If we are going to default, it will be like a heart attack.
We probably won't know how bad it is, until it is bad.
It will probably come on suddenly, because everyone will think, "Whatever, they'll make a deal. No one would be stupid enough to fuck over the economy like this."
And then reality will hit like a ton of bricks. Right now they're talking about the VIX being over 20. That's not great, but it's nowhere near the high it reached of 80 something back during the early days of the great recession.
That's probably not going to happen until the last minute, because the nature of this risk is so odd and unexpected no one thinks it will really happen.
1. I keep wondering what will happen...it's not like we don't have the money
this is all just political posturing. Our country is still a safe bet, maybe the safest. I keep vacillating between this country going to the shitter or not much happening at all if we default. Hopefully, we won't ever find out.
3. I agree...some people on DU have rather odd ideas about this
They say either
1. The current market doesn't show panic; therefore, default is unlikely. This is putting altogether too much faith in the predictive power of the market. The current situation is extremely uncertain, and I'm not sure people would even know how to manage the risk on this. Waiting for the market to tell us what will happen is not the best strategy in this case.
2. The "big money guys" will swoop in and force payment. This assumes that the "big money guys" (whoever they are) either a. don't want to see a default, and b. have control of the fringe Republicans forcing this showdown in the House. I haven't found any of these arguments particularly convincing, and they both amount to a kind of magical thinking. It's not clear that the Teabaggers will respond to the "elites" they've invented in their utterly incoherent ideology.
So, I think you're right. Relying on either 1 or 2 as predictors or saving graces is quite silly at this point. We really are in a crisis mode now.
4. And just to show you how unprecedented this is...
Credit Default Swaps that insure treasuries are so vague in their writing, that people are uncertain as to how long the government must default in order to make a payment. (Incidentally, the payment will be in treasuries. )
Edited on Wed Jul-27-11 10:36 AM by alcibiades_mystery
What's most shocking is the complete arbitrariness of it all. Certainly, our debt is a problem, but we're nowhere near the 15%-20% of GDP on deficits that would actually trigger default concerns from the standpoint of the real economy; indeed, we're only expected to be at 11% this year, followed by declines down to 4 or 5% in the next three to eight years. This is absolutely ridiculous.
6. We are in trouble, because the stupid Republicans won't raise taxes.
Or end the wars.
You've got a choice there, one or the other, to begin with.
There is not much else spent in the government as of right now that can be cut. We spend surprisingly little in other areas.
SS and Medicare are self-funding.
The problems in the short term are not with those programs. And even in the long term, the government owes social security money it "borrowed" from it. If it doesn't get it back, then it will have been stolen.
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