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Mike Lew's avatar

The MAGA loons have wanted the US to default on its debt since the Newt Gingrich days. It's inevitable that a default will happen one of these times. Of course, the aftermath will be either: the Democrats are to blame for not stopping us, or noobe told us it would be this bad!

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John Robert's avatar

I'm not overly afraid the GOP will intentionally kill the world's financial system. What really concerns me is the possibility of an accidental default. The past deals were always at the last minute, short term, and depended on narrow majorities for their passage. With such a delicate meshing of so many moving parts, there are far too many opportunities for something to go wrong fo me to be entirely confident a default will be avoided.

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Ken Kiyama's avatar

There are four components of the debt ceiling situation that worry me:

1) There's a faction in the House that thinks default is not big deal, and all the talk of financial catastrophe is just deep state / George Soros propaganda;

2) There's a faction in the House that thinks default is a good thing, and a great opportunity to clean house (pun not intended);

3) I doubt Kevin McCarthy is intelligent or adept enough to negotiate a deal that he can get through his caucus;

4) The Democrats have done an awful job of making the distinction between raising the debt ceiling versus budget negotiations over revenue & spending (Biden't cutesy little diagram about VA benefits just plays into the GOP strategy of muddling the issues)

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Allen Rothman's avatar

I doubt very much the current GOP caucus will approve any deal acceptable to the Democrats. The only way out of this is to get McCarthy to permit a vote (or somehow force a vote over his objections) in which a few sane Republicans vote with the Dems to lift it.

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Ken Kiyama's avatar

If it exists at all, it's a very, very small window for a deal that stands any chance in the House. And McCarthy is definitely not the guy who can do it.

There's all the crazy talk about platinum coins and the 14th amendment, which create a huge firestorm of criticism and the mainstream media will have wet-dreams about all of the *inside baseball* stories they'd be able to write.

I think the only way through this is a discharge petition, which, as I understand it, any member of the House can file and only requires a simple majority. It takes a little time to go through the necessary hoops, so I hope there's some backroom negotiating (maybe with a few Republicans who are thinking about retiring anyway) to get that process going.

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Grumpy Liberal's avatar

If you think bank failures over the past few weeks weтАЩre bad, just wait until ALL those bonds banks are holding become not just devalued but essentially worthless. Talk about your stress tests.

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MProvenza's avatar

There is an element of Brexit in the debt ceiling talk. A lot of people talking who don't know how bad it can be and a bunch of politicians saying well it is what the people want.

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Linnea's avatar

Brexit is an utter and total disaster. Thursday are the local elections in the UK and if the Tories are not kicked to the curb it will be a miracle. No Tory is campaigning on the miracle of Brexit. So far it has cost the UK millions in lost revenue and more to come!

My British family are either voting Labour or Lib. Dems and they are mostly formerly Tories.

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JF's avatar

And Brexit definitely left a trail of regret, according to recent polls.

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Allen Rothman's avatar

I think (hope) it wonтАЩt be this time. Biden canтАЩt afford to have the economy blow up on his watch. It will be hard enough running during a likely recession even if we get through this. So Joe and Chuck will give Mc Carthy something on spending that will induce him to allow a vote in the House on a resolution to raise the debt limit. If I were they, it would be enough to take the debt limit off the table next year as well. Joe will get some flack for this from the left but spending needs to get reigned in. Biden might gain some independents by doing that.

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Cheryl from Maryland's avatar

What independents from the GOP? They all voted for McCarthy's ransom note. The only GOP members of the House who voted nay were because the ransom WASN'T HIGH ENOUGH.

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Craig Butcher's avatar

Do you really think that any ransom was really what was being attempted? Do you really think that the drivers of this business in the GOP really give a damn about limited government or rational limits on public expenditure? Do you not think that all they really intend is to foment suffcient default-adjacent economic chaos and misery so Democrats go down in 2024?

Possibly there are one or two -- maybe even enough to field a basketball team -- who think they are on a mission to set the nation on a sustainable fiscal path -- and a couple of football teams' worth more who are too Q-addled to be said to have sufficient understanding to spell "fiscal", much less use it in a sentence.

But preventing a default and the ensuing economic disaster is absolutely against the interest of those who do know what they want, and are acting to get it. Because what they want is to win the next election, and to do so with a margin that will allow them to prevent any further elections from ever challenging them again. In their minds, if they can make things catastrophically bad enough, not only will Biden lose and lose badly, but so will enough Democrats to assure wide GOP majorities in the House and Senate. Thus when Trump take office he will be unchecked by any opposing institution, and free to rule by diktat.

And he may have to, because the nation will have defaulted on its debt, the dollar will be in free fall, the price of imports will be soaring, and the desperate American population, facing widespread unemployment and the defenestration of their dreams of retirement, will be in a very bad mood.

That, I submit, is what motivates the behavior of the GOP. They don't want a compromise, even on their own terms -- because their real objective is to create a disaster for their benefit.

