Judging by remarks made by Speaker of the House John Boehner on This Week, it appears we may find out what happens when a grown-up, adult, first-world country defaults on some of its obligations to creditors.
Boehner let it be known that he doesn’t have the votes to pass a “clean” debt limit bill. President Obama keeps insisting he won’t negotiate on the debt ceiling. This puts the government in exactly the same position it was in on September 30 leading up to the government shutdown: neither side will give.
Except this time, the stakes are much higher. The government had shut down several times previously, with manageable consequences. But Congress has never failed to raise the debt limit, thus assuring the full faith and credit of the U.S. government.
The administration’s problem about predicting catastrophe is that they’ve been crying wolf so often — first with the sequester and now with this latest government shutdown — that few are inclined to believe them. The fact is no one — not the administration, or economists, or experts — can predict with any certainty what is going to happen if we blow through the debt ceiling.
The only thing we’re sure of is that there are few scenarios that don’t predict severe consequences.
The U.S. will run out of borrowing authority on Oct. 17 and will have $30 billion in cash after that. The country would be unable to pay all of its bills, including benefits, salaries and interest, sometime between Oct. 22 and Oct. 31, according to the Congressional Budget Office.
“Congress is playing with fire,” Lew said on CNN’s “State of the Union” today. “If the United States government, for the first time in its history, chooses not to pay its bills on time, we will be in default, there is no option that prevents us from being in default if we don’t have enough cash to pay our bills.”
Unlike past fiscal feuds, this dispute is more about Obama’s signature health law and less about the amount of spending. The U.S. budget deficit in June was 4.3 percent of gross domestic product, down from 10.1 percent in February 2010 and the narrowest since November 2008, when Obama was elected to his first term, according to data compiled by Bloomberg from the Treasury Department and the Bureau of Economic Analysis.
So far, the financial-market response to the political gridlock has been muted.
Give the shutdown and lack of progress on a debt limit bill another week and the markets will probably be singing a different tune. But many observers wonder if Boehner is bluffing. Obama thinks so.