The world's leading financial institutions were reluctantly making contingency plans against the reality of a U.S. default, even as their chiefs refuse to accept that as a possible outcome. European Central Bank President Mario Draghi said recently, "It's unthinkable that an agreement won't be found" to avoid a U.S. default.
Unthinkable. Unfortunately it is thinkable, some people are thinking it and many, many others are feeling the effects of that uncertainty.
Rep. Tim Huelskamp (R., Kansas) said on CNN's "Outfront" with Erin Burnett Tuesday night, prior to the passage of the Capitol Hill compromise on Wednesday, that he was willing to pass the Oct. 17 deadline imposed by the Treasury -- the point at which the U.S. will hit the debt limit and enter technical default -- in order to gain the concession of significant cuts in future spending.
"It's time for us to get our act together and move forward on facing the fundamental problem of spending too much money," he said.Huelskamp, like others, says that the Treasury would have the ability to go on paying its bills for a couple of weeks past the point where it can't borrow money any more. Meanwhile, financial blogger Felix Salmon on Reuters offered that we were already in default, since we were not paying our obligations to salaried workers and contractors.
An Ill WindCompare the current mood to the usual stress of a presidential election. In a presidential election, most voters have the sense that even if their candidate doesn't win, the world isn't going to end. Each of us will adapt to the new administration's policies and move forward as best we can. The D.C. standoff was far worse. Even now, it remains difficult to even see what damage a different outcome might have wrought or even when the crisis regarding a potential default might be really over. As if to demonstrate the stress everyone feels, a popular House stenographer had a meltdown in the chamber Wednesday night. What she said hardly matters. She reached a breaking point at the climax of the House drama. The tension in the air pushed her over the edge. And the deal doesn't resolve that tension. Given that the current deal sets new deadlines early next year, what we have is merely a delay in the inevitable ideological clash that has staked the debt ceiling as its battlefield. What happened in this case was that the House Republicans chose a non-legislative approach to refight a battle they lost during Obama's first term. They were prepared to hold 800,000 U.S. government employees and the debt ceiling -- America's standing in the world and its place as the leader of the global economy -- hostage until their demands were met. Mind you, the debt ceiling has been the subject of negotiations before, and has been used effectively by Democrats as a platform for protest against administration policies. Far from offering comfort, however, that history merely guarantees that future debt ceiling fights will get worse. Meanwhile, the stress up to now is starting to take its toll on the little guy, evidenced by both facts and anecdotes. On the anecdotal side: I take the ferry to Wall Street from New Jersey's Sandy Hook. It's an expensive, hourlong commute and on board each morning are a bunch of folks engaged in the nuts and bolts of Wall Street finance for a living. Normally the mood on these rides is calm, absurdly polite and cordial. Everyone is friendly, there's a club-like camaraderie.
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