy to its knees.

Obama began his short speech by quoting another president.

“Congress consistently brings the government to the edge of default before facing its responsibility. This brinkmanship threatens the holders of government bonds and those who rely on Social Security and veterans benefits. Interest rates would skyrocket, instability would occur in financial markets and the federal deficit would soar. The United States has a special responsibility to itself and the world to meet its obligations.”

The president paused for effect while Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke stood beside him and watched.

“Ronald Reagan said that 24 years ago. It is time that Republicans running the House today follow the 40th president’s wise advice and do the right thing.”

With that, Obama, Geithner and Bernanke left the Rose Garden and walked back into the White House. For the next hour, markets continued to drop. By late afternoon, the New York Stock Exchange and NASDAQ took the extraordinary step of closing their markets.

But the damage was already done. In a day’s time, America’s credit rating had collapsed, the dollar had fallen into disrepute and the life savings of millions of Americans had been wiped out.

Inside the office of the speaker of the House, Jamie Dimon and Jeff Immelt joined Geithner and Bernanke to explain in the bluntest terms possible the stakes that lay before John Boehner’s Republican caucus.

Bernanke summarized their positions.

“Mr. Speaker, this Congress can either pass a long-term deal tonight to bring sanity back to the markets or can expect to face unimaginable economic consequences in the morning.” The Fed chairman stood up to leave but left Boehner with a final jab. “There is no Plan B. Not after Congress’s performance today.”

Boehner glanced over Bernanke’s shoulder to see breaking news on a bank riot in St. Louis. Another screen showed a late-night protest at a Richmond Social Security office. The image of a burning LAPD squad car seemed to be running on an endless loop on Headline News while a commentator was shouting about the “riots caused by the Republicans.”

The speaker knew his caucus was cornered. By the time he entered HC-5 in the bowels of the Capitol complex, most members sensed they were on the wrong side of an epic political rout. By late July, House Majority Leader Eric Cantor had realized that his future in national politics would depend on how quickly he could bring this crisis — which many on Wall Street were blaming squarely on him — to a close.

Boehner entered the grim caucus room and went straight to the podium, telling members that the events of the day had made irrelevant any ideological argument. He was finished in a few minutes and then turned the mic over to Cantor, who told conservatives that the only option left to them was to live to fight another day. Only Michele Bachmann and a handful of freshman members delivered impassioned pleas to keep waging their war on Obama. But those short speeches were written more as fodder for future press releases than to persuade fellow Republicans.

The meeting was quickly adjourned with the understanding that Boehner would immediately call a vote to stop the hemorrhaging of world markets by extending the debt ceiling. In so doing, Boehner and his conservative caucus would be giving the president what he had been asking for all along.

The $4 trillion deal that the speaker had once hoped for was now nothing more than an opportunity lost. His party could have had a historic deal to reduce the national debt. His caucus could have made a real difference. Instead, their intransigence crippled America’s economy and clinched the reelection of Barack Obama.

A guest columnist for POLITICO, Joe Scarborough hosts “Morning Joe” on MSNBC and represented Florida’s 1st Congressional District in the House of Representatives from 1995 to 2001.