No Dealing On The Debt Ceiling, Part 9

Ezra Klein reviews what will happen in case Republicans make good on their threat to default the country for a "few days".

It almost goes without saying, but Brian Beutler of Talking Points Memo got Standard & Poor's to say it anyway. "A sovereign's failure to service its debt as payments come due is a default according to S&P's sovereign rating criteria," according John Piecuch, spokesman for Standard & Poors. "In that case, the rating would be lowered to 'SD' (Selective Default)."


A few months ago, S&P revised our credit outlook to negative: that meant they thought there was a slightly higher chance we'd lose our credit rating in the future. That was a bit of a shock to the political system, but this would be the real thing. So it's worth being clear: when you hear Paul Ryan say the market would accept a default “for a day or two or three or four," or Devin Nunes say that “by defaulting on the debt, in the short and long term, it could benefit us to go through a period of crisis that forces politicians to make decisions,” you're not hearing about some alternative to default. To S&P, that'd be a default. They'd lower our credit rating. The market would see our political system diving into an abyss that every other congress and presidential administration in history had considered unthinkable, and they'd see the rating agencies downgrading our debt, and that's plenty of fuel for an epic freak out.

A lot of Republicans get this. Doug Holtz-Eakin, president of the American Action Forum, released a YouTube video detailing the disastrous consequences of default and flatly concluding that "we’re going to raise the debt ceiling.” But the danger is that the Republican Party will want other things -- say, a bill with extremely deep spending cuts but absolutely no tax increases -- more than it will want to raise the debt ceiling. And with enough voices saying that the debt ceiling doesn't need to be raised, and enough other voices saying it can't be raised outside of one-sided concessions the Democrats will not make, it won't get raised. 

I still say it gets raised because the economic Powers That Be will make it clear to the Republicans that if this doesn't happen, economic hell will follow (not to mention corporations will no longer be able to mooch off the Fed discount window gravy train.)   But we're already into relatively uncharted territory here, and very soon you're going to see the government have to make some ugly decisions unless this gets done and fast.

We'll see.  As I said before, Republicans are give ultimatums and threatening to destroy the economy for 90% of America...or else they'll destroy the economy for 90% of America.  And they'll just blame Obama anyway.