There are a few fools in the House and Senate who don’t understand the consequences of the US defaulting on its debt payments. Flirting with default is not an option to solve a budget impasse. It’s a recipe for global financial disaster.
The right’s antics could cause a Depression: The terrifying default aftermath
by David Dayen, Salon
Normally with a financial crisis, there’s at least agreement on the need for a response. Not with these lunatics
The biggest threat from the twin calamities of the government shutdown and the debt limit breach is not actually the real-world effect; it’s what happens the next day, and the day after that. In other words, the most frightening thing about default, which is much more problematic than the shutdown, is what happens afterward. [..]
And all of these outcomes pale in comparison to what would happen if the government defaulted on any of its debts. Put the misguided statements of debt limit denialist Republicans aside. Based on current cash on hand at the Treasury Department, roughly 32 percent of the funds owed (pdf) between Oct. 18 and Nov. 15 would have to go unpaid. That’s a massive reduction in federal spending, and would cause a significant hit to Gross Domestic Product. Prioritization of payments, which may be unconstitutional, would certainly be a logistical nightmare, forcing Treasury to rewire its payment system (pdf) and pick and choose between up to 100 million monthly invoices.
If one of the missed payments is to a holder of U.S. debt, then you have a default event that could cause credit markets to freeze, the U.S. dollar to plummet, and financial institutions to struggle to secure short-term lending on which they rely. With the dollar and the U.S. Treasury bond serving as a benchmark for world markets, Businessweek says that the resulting global apocalypse would dwarf the implosion of Lehman Brothers that precipitated the 2008 financial crisis. And it would injure the perceived stability of U.S. debt maybe forever, raising our borrowing rates as investors decide a country that threatens to default for no good reason isn’t worth putting their money into. [..]
Armed with the knowledge that Congress won’t meaningfully help recover the economy, the White House needs to think very hard about forsaking the various options they could use to try and avert a debt default. It’s not just that the alternative is a disaster; it’s a prolonged disaster.
IMF piles pressure on US to reconcile differences and prevent debt default
by Larry Elliot and Jill Treanor, The Guardian
Shares and oil prices rise in hope of six-week extension as OECD warns US deadlock threatens world economy
The International Monetary Fund and the Organisation for Economic Cooperation and Development both issued sharply worded warnings to Republicans and Democrats amid signs that America’s Asian creditors were becoming alarmed at the potential consequences of the impasse. [..]
Speculation about a deal emerged after Jack Lew, the US Treasury secretary said there would be chaos if the US defaulted – a message rammed home by the IMF’s Christine Lagarde and the OECD’s secretary general Angel Gurría.
Lagarde, the IMF’s managing director, said there would be very dangerous consequences for the US economy and very dangerous consequences outside the US economy if the default was not prevented.
She distanced herself from the infighting in Washington, noting: “The IMF does not make recommendations about how, politically, this can be resolved. We don’t take a political view. We just look at the economic consequences.
“When it affects the largest economy in the world, we are bound not only to look at the immediate domestic consequences but at what happens elsewhere, so that we can have a dialogue with our members to help them prepare. I hope we will be able to look back in a few weeks and say what a waste of time that was. But we have to look at the risks no matter how unlikely they are to materialise.”
On Wednesday, Massachusetts Senator Elizabeth Warren addressed the Senate warning that “this is no time to act out dangerous fantasies.”
“We’re in this position for one reason, and one reason only: because Congress told the government to spend more money than we have – and Congress told the Treasury to run up our debt to pay for it – but now Congress is threatening to run out on the bill,” Senator Warren said. “…The idea that we can somehow renege on our debts without paying a huge price is a fantasy-and a very dangerous one.” [..]
“This fight is about financial responsibility. Financially responsible people don’t charge thousands on their credit cards and then tear up the bill when it arrives. Financially responsible nations don’t either….If we default on our debt, we could bring on a worldwide recession-a recession that would pummel hard-working middle class people, people who lost homes and jobs and retirement savings and who are barely getting back on their feet,” said Warren.
Talks between White House and Republicans fail to end US shutdown
by Dan Roberts, The Guardian
Hopes that a deal might be in sight disappear as Barack Obama and House speaker John Boehner fail to see eye to eye
Discussions between Barack Obama and House speaker John Boehner broke up after 90 minutes with little apparent progress, although there was a marked change in tone on both sides that suggests a deal could still be close. [..]
But the Republicans refused to lift a separate threat to spending authorisation, which has led to a partial shutdown of the government since 1 October.
Obama had insisted on at least a temporary reprieve from both threats before he would agree to negotiate over Republican demands to repeal his healthcare reforms and cut spending.
On Thursday night, it appeared the president had chosen to stand his ground and may have initially refused to accept the partial climbdown from Boehner.
The game continues and no one is hitting the brake.