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rlritt's avatar

But really what does Biden have to worry about? I believe he wants another term, but as everyone keeps saying, he's 80 years old and at the top of his career. He can afford to stand firm and let the Republicans shoot themselves in the foot. The worse that can happen for him is he doesn't get another term and he retires to Arizona.

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Mary Brownell's avatar

Well, I don't know. Biden also cares about his legacy, I bet, and he probably wouldn't want to go down in history as the president who presided over the gutting of the American economy. Plus, it's just possible that he sincerely cares about the good of the country. Plus, plus, knowing Arizona as a resident, I don't think he'll want to retire here!

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rlritt's avatar

True. I do think he cares. And I'm sure he wants to see the country on an even keel when he finally keaves office.

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Craig Butcher's avatar

Unfortunately, this doesn't stop. Pay off the bandits and they come back. Don't pay off the bandits and they burn it down so you won't have anything left to pay them off with next time.

Besides -- the Republicans who think they are running this con don't give a f--- about the terms. This is not about spending cuts or anything to do with policies or principles.

Their game is to create enough chaos to ensure they take power in the next election. The last thing they want is a "solution" -- any more than they actually want to prevent turmoil at the border. They think they can have a default-type experience, come into power again, and everything will work out to their benefit.

Of course are fooling themselves with the illusion that they will be able to control it. Hubris destroys empires.

They are like the Austrians in 1914, who imagined they could have a controlled little war in the Balkans and nothing would fundamentally change in the European system.

Millions of millions of people all over the world will be crushed in the avalanche of collapses that has now begun. (Including of course, us. Among which will be me and my family and friends. Too bad, I guess.)

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Allen Rothman's avatar

I agree the Crazy Caucus wants chaos for political gain. But there are still some Republicans, including McCarthy, who know a default must be avoided. The key is getting a bill on the floor so these Republicans can join with the Dems to raise the ceiling. This will require some concessions on spending. Biden will try to roll it into the budget discussion rather than tie it to raising the ceiling. But ultimately thatтАЩs window dressing.

Getting some control over spending is good policy too. We injected $6 trillion into the economy during COVID. During the Great Recession it was around $2 trillion. Some on the left maintained that, under the unproven Mondern Monetary Theory, the US can spend as much as it wants without consequence. 9% inflation disproved that.

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pfuhlir's avatar

Well, you are partially right. But the problem is that the climate change diaster that awaits us all, relatively soon, will cost many $T more. And if we don't spend that much on solutions we will spend that much and more on cleaning messes

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Craig Butcher's avatar

I would be more sanguine if I thought that the people driving this train wreck had actual policy goals -- but I see no evidence of such aims. The only apparent goal of the GOP is to foment whatever political and economic chaos they can to ensure that they take office next election, this time for good.

I suppose you might stretch the notion of "policy" to include "overthrowing electoral democracy and replacing it with a one-party, white grievance oriented kleptocracy in the tradition of what existed in the Solid South from reconstruction to the civil rights era" -- but that would be much the same as saying a drug cartel has a "policy" of promoting the use of addictive drugs.

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David Court's avatar

You have some good thoughts, we just don't have much time to put them into effect.

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R Mercer's avatar

Did it? There are economists who argue otherwise--to a greater or lesser degree.

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Mike Lew's avatar

If the Germans hadn't dug in following the French counterattack, the pre-1914 system may have hung on a while longer.

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R Mercer's avatar

Pretty much everyone (other than maybe the Russians and the Brits) thought that war now was better than war later--the Germans certainly did, as they saw themselves in trouble as the Russian economy and capabilities improved.

None of them thought it would be as bad as it got. Hindsight is 20/20.

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Craig Butcher's avatar

All part of the hubris that fools itself into refusing to credit consequences that are plainly evident if an ill-advised course of conduct persists. This is the hubris driving its victims to take advantage of seeming opportunities to chew off some territory here or wrong-foot an opponent there -- especially if you've seen someone else do it before and get away withy it. All the European powers from the Franco-Prussian war up to August 2014 were self-deluded in this way by visions of gaining ground against the other players. Until it went wrong.

This is one of the chief melodies in the 24/7/365 opera of human folly. Just keep borrowing money and flipping houses because the prices are going through the roof and we don't want to miss out. Invade Poland, the other powers did nothing when you took the Sudetenland. Take the debt hostage, all the chicken littles were wrong about the sky falling before. Start a default so we get a recession, it will be blamed on the Democrats so we will win the next election.

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Mary Brownell's avatar

Yeah, what they got was war now AND war later. What a tragic story that had such consequences for Europe that still resonate.

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R Mercer's avatar

It was quite the mess. Lots of incompetence and stupidity all around--and the end state basically set the stage for the reprise 20ish years later.

But it is hard to see how the ending could have gone differently/more thoughtfully given the events and costs of the war. The reality is without the entry of the US into the war, Germany had a high probability of what passed for victory--and that almost suddenly (and surprisingly) turned into defeat.

