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Web exclusive: default dangers

Now featured on the homepage, Charles R. Morris on what could happen should the U.S. default on its debt:

What is most scary about the possibility that Congress will fail to authorize an increase in the national debt limit is that no one really knows what the consequences might be. But it is not alarmism to fear that such a step could trigger a global recession....

The most immediate impact of a default will be on countries—from the Middle East to East Asia—that currently hold trillions in surplus dollar balances. They will suffer major losses, which will accelerate the move toward trading in other currencies, something long-bruited by countries that resent America’s financial dominance. The United States will be punished as its own cost of borrowing rises substantially, and possibly permanently....

The effect on world trade could be catastrophic, as buyers and sellers attempt to reprice cargoes in midstream. When Jamie Dimon, head of JPMorgan Chase, said that a default “would ripple through the global economy in ways that you can’t possibly understand,” he really meant it.

Though the House did nothing yesterday to address the crisis, the Senate could review and announce a deal today that would fund the government through January 15 (at the levels reflecting the cuts enacted in March) and raise the debt ceiling through February. Sen. John McCain says that, as he predicted, Republicans have lost a battle they never could have won, and Sen. Lindsey Graham says Republicans "really did go too far."

From yesterday's Wall Street Journal:

This is the quality of thinking—or lack thereof—that has afflicted many GOP conservatives from the beginning of this budget showdown. They picked a goal they couldn't achieve in trying to defund ObamaCare from one House of Congress, and then they picked a means they couldn't sustain politically by pursuing a long government shutdown and threatening to blow through the debt limit.

Jonathan Strong at The Corner has an insider's account, quoting a senior GOP aide--"It's all over. We'll take the Senate deal"--and passing this along:

The Christian rite accompanying legislative chaos [Tuesday] was Florida representative Steve Southerland’s rendition of “Amazing Grace” — “all three verses,” said Representative Michael Burgess (Texas) afterwards in amazement. But Southerland is an undertaker by trade, and the song is normally sung at funerals. It’s hard not to see [Tuesday's] failure as the death of the House GOP’s role, in at least this standoff.

About the Author

Dominic Preziosi is Commonweal’s digital editor.



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There was NEVER a real, even possibility that the US would default on its debt. The markets understood that and there was hardly a blip. More Washington melodrama. But there was some real news underneath this cacophony..

I did hear something interesting on the radio though in the drive to work. It was from and economist (no idea if he is left or right) who said that the markets are pleased that he debt ceiling will be raised, that there will be a new fed chair who will print more money, and that credit will flow. I am no economist but i just do not see how this can possibly a sustainable course of action.

 To allow that to continue is what American should be outraged by and not the theatrics of the moment. These isseus relative to the fed just printing money, endless raising of debt, and invisible money should be the takeaway messages from the whole thing and not the whole cataloguing of winners and losers, heroes and villains, demons and angels, etc. etc.

As you state George, you are not an economist. What is disturbing are your nuances. All your emphasis is on the partisan side. That says something. When you come out on one side of any issue despite feeble protests that you are objective. 


Has there actually been any default? Has that even happened? Did the markets even react? Look at reality. Look at what you tangibly see. It simply did not happen. Hysteria over nothing.And nothing that was ever going to happen realistically in the first place.

But this economist DID say that the markets liked more debt, the fed printing more money, and more credit. Apparently, that too, is reality.

I don't see what is partisan about cold, hard facts.



Of course that was simply one economist expressing an opinion.  I think I'd like to hear/read more before defining what he said as cold, hard facts. 

The deficit has been coming down recently, though there are certainly long-term concerns.  Few want to see the debt continue to rise but the differences in how to reduce the debt are profound.  One group absolutely rules out any increased taxes.  And if the increasing debt is the problem most of us think it is, we should not be ruling out any and all tax increases for all times.  A better approach might be a blend of reduced spending and increased revenues.


The market dropped when Cyrus threaten default.. factor that in your so called calculation.

The total US stocks amount to $60 trillion. If it dropped 10% that would be $6 trillion wiped off pension funds , 401k and  private portfolios. Watch the majority of GOP congress persons  to vote tonight to wipe $6 trillion off everyones books. they will lose thank God..

In a game of chicken on a highway, the decision-making comes down to the last half second, when miscalculation and adrenaline sometimes overwhelm rationality. George D has a rosier view than I have of the good sense and sound judgment of humans under stress. And the source of his confidence is that infallible indicator, the stock market. Well, okay then.

Without any default, these games are eroding our reputation as the rock-solid, responsible banker to the world, which itself is a hugely valuable asset. And we are rendering ridiculous the claim that our form of government should be a model for all.

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