WaPo poll: Roughly two thirds of Republicans are aware that failing to raise the debt ceiling would lead to economic harm. By roughly the same margin, they favor defaulting on the debt over raising the debt ceiling.

iron81:

I'm no expert in the business of defaulting on your debt. In the world of everyday ordinary people, (as opposed to the world of sovereign nations), defaulting on your debt means declaring personal bankruptcy. So, if the United States defaulted on its debt, exactly what would happen? I know it wouldn't be like a nuclear war where we're all dead, but it also wouldn't be a mere "technical exercise" with no unpleasant consequences.

Before the sequester kicked in, there was much handwringing and predictions of imminent disaster. While the sequester hasn't been the optimum way of doing business, it also hasn't been the calamity that some were predicting. The sequester kicked in and our annual deficits (as a percentage of GDP) have been steadily declining. (I don't know the exact number, but I think the projected deficit for this fiscal year will be below a trillion dollars. We're not to a balanced budget yet, but under the sequester the annual deficits have been trending in the right direction.) So while the sequester was initially portrayed as a calamity that would lead to ruin, the reality has been that the sequester is actually having some beneficial effect. As for a default, the consensus seems to be that the economic effects will be more immediate and more draconian than the sequester.

What I'm wondering is what will be the immediate effects if the United States defaults on its debt? Would all Government spending be priortized (with interest on the debt having the highest priority) and bills being paid starting with the highest priority items first and working down until tax revenues have been exhausted? (Any remaining obligations after the tax revenues have been exhausted simply don't get paid?) If our Government is suddenly forced to live within its means, (with no ability to borrow), who decides whose ox gets gored?

We'll be in uncharted territory since the United States has never defaulted on its debt. I'm wondering whether a default that lasts more than a day, a week, or a month automatically equates to being back in the 1930's with a quarter of the population unemployed? Is it possible that the United States goes into default and it's still pretty much "business as usual" for most of us? Just how bad would things get in the event of a default?

No one knows what will happen because a country voluntarily defaulting on its debts is such an insane notion that nobody prepared for that possibility. Literally the laws do no address it, because why would they?

On an unrelated note, Chait has a great article about the GOP's war on food stamps:
http://nymag.com/daily/intelligencer...he-hungry.html

The best part is the caption of the picture in the middle.

Of course they're not saying they are alienated from the GOP. They're not stupid. What they're saying is the gridlock in Congress is causing and or will cause their profits to suffer and is hurting hiring. And the gridlock in Congress is at the feet of the GOP house, whether or not you're aware enough or honest enough to admit it. They've shown exactly zero willingness to compromise on ANYTHING since the teahadists got to the House and they're threatening to default on the ****ing national debt if they don't get their way.

Amongst the greatest lies being told is that Republican is the party of responsible people. They wouldn't know responsibility if it were sitting hungry at their doorstep in need of healthcare.

If America defaults the responses will have to be stuff like huge trade sanctions against the country and the effect will most immediately be felt in a big sell (and thus a huge drop) in shares of American companies.

It wont happen though:
Basically the constitution itself says America cant default. Which means Obama can just tell the fed to ignore the debt ceiling entirely, backed by the opinion of the attorney general that it is legal to do so, if it comes down to it and then just send the lawyers to war working out whether this really was legal or not.

Maybe Harry Reid will pass a token bill with a straight up and down vote, no filibuster, saying the Senate endorses this extraordinary measure, have the minority in the House endorse it verbally to give it marginally more weight and just see what happens.

The big sticking point is this:
But who exactly is going to fight Obama over this? Basically their position is "Congress has the right to not follow the constitution by passing budgets and then failing to pay the obligations of those budgets". The budget creates the debt, authorized by law, and the debt ceiling literally brings into question the validity of public debt.

As I understand it, fiscal responsibility is getting to keep all your money, social responsibly is making sure that you don't make white men uncomfortable and military responsibility is whatever Obama isn't doing.

I guess you hedged with the word voluntarily, but that's not really the part that makes this dangerous. Many countries have defaulted over the years. For example, numerous Latin American countries including Mexico and Brasil defaulted during the 1980s.

But none of those countries had a major world reserve currency, and certainly none of them had the reputation for being an absolutely reliable debtor. The US used to have such a reputation, until 2011. T-bonds used to be considered the closest thing ever to a bond with 100% certain repayment.

It's not considered that any longer?

Phil even more economically lost than steelhouse is impressive, even for him.

