The Debt Limit: What’s On The Line?

Andrew Sullivan —  Jul 1 2011 @ 2:37pm


Larry Summers explains why the US can't default:

Because they want to avoid a version of the Lehman Brothers catastrophe for 2008 on steroids. Because they don't want to see the buck broken on money market funds and the ensuing financial panic. Because they don't want to live with the consequences for their purchasing power of a crash in the dollar. Because they don't want to live in a nation that is no longer a nation of law, that meets its obligations. For those reasons and many more, we all have an enormous stake in doing the elementary and the obvious thing and meeting our debt obligations.

Nate Silver advises:

[I]t is foolish to expect investors to react to the possibility of a debt default in a proportionate and orderly fashion, panicking “just enough” to provoke Congress into action. Financial markets have historically had a difficult time reacting to political events. Meanwhile, it would be nearly impossible to build a statistical model for predicting the likelihood of a default by the United States, or its economic consequences, because no such default has ever happened before.

(Laser-cut money by Scott Campbell)