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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

July 29, 2011 at 10:50 AM

If the default happens, there’s no place to hide

Forget “safe havens” of gold, corporate bonds and Swiss francs. If a U.S. default really happens in the next week or two, most of us will be trapped in the express elevator to hell. Sorry. There’s just no nice, compromise-ey way to phrase it. A freeze-up in short-term credit and layoffs at Flir are only the beginning.

While President Obama has brilliantly channeled the ghost of Herbert Hoover, the blame for this wholly unnecessary event will lie with the radicals that have taken over the Republican Party. There is no debt crisis. We do face a jobs and growth crisis, which was not squarely addressed by a president in thrall of Robert Rubin and a bought-and-paid-for Congress. As I’ve written before, playing games with the full faith and credit of the United States is as dangerous a ploy as one could imagine. Yet our representatives have done it. The message to the world is that the world’s largest economy can’t govern itself.

The economy has already hit stall speed, with growth slower than at any time since the Great Recession already ended. It won’t take much to push us into a double-dip.

No debt-ceiling increase means the Treasury will have to cut August spending by $134 billion, or 44 percent. Who gets paid and who doesn’t? Bloomberg Government offers a useful tool to sort it out. What no one knows is how destabilizing this will be on global markets.

Americans are about to discover just how dependent we are on the federal government. That no free-market fairy is going to rescue us. That extremism carries a huge price. That the “lost decade” for wages and average Americans was 2000-2010 and now we’re in territory uncharted by Japan (which has universal healthcare). Even any deal likely to emerge will slam the economy for years, and don’t for a second think it’s just going to hurt just “those people.” And the damage to our national reputation has been done.

I’ll write more about this in Sunday’s Seattle Times.

This week’s links:

  • The debt ceiling debate, comic-book style || Havoc on the Hill
  • Five things to remember about the debt debate || Economic Policy Institute
  • The shape of inequality and its effects on growth || Jared Bernstein
  • Reduced earnings for men in America || Brookings Institution
  • Which is in worse shape: The U.S. or Europe? || Simon Johnson/Economix
  • The middle class is being bamboozled by both parties || Washington Post
  • How the debt got this big || Daily Beast
  • Where the job growth is: At the low end || NYT Economix
  • Today’s Econ Haiku:

    Make it a vente

    Starbucks serves up to Wall Street

    Comeback baristas

    Comments | More in Debt ceiling debate, Deficit, Federal debt/deficit, Outlook


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