What if we default on our debt?

“Sitting on the Pavement, Thinking About the Government” –

What if we default on our debt?  (Dylan, “Subterranean Homesick Blues”)

 Bill Barclay.

The debt ceiling, the dollar and hegemonic currencies

Let’s begin by clearing up a possible lingering misconception about debt and defaults.  If Congress does not raise the debt ceiling and we default, does that mean the U.S. is broke?  No.  The U.S., like any country that 1) controls the creation of its own currency and 2) issues its debt in its own currency, cannot go broke.  However, political calculations can impose deadbeat status on such a country. 

What about other countries, why don’t they have this problem?  The answer is equally simple.  With the exception of Denmark, no other wealthy industrial society has a debt ceiling – and Denmark’s is set at over twice their actual level of government debt – and it is not a political football.  So yes, the U.S. is, as our national meme says, exceptional.  The debt ceiling – and any associated problems – are our own creation. 

Credibility, debt, and the downgrade

Credibility, Chutzpah and Debt

By PAUL KRUGMAN

To understand the furor over the decision by Standard & Poor’s, the rating agency, to downgrade U.S. government debt, you have to hold in your mind two seemingly (but not actually) contradictory ideas. The first is that America is indeed no longer the stable, reliable country it once was. The second is that S.& P. itself has even lower credibility; it’s the last place anyone should turn for judgments about our nation’s prospects.

Let’s start with S.& P.’s lack of credibility. If there’s a single word that best describes the rating agency’s decision to downgrade America, it’s chutzpah — traditionally defined by the example of the young man who kills his parents, then pleads for mercy because he’s an orphan.

America’s large budget deficit is, after all, primarily the result of the economic slump that followed the 2008 financial crisis. And S.& P., along with its sister rating agencies, played a major role in causing that crisis, by giving AAA ratings to mortgage-backed assets that have since turned into toxic waste.

Hostage taking successful: Republican debt deal makes the economy worse

A deal to raise the federal debt ceiling is in the works. If it goes through, many commentators will declare that disaster was avoided. But they will be wrong.

Paul Krugman

N.Y. Times: For the deal itself, given the available information, is a disaster, and not just for President Obama and his party. It will damage an already depressed economy; it will probably make America’s long-run deficit problem worse, not better; and most important, by demonstrating that raw extortion works and carries no political cost, it will take America a long way down the road to banana-republic status.

Start with the economics. We currently have a deeply depressed economy. We will almost certainly continue to have a depressed economy all through next year. And we will probably have a depressed economy through 2013 as well, if not beyond.

The worst thing you can do in these circumstances is slash government spending, since that will depress the economy even further. Pay no attention to those who invoke the confidence fairy, claiming that tough action on the budget will reassure businesses and consumers, leading them to spend more. It doesn’t work that way, a fact confirmed by many studies of the historical record.

Republicans extend the Great Recession

A group of financial capitalists, represented primarily, but not exclusively by the Republican Party, looted  the banking system  in 2008/2009 and caused the Great Recession costing millions of people their jobs and their homes.  Now the same people are set upon doing it all again.  The all cuts budget imposed by the Republicans will make the recession longer and worse than it needs to be.

Meanwhile, Back in the Real Economy N.Y. Times. Opinion. July 30,2011.

The economy is in trouble, and Washington — fixated on budget slashing at a time when the economy needs more spending — seems determined to make matters worse.

…Indeed, they are bound to worsen if Congress approves deep near-term spending cuts as part of a debt-limit deal while letting relief and recovery measures expire.

We will leave it to the historians to figure out how both political parties, and many Americans, became convinced that austerity is the road to recovery. History provides evidence that it is not, including the premature budget tightening of 1937 that reignited the Depression.

For now, it is clear that the traditional drivers of recovery — consumer spending and residential real estate — have failed to rebound, with the latest report showing consumers extremely cautious about spending on anything and the housing market stuck at its post-bubble lows.

Weak demand leads to slow growth, and slow growth leads to high and rising unemployment, which then reinforces weak demand and slow growth, and so on, in a vicious cycle from which the economy, obviously, has found no escape.

Congratulations Coburn

Oppose the Republican plan to create a crisis

The Republican plan:

It's not just Medicare.  They've talked about privatizing Social Security... eliminating the EPA and giving polluters free rein to poison our air and water... rolling back public support for education -- everything from Head Start to college financial aid... crippling unions.

They’re pushing hard to cut programs that working families rely on while going to the mat to protect generous subsidies and special tax earmarks for the wealthy and well-connected.  

They won’t even consider cutting the “Bluegrass Boondoggle,” a $126 million giveaway to racehorse owners, but are ok doubling seniors’ health care costs.  

Their vision is basically to repeal the 20th century and go back to the Gilded Age -- let the fabulously wealthy live the good life, to heck with everyone else.

And to achieve this twisted agenda, they're holding the U.S. economy hostage, threatening not to allow the nation  to pay its bills and to drive up interest rates and create another financial crisis if we don’t pay their ransom demand.

In spite of the endless  media claims, the people are not buying this false crisis.  The just-released Pew poll makes it "crystal clear":

•               60% of Americans want to keep Social Security and Medicare benefits as they are.

•               61% think people on Medicare pay enough of their healthcare costs.

•               58% say low-income people should keep their Medicaid benefits.

WE should stand firm.  And, we demand that the Democrats not give in to this hostage taking.

Rachel Maddow on the debt ceiling debacle

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