Dumbass of the Week

By Carl

They grow 'em stoopid in Tin-ass-cy:

SO HERE’S A QUESTION: Would a default on Treasuries accomplish what the Balanced Budget Amendment was supposed to achieve, by forcing the government to spend no more than it takes in?

I dunno, Glenn... would shoving a stick in your ass make you smarter than wood?

Bruce Bartlett goes over the reasons this latest moronic trope floated by the Right Wing Talking Trash Elmo doll won't work:

1. The Treasury can never default on the debt.

[...]

2. Even if the Treasury somehow defaulted—that is, failed to make a timely interest payment—it would not achieve what Reynolds and other conservatives wish: an end to all federal borrowing and de facto imposition of a balanced budget by cutting all spending in excess of revenues.

[...]

3. The disruption to financial markets, commerce and the well-being of all Americans from a Treasury default are really beyond my ability to fully describe. But here are a few points to ponder. Interest rates would skyrocket to unprecedented levels, which would cause a collapse of private borrowing and massive capital losses for all bond holders, which include pension funds, insurance companies and foreign central banks, among others. It might be impossible for pension funds to make payments to millions of individuals depending on them for life itself.

Bartlett goes onto mention that the cost of borrowing for the United States would skyrocket, since our Treasuries are back by "the full faith and credit" of the US government, which of course would default as quickly as the bonds.

Reynolds, of course, backpedals in the face of such an exhaustive and detailed analysis of what one can only hope was an opiate nightmate.

But since this has become a fairly common trope among the chattering monkeys on the right wing porch as it ties in neatly with the Teabaggers and the Paulists, you need to be aware of it.

First off, we've already been through a dry run of an American bankruptcy: the stagflation of the late 1970s, early 1980s, caused in large part by the OPEC nations holding the rest of the world hostage: de facto, we were operationally bankrupt as a nation.

How? When the Fed tried to loosen up the economy, there was no proportionate increase in economic activity. The money went to oil. This created an inflationary spiral and next thing you know, we've raised interest rates (the prime reached not only double digits, but approached 20%, a rate usually associated with third world military juntas).

Which only served to dampen down the economy.

By the way, we are currently in the middle of yet another stagflationary period. Oil, again, played a large part in it. Remember $5 a gallon gas? It wasn't that long ago.

Odd, considering we had two oil men running the country at the time it kicked off.

Monetary policy hasn't worked this time, either, as the money supply was pretty much dried up going in, due to low interest rates and the availability of cheap mortgages drying up investable cash reserves.

But I digress into territory not suited for a blog devoted to snarcasm.

Too, defaulting on national obligations is not like going to bankruptcy court because you can't pay your mortgage anymore. China (which has started dumping Treasuries, so beware) isn't about to accept pennies on the dollar in exchange for a clean bill of health.

We will be forced to pay it back in some form or other. If you don't believe me, just think of how we've bullied and badgered third world nations to repay their debts to us, funds that could have been used to improve infrastructure, or for economic development.

You'll note the Bushies only got involved because they wanted Iraqi war debts forgiven, and Iraq sits on the second largest oil reserve in the world.

If anything, defaulting on American treasuries would force even more spending on domestic social programs, while forcing the United States to cut back on its defense programs.

Hm. Maybe it's not such a bad idea, after all!

(Cross-posted to Simply Left Behind.)