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Related: Editorials & Other Articles, Issue Forums, Alliance Forums, Region Forums"The Vaseline, in other words, already has sand in it."
The default has already begun
By Felix Salmon OCTOBER 14, 2013
The big question in Washington this week is whether, in the words of the NYT, were going to see a legislative failure and an economic catastrophe that could ripple through financial markets, foreign capitals, corporate boardrooms, state budget offices and the bank accounts of everyday investors. In this conception and I have subscribed to it just as much as anybody else the sequester is bad, the shutdown is worse, and the default associated with hitting the debt ceiling is so catastrophic as to be unthinkable.
This frame is a useful one, not least for the politicians in Washington, who seem to have become inured to the suffering caused by the shutdown, and downright blasé about the negative consequences of the sequester. Both of them could last more or less indefinitely were it not for the debt ceiling, which is helpfully providing a hard-and-fast deadline: Congress is going to have to come up with a deal before the ceiling is reached, because the alternative is, well, the zombie apocalypse.
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The best way to look at this, I think, is that theres a spectrum of default severities. At one end, you have the outright repudiation of sovereign debt, a la Ecuador in 2008; at the other end, you have the sequester, which involves telling a large number of government employees that the resources which were promised them will not, in fact, arrive. Both of them involve the government going back on its promises, but some promises are far more binding, and far more important, than others.
Right now, with the shutdown, weve already reached the point at which the government is breaking very important promises indeed: we promised to pay hundreds of thousands of government employees a certain amount on certain dates, in return for their honest work. We have broken that promise. Indeed, by Treasurys own definition, its reasonable to say that we have already defaulted: surely, by any sensible conception, the salaries of government employees constitute legal obligations of the US.
..more..
Fantastic Anarchist
(7,309 posts)But when I click the link, it says "Unable to establish connection to database."
Never heard of that error before.
Would like to read the whole thing.
maryellen99
(3,789 posts)He thinks that what the teagop has done is nearly as bad as defaulting. Also, even if a clean cr bill passes, he believes that long term significant damage has been to the economy. He also thinks we have already defaulted and its unknown how worse its going to get.
Fantastic Anarchist
(7,309 posts)... I would like to be able to read the story to see how he arrived at his conclusions. I don't doubt him, but I'd like to know.
maryellen99
(3,789 posts)Fantastic Anarchist
(7,309 posts)It may be some time of work block for me. Though, not sure why Reuters would be blocked.
maryellen99
(3,789 posts)Fantastic Anarchist
(7,309 posts)Thanks!
KoKo
(84,711 posts)The vaseline, in other words, already has sand in it. The global faith in US institutions has already been undermined. The mechanism by which catastrophe would arise has already been set into motion. And as a result, economic growth in both the US and the rest of the world will be lower than it should be. Unemployment will be higher. Social unrest will be more destructive. These things arent as bad now as they would be if we actually got to a point of payment default. But even a payment default wouldnt cause mass overnight failures: the catastrophe would be slower and nastier than that, less visible, less spectacular. Were not talking the final scene of Fight Club, were talking more about another global credit crisis where credit means trust, and trust means trust in the US government as the one institution which cannot fail.
While debt default is undoubtedly the worst of all possible worlds, then, the bonkers level of Washington dysfunction on display right now is nearly as bad. Every day that goes past is a day where trust and faith in the US government is evaporating and once it has evaporated, it will never return. The Republicans in the House have already managed to inflict significant, lasting damage to the US and the global economy even if they were to pass a completely clean bill tomorrow morning, which they wont. The default has already started, and is already causing real harm. The only question is how much worse its going to get.
Fantastic Anarchist
(7,309 posts)Yep, I agree with that assessment.
Look at China's calls for a change in the world's currency reserves. They have a little more leverage now.
Thanks to the reactionaries.
G_j
(40,367 posts)in an article written by a freaking out Republican. ..don't have the link,
G_j
(40,367 posts)and I got the link the same way.
You could try going to the Reuters blog from another route perhaps.
Fantastic Anarchist
(7,309 posts)KoKo
(84,711 posts)it's the loss of confidence in our USA Financial System that has taken another hit on the heels of the Crash of 07/08 of Wall Street and the Bailouts which are strapping our economy by keeping interest rates so low that only Wall Street and Bankers are making any money and savers and retirees are not able to earn interest to keep themselves ahead of this Wall Street, Fed and Government induced AUSTERITY for Average Americans but wealth to those who have Stocks.
The Wall Street International Bank Crooks caused a Euro-Crisis which is causing Austerity Programs over there. Loss of confidence in the USA has ripples across the Globe...and even the Chinese who hold much of our Debt are getting wary. We need outside investment to prop up what we've lost by manufacturing being offshored to other countries to pay our Trade Imbalance.
it seems whatever happens, powers will answer with the austerity lies as the cure.
Which simply visits more misery on people.