...this is serious business.
The debt showdown has now begun to mimic the global warming debate, in that all rhetoric about consequences is framed probabilistically and speculatively, and some would like to pretend that there wont be a problem at all. The debt ceiling is different to the extent that many Americans and political leaders are convinced that, if we act to late, mitigation of the damage will be relatively easy. We can prioritize our payments, or use potentially illegal fallback strategies, or resolve the showdown a day late and cover for any shortfalls.
Reading the news this week, though, I've noticed two major shifts in reporting on the issue. First, consequences are being framed in less probabilistic terms. Second, it's become increasingly clear that the mitigation strategies will be ineffective.
In particular, this is really unsettling news.
The two most important takeaways:
1.) You don't need to default to spook financial markets. Remember how all of this deficit scare business began with concerns that a lack of confidence in US debt securities would cause a run? That is the crisis we feared, not a default. This could be that crisis. Not twenty years from now, when our debt gets "too big". Now.
2.) What the treasury department does isn't as straightforward as most people like to pretend. There are a large number of different flows of funds at hands, and many depend on market operations. Which might make it more difficult to quickly clean up any mess or to prioritize payments than members of congress seem to realize.
Keep watching. There's way more at stake here than in the shutdown showdowns.
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