Speaker of the House Boehner said today that the U.S. Is On A Path To Default, unless President Obama gives in to the Republicans. He said that he wants a "serious conversation about dealing with problems that are driving the debt up. It would be irresponsible of me to do this." If a conversation is all he wants, why doesn't he just make a phone call? You don't threaten to tear down the house if all you want is a conversation.
Is he serious? It is supremely irresponsible for him to threaten not to raise the debt limit, since not raising it would lead to an economic catastrophe. Doesn't he remember the financial meltdown of 5 years ago? I was just thinking about that the other day. On September 14, 2008, Lehman Brothers was not saved by the Federal Reserve and filed for bankruptcy. Bank of America bought Merrill Lynch. AIG was in big trouble, and eventually was saved by the Fed. On September 15, The Dow Jones fell 504 points. On September 28, 2008, the House of Representatives voted no on the plan to bailout the financial industry, and the stock market plunged over 700 points. I remember staring at the graphic of the falling stock market on the Times website in the middle of the afternoon and having the feeling that no one was in charge.
Is this what Boehner really wants? If he has any concern about the financial state of the United States and its standing in the world, he would not be making these threats and he certainly would not carry them out. I had thought that one stable point in the American political system was that the Republicans were the party of business, especially big business. I suppose I should have been disabused of that notion in the fall of 2008 when Republicans opposed bailing out the auto companies. But this is even crazier.
The Wall Street Journal reports:
If U.S. lawmakers fail to raise the federal government’s borrowing limit this month they will cause a “very, very severe recession with no obvious way out,” Moody’s Analytics Chief Economist Mark Zandi said Friday.In other words, if the government defaults on its debt, what happened in fall of 2008 will seem like a walk in the park.
With the government unable to enact fiscal policies and the interest rates set by the Federal Reserve already near zero, “there would be no policy levers” to use against the resulting recession, Mr. Zandi said in a conference call with clients.
Mr. Zandi’s comment’s echo recent warnings from Wall Street titans like Goldman Sachs Group Inc. Chief Executive Lloyd Blankfein and from the White House.
The U.S. Treasury has said it will run out of room to maneuver to remain below the $16.7 trillion debt limit “no later” than Oct. 17 unless Congress raises it. That deadline is fast approaching, even as the government entered its fourth day of shutdown because of deep-seated disagreements among lawmakers over spending.
If the debt ceiling isn’t raised, Treasury will have to match its ongoing expenditures to its revenue on a day-by-day basis. Since the government spends more than it takes in, the inability to borrow money will take billions of dollars out of the economy that it injects through daily operations and spending. The situation could also eventually lead to a government default if the Treasury is unable to make payments to its creditors.
Even if the U.S. Treasury were to prioritize debt repayment over outlays for Social Security, Medicare and other payments, investors would grow increasingly nervous about their holdings of government debt securities. “The real unknown is how financial markets will react,” Mr. Zandi said.
Against this backdrop, Mr. Zandi expects to investors to start applying increasing pressure on lawmakers in Washington to resolve the twin fiscal crises. He noted the stock market this week has been “softening,” while the cost of insuring U.S. Treasuries against default has been rising. “If this drags into next week the sell-off will start to intensify,” he said.