the options

So the US is approaching a deadline. We need to raise the debt ceiling. One good thing is that we are not approaching it faster than anyone has ever approached a deadline. Time seems to move along at the same pace, even if politicians don’t really.

So there are a few things that can happen. Default on the debt is widely agreed to be pretty much impossible. It is, in fact, so literally incomprehensible that i cannot even write on what that would mean. I will just say that it is not really a good idea. I am also suspect of anyone who claims to be proud that they are American and at the same time thinks we should default (as I have been reading A Confederacy of Dunces, maybe I should say they are ‘communiss’).

There are still three basic options ahead.

1. Politicians cannot come to any agreement and the executive cannot force anything to happen. The Treasury will keep paying interest on our debt, but as old debt expires, will not be able to refinance all of it, and must start cutting elsewhere. Keep in mind this is money that we have already pledged to spend. Money that people and companies are already relying on as they make their budgets and plan their meals. The amount of money flowing into the economy will decrease. As time wears on, without a deal, the Treasury will have less and less money to spend on the governments bills, and so less and less money will be flowing into the economy.

Importantly though, nobody will be able to trust our government with anything at all. Its bad enough that they couldn’t decide to keep the FAA running (really?) the other day. This is generally quite bad for confidence in markets, economy, whatever. If businesses and investors have NO IDEA what lies ahead, they get scared and stop spending and investing and hiring and developing products and whatever else businesses and investors do.

2. Politicians do come up with an agreement, but it is a short term patch over the gaping wound that is the threat of default. Obama may be pretty much forced to sign onto something like this. This is a pretty awful situation, we keep paying most or all of our bills, which is good for the next few months, but still, nobody can trust our politicians to do anything in a timely, effective manner. Massive loss of confidence and trust follows (ok, its already here, but people are being really hopeful right now, because we want to trust in something).

3. A long term plan is hammered out and delivered in a timely and mature manner to the presidents desk (HA!), he signs it and everyone gives themselves a pat on the back. Well, it is still a bit late to restore trust in politicians, but with some clarity about the longer term, investors and businesses would be more confident in their work. The flow of money from the government to the economy would be more predictable, at least until there was another debt fiasco.

So thee takeaway message here is that whatever happens, our politicians are immature and losing trust in an unprecedented way. Lack of confidence is bad for the economy in general. The possibility that we will stop paying our bills is actually frightening.

Up next: who do we get to blame? (Hint: i go with the obvious answer)

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