Within hours of the “brinkmanship” press release by the Department of the Treasury, major media began to repeat the highly dubious risks outlined by the department without reading carefully exactly what it contained. The headline and opening paragraph were all that the echo chambers needed:
The Potential Macroeconomic Effect of Debt Ceiling Brinkmanship
The United States has never defaulted on its obligations, and the U. S. dollar and Treasury securities are at the center of the international financial system.
A default would be unprecedented and has the potential to be catastrophic: credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse.
First to pick up and repeat the canard was Toronto’s Globe and Mail with the headline “The Doomsday Scenario of a U.S. Default.” It reported that the Treasury warned that a default could be “catastrophic” and that banks were putting extra money into their ATMs, just in case. They found an “expert” to lend credence to the pending disaster (Jessica Hinds of Capital Economics, a London consulting firm that rates a single paragraph at Wikipedia), who tweeted:
If Congress doesn't reach an agreement to raise the debt ceiling before the U.S. Treasury runs out of ways to keep the "essential" parts of the government running … then the U.S. may not have enough cash to meet … a debt interest payment of about $30 billion on November 15, potentially triggering a technical default.
A day later, Reuters opened its analysis of the Treasury Department’s report with the title “Nightmare on Main Street,” and then reviews, based on daily Treasury statements from a year earlier, just how a default might play out:
On October 17, the Treasury Department exhausts all available tools.…
It takes in $6.75 billion in taxes but pays out $10.9 billion in Social Security retirement checks. By the end of the day, [the Treasury’s cash cushion] has eroded to $27.5 billion.
On Wednesday, October 30, the Treasury, according to Reuters’ analysis, will run out of money altogether:
Default happens.… The government is $7 billion short of what it needs to pay all of its bills.
[On Thursday] things get really spooky on Halloween when a $6 billion interest payment to bondholders comes due.
Reuters then enlists the help of another “expert” to help resolve the dilemma, this time the Bipartisan Policy Center (BPC) — an obscure think tank founded a few years ago by former Senate majority leaders and big government advocates Howard Baker, Tom Daschle, Bob Dole, and George Mitchell. Reuters failed to mention that, however, and instead simply noted that according to a BPC “analyst,” a solution is “very hard to predict,” but “not making an interest payment on time is probably a worse way to default than not making other payments.”
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