If a bondholder misses a payment for a day or two or three or four — what is more important is you are putting the government in a materially better position to better pay its bills going forward.
Right. When Americans miss credit card payments for a day or two or three or four does it put you in a better position? No, because your credit card company kicks your interest rates up to the much higher penalty rate, and because the credit card issuer sees you as a risk for missing more payments in the future, you end up paying much, much more in the long run, plus it trashes your credit score.
Replace "credit card company" with "treasury bond market" and "credit score" with "America's sovereign debt rating" and you see the problem with what the Republicans are trying to sell here.
And remember, just a few months ago Ryan was saying that America couldn't play games with defaulting.
Ryan has changed his tune regarding the debt ceiling significantly over the last several months. Back in January, Ryan admitted that failing to raise the debt ceiling was “unworkable.” “Yes, you can’t not raise the debt ceiling. Default is the unworkable solution,” he said during an appearance at the National Press Club. Earlier this month, he began to take a more radical line, saying that the ceiling wouldn’t be raised without concessions from Democrats. “It won’t happen, I’m serious about this,” he said. Now it seems he’s gone full-in with the fringe of his party in actually inviting a default.
Yesterday, the credit rating agency Fitch warned that even a short-term default that resulted in some missed payments — exactly what Ryan is advocating — would do real damage to the U.S. creditworthiness. “If the Treasury missed a payment on its debts, even for a short period, Fitch would lower the nation’s credit rating — adding that it would be ‘unlikely’ the government could return to AAA after such a default,” The Hill reported.
America remains the only major country never to default on sovereign debt payments. But Republicans are trying to tell you that it's no big deal if we do, and the bigger issue is they are confident Dems will cave to their hostage situation plan and cut trillions from social programs...to give that money to the super-rich in tax breaks and to corporations who already pay 0% tax because of loopholes that Republicans refuse to close, in fact raising the deficit and the national debt.
And what would a default mean to consumers, and to the country at large? How about even a short default period adding $1.2 trillion to our national debt in increased borrowing costs over the next decade for starters?
Because interest rates on bonds determine how much it costs the US government to secure more debt, even seemingly slight changes can affect the long term deficit on a large scale. A 1% rise in interest rates, or 100 basis points, would grow the deficit by over $400 billion over the next five years and $1.2 trillion from 2012-2021, according to the CBO. Given that the agency's baseline assumes a number of tax cuts that Congress typically extends will expire, it's likely that more debt would be affected and push the number even higher.
Oh, and it gets worse at the consumer level.
Nor would the problem be confined to US debt -- a report by the left-leaning Center for American Progress suggests the damage to the housing market may be even more severe. According to their research, past shocks in the bond market have resulted in outsized increases in mortgage rates, which are based on treasury interest rates. They estimate that interest on home lands could rise 0.66% in response to 0.5% rise in interest on treasury bills as a result, which would depress home sales by discouraging buyers from taking on loans.
"If Congress fails to raise that ceiling then the U.S. housing market would most likely experience a severe double-dip contraction marked by much lower home sales and depressed house prices," author Christian Weller wrote. "That in turn would spark a return of the economic pain of the past few years for many families as foreclosures would remain at or near record highs, and jobs in key sectors, such as construction, would disappear again."
As bad as our housing depression is, even a short default, like the one Paul Ryan is calling for, will absolutely ruin the housing market and raise mortgage rates for all borrowers across the board. Thar rate rise will affect credit cards, loans, all kinds of borrowing. In short, even a technical default will pretty much push us right back into a recession.
And Republicans seems to be absolutely okay with that. In fact, as worried about the deficit and the debt as they seemingly are, they apparently have no problem making both worse.
But the Republicans are the party of fiscal responsibility, right?
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