We’re sick of the debt ceiling too but just hear this out.
Some fairly unobjectionable premises:
1. The U.S. Treasury’s IR girl was in Asia this week telling our Chinese overlords that we’re probably not going to default on our debt but if we do it’s democracy in action and they should actually be impressed, not pissed.
2. When our government is not busy blowing itself up, it usually spends most of its time with the overlords asking them to let their currency appreciate, which should increase U.S. exports to China and create jobs here (not everyone agrees)
3. There is an ongoing debate in the econoblogosphere about whether a default on U.S. debt would actually have expansionary effects (Krugman: no, Cowen: maybe, DeLong: probably a wash).
4. There are some people who think that focusing on deficit-cutting rather than Keynesian expansion when 10-year rates are below 3% and unemployment is close to 10% is kind of foolish.
So …
Not a macroeconomist, but…got to thinking about a simple political/macro model for what could happen with the debt ceiling endgame:
1. The U.S. defaults and/or does whatever else it takes to convince people that we are not going to get our shit together any time soon.
2. China loses faith in U.S. Treasuries as its main store of foreign reserves (not happening yet).
3. China dumps USTs and has nowhere else to put its money since UST is by far the largest and most liquid place for anyone to put foreign currency reserves.
4. With nowhere to put its savings China is forced to reduce foreign currency reserves and spend on internal consumption.
5. The yuan appreciates versus the dollar (see CHF, JPY) and likely versus other currencies.
6. American export and wage competitiveness improves versus China (though consumers get hosed by rising prices of imports).
7. This creates jobs in the U.S., reducing unemployment and helping all the incumbents get re-elected in 2012.
And so we achieve what politicians should actually want (jobs) without anyone articulating reasons for it / voting for it / doing anything about it except screaming about the debt ceiling. Problem solved! Or, a problem solved. Or something.
There are only three potential flaws in this plan:
1. Global financial catastrophe
2. USTs remain extremely well bid and some think would be better bid on a default on mindless-flight-to-safety grounds, meaning that the Chinese might see no reason to play along
3. Aerial and/or nuclear warfare
Thoughts? Anyone want to use the above as the basis for constructing a conspiracy theory of the debt-ceiling dysfunction that is more appealing than “everyone in Washington really is that stupid”?
I like it.
Re: China bullets above, so they could:nn1) dump their treasurys at a huge loss and put the huge sum of proceeds in [God knows where], cause an economic crisis here and fuck up their biggest export marketnnornn2) Wait like a week for the comic opera bullshit to sort itself out, keep doing whatever it is those inscrutable bastards do
Matt, you lost me after “hear us out”
No, everyone in Washington really is that stupid.nnEspecially the new Tea Party freshmen, who should be required to take a few week long crash course in Econ before they’re allowed back into the chamber.
Dear Matt,nnWe will not default on our debt. u00a0We will cut programs / stop sending out social security / close government branches before we miss an interest payment. u00a0The real issue here is the potential/upcoming downgrade and its ramifications for all credit markets. u00a0nI do not know how one could write a commentary on this and not even include the word “downgrade”n
sounds like matt found bess’s coke stash…
13 links to outside articles in a DB post is the NKI.
China: Timothy, you said you had this under control!!nTimmy: Hey, you fucked up… You trusted us!
Go into default; Obama caves; repeals Health Care; Gingrich becomes President and welcomes VP Xin Ho Luck from the PRC, the new VP. u00a0Florida stages an insurrection due to missing checks; Tim Geitner states a full sentence w/o mumbling;
I think the downgrade argument is stale, we’re not talking about CCC rating so the banks will still be able to use treasuries as collateral.u00a0 The market doesn’t seem to give a [insert your own four letter word] about what the late to the game rating agencies think anyway.u00a0 I can’t imagine the Ben Bernanke telling Brian Moynihan he can’t borrow overnightu00a0because all he has are a bunch of treasury bills.
“We will… stop sending out social security…”u00a0nnDefault.
Dr. Strangebid,u00a0Or: How I learned to Stop Worrying and Love the Default
Tim Geithner is the best Treasury Secretary evah
8. u00a0?nn9. u00a0Profit
Stopped reading when I saw Matt Levine
Wonder what the Chinese Navy was doing that was so important we couldn’t wait for a satellite pass to take some pictures…
8. The plot of Salt is not entirely fiction. Barry and The Big Boner are Chinese sleeper agents whose mission is to destroy the US financial system so China can take over the world.nnPS Keep this just among us girls…they don’t know the other one is an agent and vice versa.
i read that citi deck over at alphaville too. not convinced.u00a0
Here’s how it’s gonna be:nn1. Defaultn2. Chaos errupts as pensioners take to the streets lootingn3. The dollar collapses, so does the economyn4. NYC becomes a prison facility under an authoritarian government. Snake Bliskin is actually shot while trying to rescue the presidentn5. We run out of canned goodsn6. Gary Oldman fights with Denzel over a Biblen7. Ron Paul is elected president, return to prosperityn8. Profit
re- 1) Cheap cigarettes
Iu00a0have no problem with the possible flaws to that plan.nn-tired bro
Executive Summary:nnMatt – you are an idiot
I think the government would rather put the entire US Marine Corps on furlough before they delayed social security checks. nu00a0
Ron Paul as Slim Pickins/Maj. “King” Kong?
I preferred the “A Wall Street Tabloid” business model to “Wall Street Insider”
no carriers no problems
Matt, why are you doing this, knock it off!nnnP.S. u00a0Let me do this for you with just two options:nn1) Hey China, you retire our debt, we give you Iraq and Iran, no q’s asked. u00a0(For oil, you know.)norn2) Hey everybody, we blow off China but we pay you full face (So no harm to rates, access to more borrowing, etc etc)
I like how point #4 (China reducing reserves, spending on consumption), and everything else, happens between now and election day. Obviously point #0 that Matt forgot was that the space time continuum was breached the day before default, allowing for activities that otherwise might take a while to occur in convenient, shortened list format.u00a0
And he chose a very phallic looking plane…
re- 2) Acumulate mistresses
2a.u00a0 they all have heart attacks, beneficiaries reduced by multiples.u00a0 Condos become really cheap in FL.u00a0 I get that place in Del Boca Vista Phase III I’ve always wanted.
Morty, you and your pen stealing son will never make it to Del Boca Vista Phase III. nnSincerely, nnArt Kleinman, Executive Editor, The Boca Breeze
3) Profit
3) Profit
Is this default or insolvency?
Is this default or insolvency?
Is this default or insolvency?
CHINA STILL COOL! YOU PAY LATER!