I am so disgusted with those idiots in Congress. To even suggest that they would refuse to raise the debt limit and allow the country to default is treasonous. Seriously.
The modern global economy is driven by confidence. A default by the US would absolutely destroy confidence. I think we would enter a global depression very quickly. It would also likely be the last time the rest of the world would be willing to support our trade deficit...
While I agree with that probably 99% (pretty much everything except the treason part). I've been reading a lot that suggests that not raising the debt ceiling wouldn't necessarily cause a default, because we'd have plenty of revenues to pay the interest and some other things, but we wouldn't have enough to fund a majority of the gov't. Whether or not there was a default would be determine by whoever gets to decide which things get paid (Sec Treasury maybe?).
I've not really looked into it, that's just what I read.
There is a lot of misinformation floating around and I'm also not sure what the truth is. But I'm fairly certain that the administration (executive branch) has 100% authority to decide what gets paid if there is a cash shortage. It seems odd that Congress would put them in that position. They could have solid ground to pay for Democratic pet projects and withhold things the Republicans champion. But I don't know.
Frankly, I would lean to the Republican side in terms of what we should do long term. We should cut the size of government. But to threaten a default or to even put us in a position where rational people and institutions question the veracity of the "full faith and credit of the United States" is extraordinarily irresponsible. It may not rise to the level of treason, but it outshines things that people are convicted for all the time.
These elected officials have a job to do. They are not doing it.
I'm waiting for the announcement that military pay will be withheld. It's not too hard to issue stop work orders on government contracts. But you can't fail to pay civilian workers - that's forbidden by the 14th Amendment. You can't fail to pay bondholders without violating a contract. They can't withhold social security payments either because that is paid from a separate trust (strictly speaking). You can hold back military pay. That's a big chunk that can be tapped right away. And say goodbye to oil company subsidies, farm subsidies, and probably anything else that appeals to Republicans.
That's just speculation though.
The truth is, I really don't think it will happen. The bond market certainly doesn't. But the announcements this week from rating agencies were interesting. I suspect the Republican's will cave soon.