Inviting Chaos: The Perils of Toying With the Debt Ceiling
[T]hreatening to default should not be a partisan issue. In view of all the hazards it entails, one wonders why any responsible person would even flirt with the idea.
– Alan S. Blinder, Princeton professor of economics, former vice chairman of the Federal Reserve
A game of Russian roulette is being played with the national debt ceiling. Fire the wrong chamber of the gun, and the result could be the second Great Depression.
The first Great Depression led to totalitarian dictatorships, war to consolidate power and concentrations of capital in the hands of a financial elite. The trigger was a default on the global reserve currency, in that case the pound sterling. The US dollar is now the global reserve currency. The concern is that default could create the same sort of global panic today. Dark visions are evoked of the president declaring a national emergency, the Federal Emergency Management Agency (FEMA) plans locking into place, camps being readied for protesters and the secret government taking over.
This may all just be political theater, but do we really want to get close enough to the economic precipice to find out? The conservative ideologues toying with the debt ceiling are doing it to force cuts in the budget, a budget that was already approved by Congress. Congress is being held hostage by a radical minority pushing a risky agenda, one that is based on an economic model that is obsolete.
On May 16, The Wall Street Journal published an opinion piece titled “The Armageddon Lobby,” which claimed that a “technical default” on the federal debt was just “political melodrama” and not really a big deal: “[B]ond markets can figure out the difference between a genuine default when a country can’t pay its bills and a technical default of a few days if it serves the purpose of fixing America’s fiscal mess.”