The Consequences of Defaulting on Our Debt

So what happens when China calls us up and asks when to expect the check for that loan they gave us? Will we hem and haw and make a bunch of lame excuses? Will we promise to pay the bill if they just give us until the end of the month? Will we call up Great Britain and say ‘Hey, remember the good old days when we saved you from that awful Hitler dude? By the way can we borrow a few trillion until our next unemployment check comes in?’. Maybe we can take a few aircraft carriers to the pawn shop for one of those quickie loans. Perhaps we can kite a few checks and hope nobody notices. Will we go through that embarrassing scene where our credit card gets declined in front of all our allies at a state dinner? Don’t you just hate when that happens?

Well, according to an analysis from the Bipartisan Policy Center if we don’t raise the debt ceiling by August 2nd (that’s less than a month for those of you with July 4th hangovers) then the United States is going to have to figure out which thirty million bills out of eighty million not to pay. The Treasury will only be able to pay 60% of the bills. No one is quite certain how that will happen since it’s never really been done before.

But let’s say we do prioritize our bills and pay the big stuff first. The analysis (per the Washington Posts Ezra Klien’s interpretation) says this means the government:

stops paying military salaries, gives up on the FBI and the Centers for Disease Control, cuts all funding for food stamps and education, shuts down air control, tells NASA to head home, freezes the paycheck of every federal employee, and much more. In another, the Treasury Department tries to protect the social safety net, but has to stop supplying the troops, sending out tax refunds, inspecting offshore oil rigs, etc.

Hmmm. Most of those things are what Republicans are demanding we cut in order to accommodate raising the debt ceiling. It would appear that they win either way. All that’s left is for the government to pick whether they want rocks or dirt with their crap sandwich.

But back up to that scenario of not paying all those bills and just imagine the economic tsunami that would occur if a disruption like that happened and all of those folks didn’t get paid. The resulting financial panic and collapse that would ensue would make the stock market crash of 1929 look like a ticker tape parade.

But don’t stop there. Interest rates on lending are at an all time low but if we default who’s going to want to purchase our debt? Nobody wants to take that risk without a greater return so interest rates will go up. Some estimates put it at $50 billion a year and it will ripple throughout the entire economy. So when people claim it won’t be as bad as experts say it will or who think this will teach the government a lesson; what they fail to recognize is that they are not separate from the backlash. Everyone will feel it. Some worse than others, to be sure, but most likely the waves will be felt all the way on the other side of the world.

It is folly to even entertain the notion of not raising the debt ceiling. And it is little wonder that we may see the constitutionality of defaulting on our debts challenged. Given a choice between avoiding a potential financial disaster that we know is avoidable; and enough people with more than just a passing fancy on the topic have warned us will happen, or knowingly, willfully, blindly, with no regard for the consequences allow us to get into a default situation…why are we having this conversation again?

About Mr. Universe

Mr. Universe is a musician/songwriter and an ex-patriot of the south. He currently lives and teaches at a University in the Pacific Northwest. He is a long distance hiker who has hiked the Appalachian Trail and the Pacific Crest Trail. He is also an author and woodworker. An outspoken political voice, he takes a decidedly liberal stance in politics.
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1 Response to The Consequences of Defaulting on Our Debt

  1. frk says:

    I recall watching episodes of Sesame Street with my sons. The lesson that actions have consequences was central to many of their skits. A little boy eyes a fishbowl. He wants to touch the fish, but he’s a sensible young fella, well-taught by his parents. A little thought-bubble appears above his head. IF I reach for the fish, I may knock over the stand. If I knock over the stand, the bowl will fall and the fish will be out of water. Fish don’t live out of water. When mommy comes home, she’ll see the dead fish and want to know what happened. I’ll tell her and she’ll be angry.
    Our political leaders apparently never watched Sesame Street . (For sure, it’s a PBS program, so the conservative children likely missed its useful messages). They don’t see the stand falling over. Or the dead fish. They have a plan that will serve them and no one else.

    Blame the cat.

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