Debt Heads

You’d think that an urgent plea from the Chamber of Commerce over the debt ceiling would be enough to bring House Republicans to their senses. You’d think the shellacking they took over the last debt ceiling debacle would be enough to convince even the most defiant among their lot to see the light of reason. You’d even think that a stern warning from former Master of Disaster, I never met a government shutdown I didn’t like, Newt Gingrich would shake some sense into their thick skulls.

You’d think that, but you’d be wrong. Dead wrong.

As incomprehensible as it might sound, House Republicans and even a good many Senate Republicans are once more lining up for a sight-seeing journey to Little Bighorn. They just can’t help themselves. They say that the definition of insanity is doing the same thing over and over and expecting a different result. Whoever came up with that definition must’ve been a card-carrying member of the far Right.

Despite President Obama’s insistence that he will not negotiate over the debt ceiling, the GOP is prepared to not only call his bluff, but plunge the nation into recession if it doesn’t get its way.  And to make matters worse, Speaker John Boehner appears to have little control over his caucus. His failure to lead during the fiscal cliff crisis, doesn’t bode well for a positive outcome. His pledge not to bring any bill to a vote on the floor without a majority of Republican support has ostensibly boxed him into a corner.

This is what Alan Blinder of The Wall Street Journal had to say about what would happen if a default were to occur:

At current rates of spending and taxation, federal receipts cover less than 74% of federal outlays. So if the government hits the debt ceiling at full speed, total outlays—which includes everything from Social Security benefits to soldiers’ pay to interest on the national debt—will have to be trimmed by more than 26% immediately. That amounts to more than 6% of GDP, far more than the fiscal cliff we just avoided.

Today’s low Treasury borrowing rates imply essentially a zero probability that the U.S. government will default. Markets would be caught flat-footed if the threat of default suddenly materialized. Remember how financial markets froze in response to the Lehman Brothers surprise bankruptcy in 2008? If threatening default comes to be seen as a standard weapon of political combat in the world’s greatest democracy, U.S. government debt will lose its exalted status as the world’s safest asset. Treasury borrowing rates will soar while the dollar and the stock market sink. Very ugly.

In short, the consequences of hitting the debt ceiling are too awful to contemplate—worse even than going over the fiscal cliff. A sane Congress wouldn’t even think about it.

And this from a publication which can hardly be viewed as liberal. As things stand right now, the Treasury is manipulating the funds necessary to grease the gears. They can continue to do this until mid February. After that, if the debt ceiling isn’t raised, that’s all she wrote.

T minus 30 days and counting.


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Author: Peter Fegan

Progressive but pragmatic. Lover of music, die-hard Giants' fan and reluctant Mets' fan. My favorite motto? I'd rather be ruled by a smart Turk than a dumb Christian.

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