One Week to Default

As the government shutdown enters its 10th day, we are more than halfway to the US defaulting on its debt for the first time in history.  Default is expected to happen on October 17 unless Republicans reverse their intransigence on raising the debt ceiling.  "In 2011, the last time we were in a major debt ceiling standoff, the U.S. lost its top credit rating, business and consumer confidence plunged and the impasse shook the stock market. All this, even though lawmakers ultimately reached a deal." [Huffington Post, Oct. 8]

This is all happening because Republicans want to stop Affordable Care Act.  "Obamacare", as it was been named by its detractors, reforms health insurance and extends affordable health insurance to tens of millions of Americans.  This law has been passed by Congress, signed by the President, and upheld by the Supreme Court.  In 2012, it (along with taxes on the wealthy) was the distinguishing issue in the Presidential election.  Guess what?  Obama won - by 5 million votes and overwhelmingly in the electoral college (332-206).  The campaign of lies and distortions against the Affordable Care Act [See this piece in Media Matters about 15 Myths perpetrated by the right-wing media] have managed to shake its acceptance with the public and the start-up computer glitches have made it more difficult to sign up for insurance with the health care exchanges. 

With Republicans refusing to budge and with the government shut down for the first time in 17 years, 800,000 government workers have been furloughed and the economy is losing $160 million per day.  Bad as all this is, what could happen if the government actually defaults?  Today, the NBC News website had an article by Jeff Cox that points out some worst possible outcomes:

• "Depression and Unemployment" - "Financial shockwaves, beginning at the Treasury and Federal Reserve, would make their way through banks and eventually blow a hole through the Main Street economy. Just as in the 2008 financial crisis, businesses would quit hiring amid the uncertainty."  Unemployment rate went from 5 percent in 2005 to 10 percent in 2009 as a result of the Great Recession.  Unemployment is currently at 7.3 percent.  We could ill afford another 5 percent on top of this figure.
• "Dollar down, prices and [interest] rates up" - "Among the biggest impacts could be mass selling of the U.S. dollar, an event that would threaten the greenback's standing as the world's reserve currency. That would pound consumers' buying power by boosting prices for everything from groceries to clothing to the gas we pump into our cars...homeowners and prospective homeowners would have to say goodbye to the low mortgage rates "
• "Down go your investments" - "Estimates among Wall Street analysts are the market would drop between 10 percent and 20 percent — with the upper end at what Wall Street defines as a bear market."
• "Social Security payments halt" -starting with the November 1 payment for the duration of the default.
• "Banking operations freeze up" - "If the Treasury and related securities were in default, one does not know what they would be worth," [banking analyst] Bove said. "Assume a Latin American valuation of 10 to 20 cents on the dollar and an estimated $1.28 trillion in U.S. banking equity would be wiped out."
• "Money market funds break" - "The $2.7 trillion money market industry operates on a basic premise: Millions of American depositors won't lose money."  Bove notes : "A Treasury default would make this virtually impossible and millions of Americans would lose billions of dollars."
• "Global markets walloped" - "Some of our biggest trading partners are equally rattled by the prospect of the U.S. defaulting on its debt. The International Monetary Fund this week warned that a default would push the U.S. economy back into recession and cause 'major disruptions' for global markets."

These are worst case scenarios but, considering that the United States has never in its history defaulted on its debt, do we really want to take a chance that none of these will occur?  All this to stop an already passed law that makes health care affordable and accessible to tens of millions of Americans.  What are these people thinking?