My comment on Joe Nocera’s Op-Ed piece, Why the Debt Ceiling Matters, published October 7th may have had some resonance. I said:
All of the above predictions make sense, but they are made by specialists whose reasoning is not always clear to us. Nothing said here gives a sense of the immediate process, instantaneous, and easily understood by anyone, that makes clear why what they say will happen, will happen!.
In a nutshell, any debt holders who intend to use their proceeds on maturity will not be able to pay their creditors, who likewise will not be able to pay theirs or use the funds as intended. This applies especially to large businesses who routinely control their cash flow as much as possible, but also to anyone else who find themselves without the cash they need immediately. This may seem obvious, perhaps taken for granted, but nowhere have I seen it plainly stated and spelled out.
Since finance departments know how they will use their money on the same day that it arrives, this process will occur immediately. An instantaneous “domino” process of catastrophic proportions!
I had never seen any comment like mine anywhere until yesterday in the New York Times article Government Standoff Shakes Trust in U.S. Debt by Nathaniel Popper on October 9th, but finally:
“… said Clifford D. Corso, chief executive of the trading firm Cutwater Asset Management. “So much of the world relies on that certainty of date of payment. That chain is a very large and dangerous one to monkey around with.”
In remarks prepared for a hearing on Thursday, the head of the industry group for mutual funds, Paul Schott Stevens, said that if a [i.e. even one] payment was delayed for as little as a few days, “investors will learn a lesson that cannot and will not be unlearned.” [Bold mine]
Note that in the above quote the fallout will take a few days. That is too long!
Unfortunately, we really need the public to be frightened, even better, terrified, of the calamity coming if the US defaults. What we need are not just accurate predictions of what will happen, but will not happen right away or affect us right away, but crystal clear understandings of the mechanisms of what will take us down!
The collateral benefit will be that the debt ceiling will never be held hostage again, or for at least. hopefully, a very long time, but is this collateral benefit worth paying for with a catastrophe?