To the editor of THE EAGLE:
The radical fringe that now runs the GOP argues that our government’s failure to pay some of its bills need not mean default. More than a few Republicans in Congress have been quoted recently as saying that reaching the debt limit could even help the economy and "bring stability to the world markets." This indicates a willful ignorance of how sovereign bond markets operate.
Here’s how this works, people: You have to pay everybody. On time. The way bond owners and traders view things, if you aren’t paying somebody, I could be next. Any responsible investment adviser is going to tell their clients, "Don’t risk it. Put your money in a safer place." You can’t choose not to pay people when you’re the United States government. Especially when you’re the world’s reserve currency. You have to pay everyone, or face the consequences.
How long does the GOP think the U.S. government could neglect domestic priorities because they’re short of cash while continuing to pay foreign bondholders like China? How long before the government starts looking down the list of who is actually getting interest payments before they start picking and choosing who to pay? Will employee pension funds get priority over hedge fund speculators? Will Social Security, a big player in Treasury Bonds, get slighted in favor of insurance companies?
The price of insurance contracts to protect against losses on Treasury bonds ("credit default swaps") has more than doubled in the last two weeks. If we default, those swaps are going to go through the roof. Interest rates will climb. Scared money is going to start moving rapidly out of the US Treasury market. And that is what begins a financial panic.
To all the so-called GOP "leaders" who seem to think its OK to pay your credit cards but screw the mortgage company without consequences, go ahead -- default and see what happens. That might be the moment the Republican Party is broken and destroyed for good.