Friday, July 8, 2011

Defaulting would be a disaster

Economists, who as a group are famous for their inability to reach a conclusion, have reached one: Defaulting on our national debt is a disaster in waiting.

What economists are seeing is an economic dark cloud on the horizon that will challenge the primacy of the dollar in world currencies and dramatically erode the trust of other nations in the United States. The country will become known to the world as a deadbeat, suspect and not to be trusted in its financial dealings. And still, our Congress seems to be leaning toward defaulting.

Lots of money experts are running scared as the previously unthinkable idea of default becomes increasingly probable. The Republican Party, formerly the party of Wall Street, bankers and deal makers, has been taken over by a right-wing cabal that's funding an angry populist movement whose knowledge of how the economy works is skimpy at best.

Unlike the economists, this cabal doesn't care if the U.S. defaults and leaves its lenders holding the bag. Many of these newly radicalized players see only a chance to stick a thumb in the eye of the Chinese—and most of all the Europeans—and they like it.

Right now, at the very moment that real leadership and good sense are most needed, Speaker of the House John Boehner and Senate Minority Leader Mitch McConnell are showing themselves to be very weak leaders as they seek to keep their own freshmen congressman—many with tea party ties—in line.

Republicans live with the threat that if they work together with the Democrats, the tea party will run a candidate against them in the next primary election. It is not an empty threat.

Longtime senators Orrin Hatch of Utah and Dick Lugar of Indiana, men who know the peril of choosing default over internal fights for the soul of their party, have abandoned their roles as statesmen and are running like scared rabbits rather than seeking legitimate compromise.

Nobel laureate economist Paul Krugman warns that if nothing is done and the federal government hits its legal debt limit, there will be dire consequences. He says, "At best, we'll suffer an economic slowdown; at worst, we'll plunge back into the depths of the 2008-09 financial crisis."

It's an ugly picture.

Brokers and money managers, pundits and politicians are whistling in the dark when they fail to take into account the power of the tea party radicals who seem willing to bring down the government just to show they can.

What the economists tell us is that we need to compromise. If the far right is unwilling to be serious about compromising, we'll have some terrible times ahead.

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