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TW Falcon's avatar

Well, at least it was fun while it lasted. Right?

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Sherm's avatar

Don't be silly; it'll be both, with zero self-awareness re: the inability of those two things to coexist.

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howard's avatar

Since they're all Maga loons now, I have no doubt we are looking at a crisis, although I was under the impression that the constitution forbade questioning the debt.

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Craig Butcher's avatar

The constitution is just a scrap of paper if it does not exist in the hearts and minds of the people. Ultimately it's no less ephemeral than democracy itself, the most gossamer of illusory actualities -- it is real only to the extent that the population wants to abide by its strictures. And they don't anymore. That's over.

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May 2, 2023
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Mary Brownell's avatar

Good comment, rc4797. I'm one of the ones who's often annoyed by the Conservative canonization of St. Ronnie, but I think he was by and large a decent person who was sincere in caring about the good of the U.S. I think it is possible he would be more like Mitt Romney, Liz Cheney, and Adam Kinzinger than the spineless Republicans who are too scared to say anything native about what his party has become under Trump.

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Mike Lew's avatar

That's my secret hope for how this plays out. I still can't fathom why the party of Wall Street has no appreciation of what US bonds mean to the financial system.

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Grumpy Liberal's avatar

I suspect that their secret hope is that Biden pulls some stunt (like minting a Trillion Dollar Coin) that saves the economy but allows them to paint his action as an overreach.

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Mike Lew's avatar

It's the tragedy of the commons. They want "someone else" to fix the mess, while they go on TV and posture for the MAGA. Remember when Republicans liked to think of themselves as the party of grown-ups? Heck, toddlers have more maturity than this crowd.

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Peter T's avatar

I think it's a bit more complicated than all that. With the party re-alignments going on, much of the well-to-do are now Democrats. * It's the super-wealthy crypto-libertarian types (think Kochs) that, apparently, still want to ride the MAGA tiger.

I agree, though, it must be interesting to see how the situation today rattles around in the heads of the latter. One possibility is that, like so many in the elite GOPe class, they've lost control of the tiger.

*See, for example, Packer's take on this: https://www.theatlantic.com/magazine/archive/2021/07/george-packer-four-americas/619012/

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rlritt's avatar

They do not understand how the world works. Far Right media has brainwashed millions of their supporters and they believe that, with them, they can make fascism work this time, with them in control.

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Mike Lew's avatar

"We're the biggest economy in the world, they need us." Actually, if you voluntarily default your sovereign debt, no they don't. You think inflation is bad now, wait until the dollar is almost worthless. Can't wait to see how this is Biden's fault.

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Terry Mc Kenna's avatar

Agree - they may need us but as soon as we show we are not reliable, the next tier of bonds move to the front. This is more or less what happened with soybeans. The Chinese found another supplier.

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heybige's avatar

Except that there is no other supplier - not like the US, the deepest and most liquid treasury market BY FAR in the world. There is no ECB central bank bonds (it's all individual countries with their own idiosyncrasies), JCB is buying most of its countries bonds and they're practicing yield curve control, China has a very small, liquid bond market and capital controls. The whole entire system is built around the USD and USTs.

The entire global economy would seize up. UST are used for collateral for around 75% of the world's trade. They are considered risk-free. If everyone had to re-evaluate that risk given a default, it would be chaos. All global trade would immediately cease until pricing could be figured out. The USD, which typically moves in tenths of one percent per day might drop 20% overnight. Hundreds of thousands (millions?) of companies worldwide would instantly be insolvent.

It would be the equivalent of COVID by 5x or 10x, and there's not much the Fed could do about it. You can't pump USD into a system that doesn't trust the USD.

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Mike Lew's avatar

Yeah, but there was that drag queen story hour, so what are ya' gonna' do. /s

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TW Falcon's avatar

Yeah, it won't be their fault. The Democrats made 'em do it. /s

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Terry Mc Kenna's avatar

Sure but do we really want to risk it? By the way, there are bonds denominated in Euros. So we could finally create the straw that broke the camel's back. I worked for a US insurer who sold bonds denominated in Euros. Again - let't not think we are so unique.

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heybige's avatar

I'm saying we absolutely should NOT risk it.

And yes, there are all kinds of bonds denominated in EUR, but they are not generally used globally as collateral.

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JF's avatar

The party of Wall Street is populated with Lauren Boeberts.

I saw a Katy Porter interview in which she described having to work in the same space as Lauren Boebert as a major professional challenge. It blew my mind that I had never considered what that must be like, for a principled brainiac like Katy Porter to be on the same functional plane as an amoral idiot like Boebert and the rest of the Miscreant Gang of Unfortunates. ItтАЩs like an alternate universe.

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BlueOntario's avatar

You would think their donors would be checking with their own financial advisors before letting this go further. This is making the Nihilists in The Great Lebowski look like reasonable people.

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Mike Lew's avatar

Must be exhausting. :)

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