With Republicans all over the place stating that default isn't a big deal? How could it be considered that?

Phill:

Let me see if I'm reading you correctly. You're saying that if the Republicans manage to engineer a default and a Government shutdown, President Obama will ignore them and instruct the Federal Reserve to print money while we all wait to "see what happens?" Wouldn't that create a constitutional crisis, a possible "inflation explosion" - since we'll be paying our debts with phony money - and financial market chaos?

As far as something not happening because the constitution (a piece of paper) says it can't, history is chock full of "impossible" things happenning - things like wars, economic collapses and terrorists flying planes into buildings.

Confused and Skeptical Lawhon

The key to why defaulting would be a disaster is how it would hurt the creditors. What the government considers debt represents trillions of dollars of wealth that would be vaporized by a default. Those creditors include big banks, businesses and individuals. When you erase that much wealth, everyone who was relying on the money represented by those bonds would instantly go bankrupt, leading to a massive contraction of the economy.
Fiat money is "phony money". All US Dollars represent what the Federal Reserve prints and very few people seem to mind. The main catch is a media induced psychological shock causing people to change their behavior.

Fed will never let a default happen.

Could you please explain how the Fed has the power to prevent it? See a few posts upthread, but replace mention of Obama with Bernanke.

Fed will literally just pay and deal with the consequences, if it comes to that. A default would be absolutely catastrophic and they know it. By the time it would get to court the Republicans would be in the worst political position imaginable and would have no choice but to come to some kind of settlement.

Riverman:

If Congress (our elected representatives) fail to pass legislation authorizing an increase in the debt ceiling - and also fail to raise taxes and cut spending until the budget is in balance - how can the Fed prevent a default? "Never" is an absolute term.

I mean the Fed will keep paying on Treasuries, not fund the entire government.

Riverman:

Now you're making sense. (Disregard my previous post.) The Tea Party zealots who think they are Presidential timber, (i.e. Ted Cruz), haven't had a hot poker shoved up their a**. If we have a default and a Government shutdown with financial markets suddenly collapsing, nitwits like Cruz will get a quick dose of reality served up by the no-longer-as-rich-and-wealthy one percent.

That's what I thought you meant. In other words, interest on the debt floats to the top and everything else comes second. If part of "everything else" includes Social Security benefits, Medicare, Tricare, NASA, Defense and all the other Government programs; there will be a political firestorm. If Republicans manage to paint themselves into a corner receiving nearly all the blame (and public anger) for the resulting chaos, Nancy Pelosi's "prediction" could very well become reality. Mrs. Pelosi is now saying she believes it's "possible" for her party to retake the House in the 2014 mid term elections. That's a hard pull, but if Republicans manage to engineer a train wreck, Mrs. Pelosi's prediction will be one step closer to becoming a reality. I suppose we'll see if the Republicans are hell bent on committing political suicide.

I thought that would happen a couple of years back when they first started talking about playing chicken with the economy. Apparently the TP is beyond thinking it needs to pander to its rich backers.

The real question, given how pro-business Obama & Co are, is why the big-money Repubs have been so slow to realize they must annihilate their own party and start over. Which is more destructive to their money, 0.001% more oversight of Wall Street (D) or a default crisis every other year (R)? And they wouldn't have to support Dems forever, just long enough to root out the Tea Party.

It's weird they can't figure this out, but greed can impede judgment.

I suspect the key conviction influencing the one percent is the belief that we're headed down the same path as Britain and much of Europe - a socialized state-run and state-controlled economy where most industries are heavily regulated and "the rich" are severely taxed. (You certainly picked up on this fear and conviction from Mitt Romney when he delivered his infamous "47 percent" remarks.) These folks believe this despite the fact that most of them are among the most wealthy (and the most fortunate) people on earth.

Convinced this is where we're headed, the one percent have "run the numbers," surveyed the political landscape and come to the conclusion that: "Enough is enough! At some point we have to draw a line in the sand and fight. Otherwise, if we sit on our hands and do nothing, eventually this "welfare state" will eat us alive!"

If that's a correct mirror into how these people think, then a showdown over the debt, spending, and taxation was inevitable.

Again, Republicans are going to do anything remotely like default. They're just posturing the same way nfl teams (before the rookie cap) used to talk in the media like they were going to sit out their #1 draft pick all year.

I refuse to get sucked up into the hype.

yup

I heard that they're planning a resurgence around Rand Paul. True?