The looming debt-ceiling catastrophe

Republicans, inside their media bubble, head for disaster

The Republicans in Congress are holding the debt ceiling hostage—yet again—with potentially catastrophic consequences: “Hand over the Obamacare or the full faith and credit of the United States gets it!”

And if the full faith and credit of the United States gets it, we all get it.

What makes all this even more disturbing is that a good number of Republicans are actually saying that failing to raise the debt ceiling wouldn’t be so bad. Sealed off in their own propaganda loop, with the charlatans of Fox News & Co. pushing this line, they may actually believe their own bullshit.

Sean Hannity:

You know what Bob, I think you overstate — It sounds a little bit like sequestration. Predictions of doom and gloom, and none of it ever happened. The world isn’t collapsing … I’m really not that afraid of it. It may be (naiveté).

Stuart Varney (you should really watch this clip):

Rush Limbaugh, quoting Thomas Sowell (by the way, a major hat tip to Media Matters, which doesn’t get nearly enough credit for the indispensable work it does watchdogging Fox and the like. Can you imagine watching and listening to this stuff 24/7?):

Perhaps the biggest of the big lies is that the government won’t be able to pay what it owes on the national debt, creating a danger of default. As we pointed out the last time this came up, there will not be any default on bills.

Which feeds wackos like Tea Party Congressman Ted Yoho of Florida, who says this to the Washington Post:

Now, Yoho is ready for a bigger fight. He doesn’t want to raise the debt ceiling — ever again. The experts, and Republican leaders, say that would trigger a financial catastrophe.

But Yoho didn’t listen to them about the shutdown. And look how that turned out.”I think we need to have that moment where we realize [we’re] going broke,” Yoho said. If the debt ceiling isn’t raised, that will sure as heck be a moment. “I think, personally, it would bring stability to the world markets,” since they would be assured that the United States had moved decisively to curb its debt.

Your modern Republican Party, folks.

Now let’s return to the real world, and hand the mic to Bloomberg News, a sober outlet not given to hyperbole:

A U.S. government default, just weeks away if Congress fails to raise the debt ceiling as it now threatens to do, will be an economic calamity like none the world has ever seen.

Failure by the world’s largest borrower to pay its debt — unprecedented in modern history — will devastate stock markets from Brazil to Zurich, halt a $5 trillion lending mechanism for investors who rely on Treasuries, blow up borrowing costs for billions of people and companies, ravage the dollar and throw the U.S. and world economies into a recession that probably would become a depression. Among the dozens of money managers, economists, bankers, traders and former government officials interviewed for this story, few view a U.S. default as anything but a financial apocalypse…

“If we miss an interest payment, that would blow Lehman out of the water,” said Tim Bitsberger, a former Treasury official under President George W. Bush and now a New York-based managing director at BNP Paribas SA. “Lehman was an isolated company, and now we are talking about the U.S. government.”

Remember, that’s a Bloomberg news story, not an opinion piece. Read the whole thing.

Despite right-wing claims that the government can simply prioritize interest payments on the debt, it’s not clear whether that’s possible. Read Matthew O’Brien of The Atlantic on that:

It sounds so easy to pay the debt back first. But prioritization is a legal and logistical nightmare. There’s just little legal basis to justify paying some bills, and not others. Everyone we owe money to — bondholders, military personnel, Social Security recipients, etc. — has a good claim on whatever money we do have. Good luck getting whoever we stiff to go along with that.
But even if we could legally choose who and who not to pay, we might not be able to do so technically. As BPC points out, the Treasury makes 100 million payments a month. It would have to reprogram its computers to pay the most essential ones first each day — and it would have to do this fast. It’s touching that Republicans so believe in the efficacy of government that they think the Treasury could pull this off without a hitch. But I’m not so sure.

O’Brien, agrees with Bloomberg, saying a default would be “a historical calamity” and “the end of the world as we know it.”

He’s right. And we’re nine days away.

It looks like Wall Street’s gonna have to throw a fit in the next week for the GOP to remember that it’s an astonishingly awful idea to use the credit of the United States government to blackmail political opponents into accepting your agenda.

Last go-round the Dow plummeted 635 points or more than 5 percent. As we get closer and closer to October 17, the odds of a market plunge get higher and higher.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum. Tags: , , , ,