Nowhere to Hide…

Larry Summers understands the risks the game Congress is playing with on lifting the debt ceiling.   Bloomberg writes,

Summers said a potential default makes him worry about “runs on banks, runs on money market funds,” exchanges facing “the prospect of collapse, institutions that had been built over decades” being “swept away.”

“The ability to carry on routine financial business — to clear checks, to pay bills, to meet obligations would be lost,” he said.

“It would be a totally self-inflicted cataclysm,” he said. “There’s no question the United States can meet its obligations. This idea that somehow that we cannot pay because we’re having a political fight over how to handle the spending and taxing” is “democracy functioning in the worst possible way,” he said.

There you have it.  One of the most influential economic policymakers in modern U.S. history saying even the stock exchanges — and we think he also means the clearing mechanisms — will collapse.

We hear of nervous investors,  worried about a U.S. default, are moving into safe havens, such as FDIC backed bank CDs.   You know the FDIC, the institution which has the backing of the full faith and credit of the U.S. government.    We may all still end up living under the freeway and eating bark, after all, which, according to our high level policymaker friends,  was a very real possibility as the global financial system and economy teetered on the brink, not once, but several times during 2008 financial crisis.

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This entry was posted in Black Swan Watch, Budget Deficit, Fiscal Policy, Sovereign Debt, Sovereign Risk and tagged , , , . Bookmark the permalink.

2 Responses to Nowhere to Hide…

  1. James Love says:

    The usual threats of if you don’t give them your money, we will have a Great Depression II routine.

    It would be real nice to see one of these times somebody call their bluff.

    • macromon says:

      Thanks for the post, James. We don’t think it would be nice. Our sources, which are very credible, informed us the global markets were within hours of total collapse several times during the crisis. That is, a complete breakdown of the ability to transact in the marketplace as Summers warns that might come without a deal. It’s not about getting the money, it’s about averting a panic induced financial collapse of the world’s fractional reserve financial system. We agree a bad debt ceiling deal, where a credible long-term fiscal plan is lacking, could be just as bad as no deal.

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