The Two Greatest Words in the English Language: De-Fault

First off, I think it’s pretty disingenuous for congress to have passed a budget, then turn around and refuse to allow the government to borrow the money in order to pay for it. There shouldn’t have to be two rounds of budget negotiations.

My second thought, is why does Obama have to worry? Either the government shuts down and no one notices because they don’t care about anything the government does other than its “essential” services which will continue, or they will be upset at the shut down of things that would be required to close anyway under the Republican’s “all cuts, no tax increases” plan.

But now I’m trying to put an optimistic spin on the most catastrophic situation. How bad could a default really be? Clearly Americans will stop paying foreigners first, so no real loss there. Even if credit dries up in America is that a real loss? Wasn’t a massive part of the current…or I suppose previous crisis that there was TOO MUCH credit, and not enough real value being generated? Now firms are sitting on huge plies of cash that they are unwilling to spend. Sure interest rates might spike, but that should encourage SENSIBLE allocation of SCARCE capital instead of the fire hose approach we seem to have been witnessing over the last decade. If the crisis can lead to a more productive investment of the resources that are available, bring it on!

On the social side of things a lack of investment will certainly hurt employment. Likely both in terms of overall employment levels, and on the wages that are paid to those people who are actually working. This will likely force some rethinking of our social priorities. If the government has to choose between financing nutrition for people below the poverty line, and F-35’s it seems obvious to me which choice they will make. Even if incomes were to decline, would that be such a bad thing? It seems to me that too much of what people spend money on doesn’t bring any long lasting happiness. If people have to get out to the park, or spend time socializing with their friends and families instead of going to the movies, I don’t really view that as a bad thing either.

Maybe a US default is just what the US, and the wider Western world needs in order to reorient its priorities.