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Wed Oct 9, 2013, 10:28 AM

Obama and the Default Pirates - Amy Davidson / The New Yorker



“We’ve got a lot of things going for us,” President Obama said at a press conference Tuesday. The economy was looking up; people were working, oil was flowing, life would be not so bad but for the “uncertainty caused by just one week of this nonsense.” Nonsense was one of the kinder words he had for the government shutdown—“We can’t make extortion routine”—and the possibility that Congress would let the United States default on its debts, about nine days from now. He called that an “economic shutdown.”
Obama kept asking people “just to boil this down to personal examples.” In their own lives, if they weren’t happy, they “don’t get to demand ransom in exchange for doing their jobs,” or decide not to pay bills out of grumpiness. They “wouldn’t deal with co-workers or business associates in this manner.” Just as “you’re not saving money by not paying your mortgage; you’re just a deadbeat,” refusing to raise the debt ceiling, the statutory limit on the amount Congress can borrow to pay its bills, would not make those bills go away. “What’s true for individuals is also true for nations, even the most powerful nation on earth.”
The national economy as household economy is usually one of the more spurious political-economic arguments. Countries aren’t actually like individuals. Their business and long-term investment priorities, vulnerabilities and basic morality, are too disparate, as are the exigencies around borrowing—or they should be. What is remarkable, and depressing, about a default is that the metaphors about creditors calling and bills stacking up would be descriptions of unfolding events. The United States of America really would become just some guy—that guy you know who has problems with money.
When Julianna Goldman, of Bloomberg, asked Obama if, as we got near the statutory debt ceiling, he might pay interest on bonds while skipping, say, Social Security checks, “to maintain the semblance of credit,” he said he didn’t think that he could fool the markets that way, or with some other legalistic move like “roll[ing] out a big coin.” (Presumably a platinum one.) What “the people who are buying treasury bills think” would count, and they’d know it was still the U.S. that wasn’t paying people, and not someone else who happened to live at the same address, and they would punish us, even without a technical default:
If you’ve got a mortgage, a car note, and a student loan that you have to pay, and you say, well, I’m going to make sure I pay my mortgage, but I’m not going to pay my student loan or my car note, that’s still going to have an impact on your credit. Everybody’s still going to look at that and say, “You know what? I’m not sure this person is that trustworthy.” And at minimum, presumably, they’re going to charge a higher interest rate.

Read more: http://www.newyorker.com/online/blogs/closeread/2013/10/shutdown-debt-ceiling-obama-and-the-default-pirates.html?printable=true

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