Debt Default Realities

There is seemingly no end to the amount of pixel slaying occurring  in order to paint the scenario for a failure to raise the debt limit. Here’s a link to a post by Felix Salmon which contains a lot of links to the various hyperventilated blovations. Let me be fair to Felix and say that I found his post to be one of the few at least grounded in some reality. Martin Feldstein via Greg Mankiw puts things in proper perspective.

The WSJ and FT continue to write about the risk of default, quoting the Treasury, Boehner and others.There really is no need for a default on the debt even if the debt ceiling is not raised later this month. The US government collects enough in taxes each month to finance the interest on the debt, etc. The government may not be able to separate all accounts into “pay” and “no pay” groups but it can certainly identify the interest payments. An inability to borrow would have serious economic consequences if it lasted for any sustained period but it would not have to threaten our credit standing.

I doubt very much that some compromise won’t be reached and even if it isn’t for a few days, Armageddon is not going to ensue. Creditors will get paid, social security checks will go out, the Defense Department will continue to function as will most other critical operations. Best to ignore the doomsayers.

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