A U.S. Default Seen as Catastrophe

[josephpalazzo]

Anyone who remembers the collapse of Lehman Brothers Holdings Inc. little more than five years ago knows what a global financial disaster is. 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.

The $12 trillion of outstanding government debt is 23 times the $517 billion Lehman owed when it filed for bankruptcy on Sept. 15, 2008. As politicians butt heads over raising the debt ceiling, executives from Berkshire Hathaway Inc.'s Warren Buffett to Goldman Sachs Group Inc.'s Lloyd C. Blankfein have warned that going over the edge would be catastrophic.

"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."

'Nuclear Bombs'

Buffett has asked politicians to stop using the debt limit as a weapon in policy debates. Morgan Stanley CEO James Gorman urged employees to contact their congressmen to remind them about the "unacceptable consequences" of a default.

"It should be like nuclear bombs, basically too horrible to use," Buffett, 83, said in an interview published by Fortune magazine last week.

http://www.businessweek.com/news/2013-1 ... ing-lehman

[AllPurposeAtheist]

When the Oracle speaks people listen.. That's why Wall St and congress embraced higher taxes on the rich.

[stromboli]

Right. All because one (1) idiot won't submit a clean bill to the House, knowing full well it will pass. This is a pissing match between kids on a playground, not adults running a country.

[lumpymunk]

With the U.S. Dollar remains as the worlds primary (involved in excess of 80% of global trade) reserve currency it's really not possible for us to realistically default on it.

Basically the Federal Reserve is the central bank for the world right now.  While there are other world reserve currencies, and China is swiftly moving to internationalize its currency... nobody is in a position right now to transition off of the US dollar.

Not really sure how it will play out, but basically we've got to figure out how to straighten out the deficit spending in the United States before that +80% of global trade becomes something the world CAN simply shrug off... because at that point in time the party in the U.S. is over.

[AllPurposeAtheist]

Ehh..I'm glad to see the pres not fold for once, but I just don't believe Boehner is stupid enough to incur the public wrath by letting things actually go to default. If he is he and the tea party will be dust for good. Sadly the rest of us will pay for it.

[LikelyToBreak]

Something the far right has been predicting for years.  Though I think 2014 or 2017 was mentioned more often than 2013.  JFK wanted to get the US off the Federal Reserve dollar, but he wasn't able to do it.  

Anybody else remember the the Blue Ribbon Commission back in the eighties?  They came up with a plan to help ensure this wouldn't happen.  The were applauded by Congress and each and every recommendation was shot down by that same Congress.  Now we're balancing on a razor's edge, because well hell 2014, 2017 that's a long way off.

[AllPurposeAtheist]

The world will end, life on gods planet destroyed, everyone will turn gay and reject god if you are able to access medical care without cash in your pocket...err..something like that..

[Hijiri Byakuren]

The Godzilla Threshold: The point where any solution is preferable to letting a disaster unfold.

We are quickly approaching this threshold.

[AllPurposeAtheist]

Let the tea party crash and burn.. To bad it's not that easy, but this is extortion.

[stromboli]

The idiocy of this whole scenario is beyond words. Everybody knows exactly what is happening, everybody knows the solution, and one fuckstick of a congressman is holding up the show because he is all butthurt or something.

Uruguay sounds better all the time. Almost got the wife convinced. Sitting on the front porch with a fishing line in the water, smoking a legal doobie and enjoying fine Uruguayan barbecue. Fuck this place.

[aileron]

... and one fuckstick of a congressman is holding up the show because he is all butthurt or something.

It's because he values his speakership more than the well being of the nation.  With Democrats joining establishment Republicans, he can pass important legislation by marginalizing the fleabaggers.  Doing that will endanger his speakership though, because Democrats won't join establishment Republicans when voting to elect the speaker.

[Jason78]

The Godzilla Threshold: The point where any solution is preferable to letting a disaster unfold.

We are quickly approaching this threshold.

I say let it come!  I'll be waiting with beer and popcorn

[Hijiri Byakuren]

The Godzilla Threshold: The point where any solution is preferable to letting a disaster unfold.

We are quickly approaching this threshold.

I say let it come!  I'll be waiting with beer and popcorn

What I mean is, this is the threshold that gets dictators into power. It is the absolute worst position for average citizens to be in, and it's definitely not a position you want a global superpower to be in. Anything could happen, and a respectable number of those things are not pretty.

[Atheon]

Obama still has a weapon up his sleeve: an executive order to pay debts. After all, the Fed is under the Executive Branch.

[lumpymunk]

Obama still has a weapon up his sleeve: an executive order to pay debts. After all, the Fed is under the Executive Branch.

This would effectively nullify the branch of government regarded as being the "most connected" to public representation (as representation is based on population).  You want that kind of imbalance in the checks and balances of government?  This would basically mean... "representation of the people is not important."