Sen. Ted Cruz's 21-hour soliloquy was rightly criticized (or, characterized) as theater, but at least it classified as comedy. The debt ceiling fight is the less exciting, but more tragic, drama in repertoire in Washington, D.C. After all, we're dealing with two different beasts here: government shutdown and government default. The U.S. government has shut down before, in 1996. It was inconvenient. It was silly. But life carried on, and the ploy eventually backfired on Republicans intent on embarrassing the White House. But there is no historical precedent for a rich country choosing to default on its debt. None.
The truly scary thing about going over the debt cliff isn't what we think will happen—a scramble to prioritize payments, delayed checks to groups like veterans and senior citizens, and angry, confused investors.
The truly scary thing is that we actually have no idea what will happen. We don't know if it's even possible for the government to prioritize payments to millions of different clients. Households, businesses, and investors don't know how long they'll have to wait for their money, whether it's a defense contract deal, a doctor's reimbursement, or a Social Security check. And nobody will know how long the nightmare will go on. Our international economic reputation—reflected in our low interest rates, the safe haven status of Treasuries (when everything goes haywire, investors clamor for U.S. debt), and our status as global reserve currency—rests on the assumption that Washington isn't completely insane.
That assumption will be proved wrong if we make it past October 17 without increasing the debt limit. That was the drop-dead date announced this morning, when Treasury Secretary Jack Lew sent House Speaker John Boehner a note detailing the dangers of breaking through the debt ceiling.
Here's the end of the letter:
Besides Denmark, no other country I know of asks legislators to vote to pay for something they've already voted to pay for. The debt ceiling should not exist. But now that it does exist, it must be said again and again that it does not create new laws. It just affirms that we will pay for old laws. It's not a smart scalpel for shaving the deficit, it's a guillotine hanging over the head of the head of the country.
Even when the blade doesn't fall, it can still have consequences. The Summer 2011 showdown that nearly resulted in default cost taxpayers $19 billion this decade in elevated interest rates as investor panic began to build. That's the price of playing with the full faith and credit of the United States.
Just imagine what the "largest self-imposed financial disaster in history" would cost us.