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Tuesday, October 08, 2013

Default denialism

by digby

Salon asked the dimmest Senator an important question:
Q: So if we come to…October 16th and the debt ceiling has not been raised, should the markets be concerned at that point?

Ron Johnson: Not if you had a responsible administration. There would be no cause for concern. We have more than enough revenue flowing to the federal government, if the spending was properly prioritized, there’s no reason whatsoever to default on any of the debt.
And I, I utterly reject the administration’s claim that this isn’t about new spending, that we’re just paying off old bills. Well, well the reason you have to increase the debt ceiling is because of new deficit spending. If we weren’t running deficits, if we weren’t spending more than we were taking in, there would be no reason whatsoever toincrease the debt ceiling. So if you manage things properly – and listen, I’m a business guy, I’ve got to prioritize spending in all my business career to prevent my business from going bankrupt. The federal government has got to start doing that eventually as well.

Ok. But then we all know that Ron Johnson isn't the sharpest tool in the shed. he must be along, right? Well....

Dave Weigel decided to ask some other Senators their views on the possibility of default:

Senator Richard Burr:

"You gotta take Jack Lew at his word, but from the standpoint of [whether] that puts us in default, technically, no. The federal government still has about 85 percent of the revenues we spend coming in, and all they have to do is prioritize that they're gonna pay debt service first. And that leaves some prioritization for federal programs. I'm not as concerned as the president is on the debt ceiling, because the only people buying our bonds right now is the Federal Reserve. So it's like scaring ourselves."

Senator Orrin Hatch:

"I think the administration could work on who gets paid and who doesn't in a way that would pull us through. I don't think the markets have been spooked so far, and I personally believe that if they realized there was a legitimate attempt to make the government work, they would be less likely [to be spooked]."
USA Today had this:
"I would dispel the rumor that is going around that you hear on every newscast, that if we don't raise the debt ceiling, we will default on our debt," said Sen. Tom Coburn, R-Okla., Monday on CBS This Morning. "We won't. We'll continue to pay our interest."

This one remains the winner:

And Rep. Ted Yoho, R-Fla., even argues that reaching the debt limit could help the economy, by showing the world the U.S. is serious about its debt problem. "I think, personally, it would bring stability to the world markets," he told The Washington Post Monday.
I just don't know what to say. But if they believe what they are saying, they are all cracked. As Krugman says:
You knew this would happen, didn’t you? As we close in on the debt limit, with Obama insistent that he will not give in to hostage-taking, there is a growing chorus of voices on the right insisting that the whole debt limit thing is scare tactics from the administration, and that hitting the limit will be no big deal.

And the truth is that there is some real uncertainty about exactly what happens if we hit the ceiling. I think the administration has made a tactical error by putting all the weight of its warnings on the financial consequences; we might have a Lehman-type event, but we might not, and if it turns out not, the administration will have hurt its credibility. What sane people should be emphasizing is that in addition to the risk of financial disruption, there’s the certainty of huge pain from spending cuts and a crippling hit to economic growth.

So, who are the default deniers? Actually, they come in three varieties.

The lower denial says that it’s all a conspiracy — that any pain Americans feel will be because Obama wants them to feel pain. Dave Weigel has a good rundown on this attitude.

The higher denial involves asserting that the government can prioritize, so as to avoid a default on interest payments, that this would avoid damage to the financial system, and that this means that everything will be OK. This is what you’re hearing, for example, from erstwhile respectable Republican economists, who have (surprise!) mostly fallen in line as the crisis looms. The crucial point here is that even if they’re right about interest payments — which is unclear — the government will (a) still go into default on obligations to vendors, Social Security recipients, and so on (b) be forced into spending cuts so large as to guarantee a recession if the standoff lasts any length of time.

Finally, there’s the special form of default denial coming from the deficit scolds. I noted yesterday that they cheered on the 2011 debt confrontation; they’re not quite so rah-rah this time, but as Matthew Yglesias notes, they’re still endorsing hostage tactics. From Fix the Debt:

Instead of engaging in dangerous and self-destructive political brinksmanship, our elected leaders should use this moment as an opportunity take steps to improve our fiscal condition. We urge lawmakers to stop focusing on issues unrelated to bringing down our dangerously high debt levels and instead pursue a fiscally responsible agenda that avoids default and puts in place a plan to bring down the debt as a share of the economy.

Yep, they’re still fantasizing about a grand bargain, and are endorsing hostage tactics over the debt ceiling because they believe it can make their fantasy reality. It’s kind of awesome. Everyone else is, I think, aware that Democrats will never accept a grand bargain without revenues and Republicans will never accept one with revenues; this latter point comes, in turn, from the reality that Republicans don’t care about the debt and never did, they only pretended to as an excuse to slash social insurance programs. Yet the folks at Fix the Debt imagine that somehow the debt crisis — the crisis many Republicans are insisting is no big deal — can push everyone into the sacred Grand Bargain. Oh, and that all this can happen in the next 10 days or so.

Given all the forms of debt denial, I really wonder about the confidence many people still have that there will be an 11th-hour resolution.