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Reality Check: Doomsday Default?

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(FOX19) -

It appears the U.S. won't be defaulting on its debt after all, at least not until February 2014 when this deal expires and the political wrangling starts all over again.

While there appears to be universal agreement that a default on our nation's debt would have damaged the country's fiscal reputation abroad, there remains debate over exactly how bad things might have gotten had the clock struck midnight without an agreement.

Here's a dire default forecast from democratic Senator Chuck Schumer: "The debt ceiling is such a calamitous possibility that you could go into a recession or even a depression worse than Lehman Brothers and AIG in 2008."

This cautionary decree came courtesy of Senator Harry Reid who said: "In addition to America's reputation in the world, the bedrock of the global economy is at stake."

President Obama pulled no punches when he said; "A decision to actually go through with it, to actually permit default, according to many CEOs and economists, would be - and I'm quoting here - ‘insane, catastrophic, chaos.'"

Then there's republican Senator Rand Paul whose tone was not nearly as theatrical: "I think it's not a good idea to go through the debt ceiling deadline."

Rand Paul is not only a leader within his own party, he's also a presumptive presidential candidate. If a U.S. debt default would be as disastrous as the democrats would have us believe, why wouldn't Paul choose to use stronger language? Maybe because nobody really knows what might happen if the U.S. does default.

For an example, look no further than the nation's three major credit rating agencies who couldn't agree on a potential outcome. In the days leading up to the debt ceiling deadline, both Fitch and Standard and Poors warned that they "might" downgrade the U.S. credit rating if a deal wasn't reached, but not Moody's who said: "We believe the government would continue to pay interest and principle on its debt even in the event that the debt limit is not raised," and also said, "There is no direct connection between the debt limit and a default."

If there's a lesson to be learned from all this, maybe it's to tune out the rhetoric next time and take a let's wait and see approach. Then again, wouldn't it be nice if we never have to face a debt ceiling deadline again?

https://www.moodys.com/login.aspx?lang=en&cy=global&ReturnUrl=https%3a%2f%2fwww.moodys.com%2fresearchdocumentcontentpage.aspx%3fdocid%3dPBC_159152

http://democrats.senate.gov/2013/10/09/reid-remarks-on-the-economic-effects-of-default/

http://www.latimes.com/business/money/la-fi-mo-standard-poors-credit-rating-budget-debt-limit-20130930,0,4118911.story

http://www.politico.com/blogs/politico-live/2013/10/rand-paul-going-through-debt-ceiling-not-a-good-idea-174929.html

http://money.cnn.com/2013/10/15/news/economy/fitch-downgrade/

http://thehill.com/blogs/blog-briefing-room/news/326857-schumer-predicts-boehner-will-relent-on-debt-ceiling

http://www.ibtimes.com/debt-ceiling-2013-8-scariest-funniest-default-quotes-1419502

 

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