The consequences of the U.S. defaulting would be...
Ben Bernanke: “Calamitous. … I can only conclude this would be very bad for jobs.”
Simon Johnson, Professor of Entrepreneurship at MIT Sloan School of Management (and former chief economist at the IMF): “Other countries that have tried to play these kinds of games with the financial market usually end up getting burned…Why would you want to take that risk?”
Mihir Desai, Professor of Law and Finance at Harvard University: “People may stop receiving their payments which is extremely problematic, but it can also become a broader manifestation of a system that appears broken to the rest of the world and that is where we run into significant problems. I think it’s very important that this particular deadline is not ignored…It is essential that we act now.”
Moody’s: “An actual default, regardless of duration, would fundamentally alter Moody’s assessment of the timeliness of future payments, and a Aaa rating would likely no longer be appropriate… A return to a Aaa rating would be unlikely in the near term, particularly if there were no progress on the third consideration.”
S&P: “We may lower the long-term rating on the U.S. by one or more notches into the ‘AA’ category in the next three months, if we conclude that Congress and the Administration have not achieved a credible solution to the rising U.S. government debt burden and are not likely to achieve one in the foreseeable future.”
Simon Johnson, Professor of Entrepreneurship at MIT Sloan School of Management (and former chief economist at the IMF): “Other countries that have tried to play these kinds of games with the financial market usually end up getting burned…Why would you want to take that risk?”
Mihir Desai, Professor of Law and Finance at Harvard University: “People may stop receiving their payments which is extremely problematic, but it can also become a broader manifestation of a system that appears broken to the rest of the world and that is where we run into significant problems. I think it’s very important that this particular deadline is not ignored…It is essential that we act now.”
Moody’s: “An actual default, regardless of duration, would fundamentally alter Moody’s assessment of the timeliness of future payments, and a Aaa rating would likely no longer be appropriate… A return to a Aaa rating would be unlikely in the near term, particularly if there were no progress on the third consideration.”
S&P: “We may lower the long-term rating on the U.S. by one or more notches into the ‘AA’ category in the next three months, if we conclude that Congress and the Administration have not achieved a credible solution to the rising U.S. government debt burden and are not likely to achieve one in the foreseeable future.”
Comments
Even if we managed to prioritize that 150 billion a month in such a way as to avoid default, the effect on the recovery would be about that of dropping a cherry bomb into somebody's gas tank. The best case scenario is that even if we don't default, the hit the economy would take would be disasterious. The economy would slow and perhaps go back into recession. Unemployment would increase dramatically at a moment when we simply can't afford it.
The responsible voices- those who know what they're talking about- say that there is an an excellent chance that would be catastrophic in any case, and those that say otherwise are marginal types who are arguing from ideological theory rather than economic facts. They're the extremists, Ken. They're people whose contact with reality is debatable.
Ken, the risks are simply too high, and the payoff non-existent. The way to cut spending is not to play chicken with the economy in the middle of its greatest crisis since the Depression. The way to cut spending is to thoughtfully, deliberately and carefully combine the cuts with tax increases (yes, that's what I said; it's the only way to both balance the budget and avoid stalling the economy) rather than forcing a crisis the outcome of which nobody knows.
To put it simply, Ken, it may be true that striking a match seems like a good idea when you're in the dark. But it becomes a considerably less attractive idea when you're standing in a pool of gasoline.
And while I agree that it would be well for Obama to come up with a specific plan, why shouldn't the Republicans be the grownups? Instead of forcing us all off a cliff whose bottom we can't see, why shouldn't the Republicans come up with a specific plan? Why not provide the leadership Obama won't?
Right now, he's the one who's coming off like the grownup- and the Republicans are acting like a bunch of reckless children.