Jonathan Chait

The Debt Default Enablers

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Want to know why we're on the verge of a debt ceiling crisis? Things like this column today from William Cohan:

Combs worries, though, because of how inherently more difficult it is for people to understand the machinations of the bond market than those of the stock market, that the message this time is not getting through to the politicians in Washington, who seem intent on taking a nonchalant approach to the potential Aug. 2 deadline for raising the debt ceiling. (Some politicians -- hello, Michele Bachmann -- have actually claimed that defaulting on our obligations would be good for the country.)...

His concern is that politicians don’t understand how intimately tied transactions are on a worldwide basis to U.S. Treasury securities, and that if Treasuries were no longer accepted as collateral, the resulting market turmoil would make the “collapse of Lehman Brothers look like a walk in the park.”

It's not "the politicians in Washington" who don't understand the risks of failing to raise the debt ceiling. It's the Republican Party. It was the Republican Party's idea to turn the debt ceiling vote from a symbolic opportunity for the opposition party to posture against deficits into a high-stakes negotiation over budget policy. It's the Republican Party, and only the Republican Party, which has numerous elected officials dismissing the dangers of failing to lift the debt ceiling, and it's only the Republican Party whose elected officials who do understand the dangers are cowed by an angry default-denialist base. The Democrats are willing, and have been willing from day one, to pass a clean debt ceiling increase. That's a partisan account, but it's completely true.

The problem is that various reporters, pundits, and business types appear intent on blurring that reality. That's an important reason why Republicans are playing debt ceiling chicken. If the Republicans believe that the blame for a debt default will be aimed at the diffuse "politicians in Washington," they have little incentive to avoid it. If faced with the threat of specific, partisan blame for such a fiasco, they would act differently. In the absence of such, they'll respond instead to the one source of focused lobbying pressure, which is conservatives determined to stop a clean debt ceiling hike.

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