Shutdown a major headache
for millions, but much
worse may lie ahead
– Paul Krugman, The New York Times, Sept. 30 2013.
Prize-winning economist and columnist at The New York Times Paul Krugman nailed it on Monday. Click image to enlarge.
THE ABOVE ASSESSMENT IS so brilliant, I trust Prof. Krugman will forgive me for quoting him in the lead. More about him in a minute.
This morning, at 0500 GMT, the mightiest bureaucracy oi the world, the United States federal government, shut its doors.
Millions of people were already suffering in anticipation of the crisis. Millions more begin their unnecessary hardship today.
It could all have been avoided.
But, if you think this is bad, take a deep breath.
In a couple of weeks it could go from bad to worse – much worse!
According to most, on Oct. 17 the U.S. Treasury will hit its legal debt ceiling. That could spell financial Armageddon – and a constitutional crisis.
IN HIS MONDAY column quoted above with the superb headline Rebels Without a Clue, Prof. Krugman, a Princeton economist and prize-winning author of multiple volumes, nailed it.
“[A] temporary government shutdown … wouldn’t be the end of the world. But a U.S. government default, which will happen unless Congress raises the debt ceiling soon, might cause financial catastrophe.
“Unfortunately, many Republicans either don’t understand this or don’t care.”
The column “Rebels without a clue” by Prof. Paul Krugman published Monday. Click image to enlarge.
You bet they don’t care! Let us count the ways millions of Americans are already suffering, as outlined by the president in his statement on Monday before the midnight deadline.
“Office buildings would close. Paychecks would be delayed. Vital services that seniors and veterans, women and children, businesses and our economy depend on would be hamstrung,” President Obama warned.
“Business owners would see delays in raising capital, seeking infrastructure permits, or rebuilding after Hurricane Sandy. Veterans who’ve sacrificed for their country will find their support centers unstaffed.
“Tourists will find every one of America’s national parks and monuments, from Yosemite to the Smithsonian to the Statue of Liberty, immediately closed. And of course, the communities and small businesses that rely on these national treasures for their livelihoods will be out of customers and out of luck,” the president added.
Vital national services, like defense and air traffic control, will continue, he said. Bad, indeed, but not yet catastrophic.
However, “a government shutdown looks benign compared with the possibility that Congress might refuse to raise the debt ceiling,” Krugman wrote.
“[H]itting the ceiling would force a huge, immediate spending cut, almost surely pushing America back into recession. Beyond that, failure to raise the ceiling would mean missed payments on existing U.S. government debt. And that might have terrifying consequences.”
U.S. government debt is the “gold standard” of the global financial system, Krugman explains. It all rests on the “full faith and credit” of the U.S. Treasury.
In a word, it all depends on confidence.
If the financial geniuses lose faith that the United States will not honor its debt, the entire world is in serious trouble.
Krugman concludes: “This all sounds crazy, because it is. But the craziness, ultimately, resides not in the situation but in the minds of our politicians and the people who vote for them. Default is not in our stars, but in ourselves.”
Indeed, not all of us, but a tiny minority has taken it upon themselves to force these twin crisis on the entire planet and couldn’t care less about the consequences.
KRUGMAN WAS NOT ALONE in sounding the alarm on Monday. In Dancing on the debt ceiling: Brace for impact Jonathan Capehart of the Washington Post wrote:
A stark warning of worse to come appeared in Monday in The Washington Post. Click image to enlarge.
“Let me interrupt the fear over the looming government shutdown to convince you that if you’re not freaked out about having to wait for Speaker John Boehner to choose between his caucus and our country in the fight to raise the debt ceiling, you ought to be.
“The impending battle over the full faith and credit of the United States is exponentially worse than the 2011 debacle that led to the first-ever credit rating downgrade.”
Well, this is scary enough. But then late Monday one gets to The New York Times op-ed in which yet another potential scenario – scarier that all the above – is outlined.
Writing in Obama Should Ignore the Debt Ceiling Henry J. Aaron, a senior fellow at the Brookings Institution, said:
“Failure to raise the debt will force the president to break a law — the only question is which one.
“The Constitution requires the president to spend what Congress has instructed him to spend, to raise only those taxes Congress has authorized him to impose and to borrow no more than Congress authorizes.”
If any one (or more) of these is impossible – as may occur later this month – then the president is forced to break one law.
“The only defensible option for the president if the debt ceiling is not raised is to disregard the debt ceiling,” Aaron warns. “The action would be unconstitutional because it would be illegal. Financial markets might react negatively, but not nearly so negatively as if the United States failed to redeem bonds or to pay interest on its debt.”
Financial catastrophe on a global scale would ensue.
“If Congress leaves the debt ceiling at a level inconsistent with duly enacted spending and tax laws, the president has no choice but to ignore it,” Aaron concludes.
And there, friends, is yet another crisis waiting in the wings.
A constitutional one.
Is anybody ready for round three?
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