International Community Urges U.S. to Raise the Debt Ceiling

Tuesday, October 15, 2013

Simon Johnson answers a question at a press briefing on the World Economic Outlook at the IMF Headquarters October 17, 2007 in Washington, D.C. (Stephen Jaffe/flickr)

After talks broke down this weekend between the Speaker of the House and President Barack Obama, the ball is in the Senate’s court for a debt ceiling deal.

And we may just be approaching a deal. As Senate Majority Leader Harry Reid leader put it on the Senate Floor on Monday, "I'm very optimistic. We will reach an agreement that's reasonable in nature this week to reopen the government, pay the nation's bills and begin long-term negotiations to pur our country on sound fiscal footing.”

Congress must act to raise the debt limit by Thursday or risk putting the federal government into default.

The international community continues to ring the alarm over a U.S. default

The Takeaway talked to Lord Digby Jones, a former trade and investment minister for the UK, earlier this week about the view from across the pond. He was not optimistic about what a default would do to the world economy.

“If there is a debt default, then you begin to get a domino effect," Lord Jones told Takeaway Washington Correspondent Todd Zwillich. "You begin to get other banks who've lent to other banks having to default. You get debt levels and interest rates going up and confidence goes down and you're into a form of downturn or recession.”

Simon Johnson, the former chief economist at the International Monetary Fund (IMF), explains what a default would mean for the world economy.

Guests:

Simon Johnson

Produced by:

Tyler Adams

Editors:

T.J. Raphael

Comments [4]

Jerrold Richards from Lyle, Washington

A debt default by the United States would in my opinion have several orders of magnitude greater effect on human civilization than previous defaults, South Sea Bubble, Russia, Germany, Argentina, and so forth.

In all such previous defaults, most people lived near food sources, and/or were involved in producing food themselves. Presently, the more modern and industrialized the society, the further away from food sources are the majority of the people. If the complex systems which provide food and other needs crash, which I think likely in the event of default, I do not see how significant population decline can be prevented.

Some commentators and economists are saying the Chinese currency or whatever will pick up the slack, if people lose faith in the US dollar. Perhaps, to an extent, but more likely, I think, a crash in the US dollar will bring down all currencies. Even if some expedient system for transactions is cobbled together desperately, such a system would not in my opinion be sufficient to maintain planetary population at its current 7 billion.

I'll hazard a guess that some of the more thoughtful in our ruling elites recognize the above, and are making some preparations to hunker down in the event of catastrophe. After all, if this current default crisis doesn't trigger disaster, the next one might, with $360 trillion of derivatives sloshing around from computer, and all sorts of other debt. If the Tea Party nutjobs have the smallest legitimacy, it is their intuitive perception that current levels of debt cannot be sustained, and that such bubbles always end. When this one ends, almost certainly it will be a disaster the magnitude of which is unprecedented in human history.

Oct. 15 2013 12:43 PM
Larry Fisher from Brooklyn, N.Y.

We are a Nation of outsiders like John Wayne or a Private Detective in a film noir who distrust what we are told...

America will be able to put off the debt crisis this week, but we have a deep prolonged problem of distrust towards what our leaders and the media tell us:

There is an America that doesn't believe anything will happen if America defaults on its loans. They have been brainwashed into believing the media is "liberal" and lying to them by screaming right wing buffoon pundits, who care more about ratings, then about the future of this country.
And those Americans who listen to the right wing tell me that I have been brainwashed by the quiet monotone voice of the left.

Oct. 15 2013 12:33 PM
Marie

Simon Johnson made the most accurate - and chilling - comments I have heard on the issue of default. As he pointed out, the extreme conservatives are risking the entire reputation the US has of being solid financially, just to play a political game. I will add the more moderate republicans (who outnumber the extreme) are allowing this to happen. He also pointed out that once you default, you cannot "undo" the default - you are now no longer the solid, reliable government financially that it took close to a century to build. There have been comments by economists in the media along this line, but Simon Johnson really put the concerns in the most direct, succinct statements I have heard. Unfortunately, the garbage being spouted by the right are drowning out the careful, considered opinions of the educated and thoughtful specialists, including economists.

Oct. 15 2013 12:23 PM
Ed from Larchmont

Every time a society takes a step toward abortion bad things happen, and quickly. The day O-care was put into effect, the government shut down. And now we face the debt ceiling. Is this the disaster which will happen? Not sure, but it wouldn't surprise me if they thought they had a deal, and at the last minute ... it fell through.

Oct. 15 2013 09:12 AM

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