Obama and the media continue to make the false claim that the shutdown will harm the economy
It’s also the day that a group of far-right Republicans in Congress might choose to shut down the government and potentially damage the economy just because they don’t like this law. . . .
Past government shutdowns have disrupted the economy. This shutdown would, too. At a moment when our economy has steadily gained traction, and our deficits have been falling faster than at any time in 60 years, a shutdown would be a purely self-inflicted wound. And that’s why many Republican Senators and Republican governors have urged Republicans in the House of Representatives to knock it off, pass a budget, and move on. . . .
No one gets to hurt our economy and millions of innocent people just because there are a couple laws you don’t like. It hasn’t been done in the past, and we’re not going to start doing it now. . . .From Obama's Saturday address on October 5th:
. . . They don’t get to hold our democracy or our economy hostage over a settled law. They don’t get to kick a child out of Head Start if I don’t agree to take her parents’ health insurance away. That’s not how our democracy is supposed to work.
That's why I won't pay a ransom in exchange for reopening the government. And I certainly won't pay a ransom in exchange for raising the debt ceiling. For as reckless as a government shutdown is, an economic shutdown that comes with default would be dramatically worse.
I'll always work with anyone of either party on ways to grow this economy, create new jobs, and get our fiscal house in order for the long haul. But not under the shadow of these threats to our economy. . . . .From NPR, October 3rd: "Treasury: New Debt Ceiling Fight Could Derail Economy"
The Treasury Department is issuing a warning of dire economic consequences that could rival the Great Recession if Congress is unable to agree on raising the debt ceiling and the nation defaults on its obligations.
Treasury's report, "The Potential Macroeconomic Effect of Debt Ceiling Brinkmanship," comes as Congress is still wrangling over a short-term spending bill to reverse a partial government shutdown that went into effect Tuesday. Later this month, House Republicans and Senate Democrats will need to agree to raise the $16.7 trillion debt ceiling or face a possible default.
"[A] default would be unprecedented and has the potential to be catastrophic: credit markets could freeze, the value of the dollar could plummet, and U.S. interest rates could skyrocket, potentially resulting in a financial crisis and recession that could echo the events of 2008 or worse," Treasury said in a statement. . . .From CNN Money: "Economists fear debt ceiling fight may bring recession"
Forget the current government shutdown. Economists say it's the upcoming debt ceiling impasse that could plunge the nation into a recession.
About half of the 22 economists surveyed by CNNMoney say a recession will be unavoidable if Congress fails to raise the nation's debt ceiling before the Treasury runs out of cash later this month. . . .CNBC: "US Treasury warns debt default could be 'catastrophic'"
The Obama administration said the U.S. economy could fall into its deepest crisis since the Great Depression if Congress does not raise a cap on government borrowing soon and warned it would be impossible to prioritize debt payments over other obligations.
In a report released on Thursday, the Treasury Department said a U.S. debt default could force up borrowing costs, weaken investment and curb growth. This could inflict damage on the economy that could last for longer than a generation.
"A default would be unprecedented and has the potential to be catastrophic," Treasury said. . . .Why all this discussion of default is wrong.
Unless the Obama administration completely mismanages everything, there is no reason for the failure to raise the debt ceiling to result in a default. Revenue greatly exceeds required payments on interest (in FY 2014 net interest is supposed to be $238 billion out of revenue of $3.069 trillion -- 7.75%, see page 4 of this CBO report). You don't need to repay principle -- all you have to do is roll that debt over again because total debt is being held constant if the debt ceiling isn't increased. Now it is true that revenue doesn't come in at a constant rate, but given how much greater revenue is than the interest payments, just a tiny bit of planning is all that is necessary to balance things off.
On CNN on Sunday, Jack Lew made this claim:
Tuesday I wrote to Congress saying I used my last extraordinary measures. I have no more. That means that on October 17th, we'll run out of the ability to borrow. We'll be left with some cash on hand. And, I've told Congress it will be roughly $30 billion.
And $30 billion is a lot of money. But when you think about the cash flow of the government of the United States, we have individual days when our negative or positive cash flow is 50 or $60 billion. So, $30 billion is not a responsible amount of cash to run the government on. . . .If the normal ability of the government to smooth over shifts in outlays has been exhausted by the Obama administration, that is their fault. Deals should have been reached well before this and President Obama should have been involved in those discussions. To say that this is all the Republicans' fault because they don't give Obama everything that he wanted is ridiculous. Still Lew's statement is sufficiently vague that it hides the fact that this cash flow is both positive and negative and tends to be much more likely to be positive when comparing revenue to interest payments.