Rebels Without a Clue
 By PAUL KRUGMAN
 Published: September 29, 2013


 This may be the way the world ends, not with a bang but with a
 temper tantrum. Paul Krugman Blog: The Conscience of a Liberal

 O.K., a temporary government shutdown, which became almost
 inevitable after Sunday's House vote to provide government
 funding only on unacceptable conditions, wouldn't be the end of
 the world. But a U.S. government default, which will happen
 unless Congress raises the debt ceiling soon, might cause
 financial catastrophe. Unfortunately, many Republicans either
 don't understand this or don't care.

 Let's talk first about the economics.

 After the government shutdowns of 1995 and 1996 many observers
 concluded that such events, while clearly bad, aren't
 catastrophes: essential services continue, and the result is a
 major nuisance but no lasting harm. That's still partly true,
 but it's important to note that the Clinton-era shutdowns took
 place against the background of a booming economy. Today we
 have a weak economy, with falling government spending one main
 cause of that weakness. A shutdown would amount to a further
 economic hit, which could become a big deal if the shutdown
 went on for a long time.

 Still, a government shutdown looks benign compared with the
 possibility that Congress might refuse to raise the debt
 ceiling.

 First of all, hitting the ceiling would force a huge, immediate
 spending cut, almost surely pushing America back into recession.
 Beyond that, failure to raise the ceiling would mean missed
 payments on existing U.S. government debt. And that might have
 terrifying consequences.

 Why? Financial markets have long treated U.S. bonds as the
 ultimate safe asset; the assumption that America will always
 honor its debts is the bedrock on which the world financial
 system rests. In particular, Treasury bills, short-term U.S.
 bonds, are what investors demand when they want absolutely
 solid collateral against loans. Treasury bills are so essential
 for this role that in times of severe stress they sometimes pay
 slightly negative interest rates, that is, they're treated as
 being better than cash.

 Now suppose it became clear that U.S. bonds weren't safe, that
 America couldn't be counted on to honor its debts after all.
 Suddenly, the whole system would be disrupted. Maybe, if we were
 lucky, financial institutions would quickly cobble together
 alternative arrangements. But it looks quite possible that
 default would create a huge financial crisis, dwarfing the
 crisis set off by the failure of Lehman Brothers five years ago.

 No sane political system would run this kind of risk. But we
 don't have a sane political system; we have a system in which a
 substantial number of Republicans believe that they can force
 President Obama to cancel health reform by threatening a
 government shutdown, a debt default, or both, and in which
 Republican leaders who know better are afraid to level with the
 party's delusional wing. For they are delusional, about both the
 economics and the politics.

 On the economics: Republican radicals generally reject the
 scientific consensus on climate change; many of them reject the
 theory of evolution, too. So why expect them to believe expert
 warnings about the dangers of default? Sure enough, they don't:
 the G.O.P. caucus contains a significant number of "default
 deniers," who simply dismiss warnings about the dangers of
 failing to honor our debts.

 Meanwhile, on the politics, reasonable people know that Mr.
 Obama can't and won't let himself be blackmailed in this way,
 and not just because health reform is his key policy legacy.
 After all, once he starts making concessions to people who
 threaten to low up the world economy unless they get what they
 want, he might as well tear up the Constitution. But Republican
 radicals, and even some leaders, still insist that Mr. Obama
 will cave in to their demands.

 So how does this end? The votes to fund the government and raise
 the debt ceiling are there, and always have been: every Democrat
 in the House would vote for the necessary measures, and so would
 enough Republicans. The problem is that G.O.P. leaders, fearing
 the wrath of the radicals, haven't been willing to allow such
 votes. What would change their minds?

 Ironically, considering who got us into our economic mess, the
 most plausible answer is that Wall Street will come to the
 rescue, that the big money will tell Republican leaders that
 they have to put an end to the nonsense.

 But what if even the plutocrats lack the power to rein in the
 radicals? In that case, Mr. Obama will either let default happen
 or find some way of defying the blackmailers, trading a
 financial crisis for a constitutional crisis.

 This all sounds crazy, because it is. But the craziness,
 ultimately, resides not in the situation but in the minds of
 our politicians and the people who vote for them. Default is
 not in our stars, but in ourselves.


BOB KLAHN bob.klahn@sev.org   http://home.toltbbs.com/bobklahn

... Freedom's just another word for nothing left to eat.->Republican Version.
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