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As experts warn of ‘financial Armageddon,’ some in GOP shrug

Some Republicans with an ugly track record are taking an enormous risk with your future, based on their assumptions about an issue they don’t understand.


It was in late January when The Washington Post published a memorable report about a congressional “education campaign.” House Republican leaders had noticed that many of their own members had made comments about the debt ceiling that reflected “a lack of understanding about the policy details,” so the party intended to “make sure their members understand how the debt limit works” and “the consequences of failing to raise the ceiling.”

In the months that followed, plenty of evidence emerged to suggest the “education campaign” did not work. As recently as two weeks ago, House GOP lawmakers were still making public comments about the debt limit that suggested they, in a rather literal sense, simply did not know what they were talking about.

This came to mind anew a few days ago when Punchbowl News reported, “We can’t overstate this: There are plenty of House Republicans who don’t believe that default would be catastrophic.”

In other words, these GOP lawmakers have been warned, in no uncertain terms, that breaching the debt ceiling and having the United States default on its obligations would create an economic catastrophe. They’ve heard the warnings, but they’re just not inclined to believe them.

The resulting picture is more than a little scary: There’s a group of congressional Republicans — who’ve been wrong about every major economic debate of the last several decades — who are willing to take an enormous risk with your future, based on their assumptions about an issue they don’t understand especially well.

It was against this backdrop that The Washington Post’s Catherine Rampell sought out some expert guidance on the expected severity of the crisis.

I spent recent days talking to financial market experts and former government officials about the potential fallout. I wanted to better understand the channels through which panic and losses could spread and precipitate “financial Armageddon,” as one former Federal Reserve official dubbed it. (Other phrases that came up in interviews: “nightmare scenario,” “bankruptcies that rival those in the Great Depression,” and “we might have to go back to trading beads.”)

To be sure, there’s a degree of guesswork involved with such analyses. The reason why should be obvious: The United States has never defaulted before. In fact, never before has the world’s preeminent global economic superpower ever decided to simply not pay its bills. Understanding the details of exactly what would happen as part of such an unprecedented situation — when, how, and to what degree — requires some speculative imagination.

But only some. Rampell talked to a former senior official from the Treasury Department who explained that the global financial system is like an upside-down pyramid, and the tip of that pyramid is the U.S. Treasury market. “Everything else rests upon it,” he said.

And the reason everything else rests upon it is that the world has long looked at U.S. Treasury debt as being risk-free. If congressional Republicans were to tell the world otherwise, there’s no great mystery as to what would happen: higher interest rates, debt downgrades, currency instability, and market instability.

In a word, “chaos.”

As things stand, there are too many GOP lawmakers who see these threats and think, “Good. This is so terrifying, Democrats will have to agree to our demands before we hurt everyone.” At the same time, there’s another Republican contingent looking at the same threats and effectively saying, “Nah, it probably wouldn’t be that bad.”

Both positions are unbecoming of a major political party in an ostensibly healthy democracy.