A default will likely lead to market panic, a devastating spike in interest rates, lack of credit, a plunging U.S. dollar and another, potentially more severe, recession, with repercussions for the global economy...Default does not mean 'unwilling to borrow more money.' Nor does it mean 'not fulfilling political promises.' If the government is paying its debts, on time and in full, then it is not in default on them. It's simply what the word means. Interest on the debt comes in at about 10% of its revenues, leaving 90% of government revenues to cover day to day operations, like dropping bombs on civilians in Africa. And so long as that interest is paid, there is no default to cause all these horrible imaginary problems* being used to scare Americans into going further into debt.
Analysts say that in the event of a default, the U.S. Treasury will have no option but to pay interest on the debt first, so that no payments to creditors are missed.
The Treasury will then have to decide who to pay next, and how much.
Assume just for a minute that Uncle Sam decided not to borrow any more money and to pay interest on what he had outstanding** before any other payments. Why should that cause a spike in interest rates? Are people less likely to buy debt from someone who pays his bills from cash flow than from someone who puts his credit card payments on a credit card? Why, pray tell, would the dollar plunge? The world is awash in dollars and it has been plunging for years. Why would the prospect of fewer extant dollars, caused by an honestly balanced budget, make its value less? It wouldn't. In fact, after the initial shock, the results are likely to be exactly the opposite of what the Chickens Little of Wall Street are claiming.
Surely there will be repercussions for the world economy, and in the short term some of them might be bad, like the first few months after one gives up one's long-term quart a day whiskey habit. Bad short-term repercussions are not a reason to avoid doing the right thing. Unfortunately, our politicians for a generation have fled bad short-term repercussions - even making up imaginary ones to avoid - and put us in a position where our choice is delirium tremens today or cirrhosis of the liver in a few short years. This is the last chance to get on the wagon.
Fear not, CNBC: the Republicans will pop the cork soon enough.
* They left out dry mouth, ingrown toenails, and excessive ear hair growth.
** Instead of borrowing to cover interest as he does today.