The London-based Financial Times, hardly an alarmist journal, editorialized recently: "As the sole superpower and provider of the international reserve currency, the U.S. owes a duty to the world, as well as to itself, to uphold one of the most basic functions of a nation state. Flirting with a government shutdown is pantomime enough. Toying with whether the U.S. will honor its sovereign debt obligations is pure recklessness."
The Treasury says it will begin running out of money by the end of next week. While it might be able to pay some bills, such as midmonth interest on the national debt, the government has other obligations. As The Wall Street Journal reported, citing the Bipartisan Policy Center, it "must pay roughly $12 billion in Social Security benefits on Oct. 23, $6 billion in interest payments on Oct. 31, and $55 billion in Medicare, Social Security, military and veterans benefits on Nov. 1."
Those who raise the option of going into default as a political club against Obamacare and the administration might want to think twice about that if they're counting on a Social Security check or Medicare covering their medical bills.
The House Republicans have proposed a plan to "prioritize" which debts get paid and those for which payment can be postponed until the fiscal crisis is resolved. That's like a Lucy Ricardo solution to paying the household bills.
A delegation of top Wall Street CEOs, who have every reason to be concerned about the prospect of default, came to Washington to explain to the Obama administration and the House Republicans why this is a bad idea, one likely to disrupt financial markets, pose a grave risk to the economy and, not to forget the rest of the world, derail fragile recoveries.
The warning, echoed by such traditional GOP allies as the U.S. Chamber of Commerce and the National Association of Manufacturers, seemed lost on House Republican back benchers, especially the hot heads who appear to be calling the shots for Speaker Boehner. They simply don't believe a first-ever default by the United States would be that bad -- and it might even be a good thing if it shocked the country into seeing things their way.
Most economists say a major default would be catastrophic for the United States and for the many nations that rely unquestioningly on the full faith and credit of the U.S. government. As one financial commentator observed, it also would be stupid, "inexpressibly stupid." Even considering it as an "option" is the height of recklessness.