Remember when the US Gov. basically allowed JP Morgan/Chase to buy Bear Stearns for $2.00/share (it ended up being higher, but still..), which was decided in a corporate suite somewhere in N.Y., and we were told that if it didn't happen, the entire world economy would collapse? I do. We're in the exact same spot, but instead of Bear Stearns, et al, it's now the U.S. Federal Government.
It's interesting, exactly WHY the world economy would have collapsed. It wasn't that Bear Stearns was too big to fail, necessarily, it's that the failure of that (among other high-seas pirate investment firms) would have completely decimated the remaining threads of faith investors had in ... investment. "Too big to fail" was illusory -- an analogy to simplify the explanation of what would happen, but that's really besides the point.
My point is: It's not that a U.S. Government default would be necessarily devastating in itself, it's that, should such a thing happen, everyone will panic (I obviously only can assume...). Whether this herd-thinking is rational or not is irrelevant. Failure to raise the debt ceiling "proves" to investors in both private and public debt, that our system of government (namely, representative democracy) is incapable of self-correcting action when it reaches a[n] [arbitrary] certain point.
If the worst should happen, we should expect some pretty fucking dire consequences. There will be a domino effect, I would assume, of loss of faith in a wide gamut of institutions from government, to blue-chip, to ma/pa shops. I would assume there will be runs on banks (sooner or later people will realize that the FDIC is basically the federal government. Bond interest payments are paid before bank members), which will choke off the money supply (which apparently has a statutory limit), etc, etc... I can't make it play out any other way.
The fact that a few key puppet masters can control and manipulate large blocs in the federal legislature undermines the point of a representative democracy. It appears that we now live under the tyranny of the tea party, Fox News, and Grover Norquist.
I think we are witnessing the upper bound of the ability of a democratic republic, and this is regardless of any debt ceiling fallout. This is quite unfortunate, since there really is no viable alternative.
Hopefully I'm wrong.
3 years ago