Looking at a looming default

Updated: Thursday, October 17, 2013
Looking at a looming default story image
KALAMAZOO, Mich. (NEWSCHANNEL 3) - We're 10 days along in the partial government shutdown, and if this goes on for another week, our Treasury Secretary Jacob Lew says we, as a country, will no longer be able to pay all of our bills.

What does that mean for our financial security?

Some in Congress say it really wouldn't amount to much. Most economists, on the other hand, say it could spark global economic chaos.

Tonight in Tom's Corner, Tom Van Howe says if he were a betting man, he'd put his money on those who deal in numbers every day.

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If I was going to have heart surgery, I’m fairly certain I’d want the guy holding the scalpel to be someone who does nothing but heart surgeries. A guy who could almost do it in his sleep.

And so it is with our government and our economy.

So if I hear Congressman Justin Amash of Grand Rapids—and only Mr. Amash—say, "there's no way we'll default on October 17. We have enough money to make interest payments. The real question is how do we restructure our government so we don't keep hitting the debt ceiling?"

He sounds pragmatic, confident, and unconcerned.

And there are others in congress who say "not to worry;" that if we have to start cherry picking for a while, to choose who we're going to pay and who we're not, so what?

Confident and reassuring.

Setting aside the fact Congress has a constitutional responsibility to pay who we owe—on time—there are whole bushel baskets full of economists who are saying loudly and repeatedly that the impact of default could be calamitous; not just for us, but for the world.

I know there's  a widely-held, cynical assumption that if you ask 20 economists the same question, you may get 20 different answers. And on some matters that may be true.

But this time around they're pretty much shouting with one voice. And they're telling Congress to get its act together.

Since cherry picking seems acceptable for the moment, let me cherry pick a few.

Gerald Epstein is an economist at the University of Massachusetts. "A default," he says, "will make the Lehman Brothers bankruptcy look like a cakewalk."

Everybody knows who Warren Buffett is. He may not be an economist but he gets a free pass because he understands money as few others do. "Default," he said, "would be like a nuclear bomb - too horrible to use."

And there's Tim Bitsberger, a former Treasury official under George W. Bush. "If we miss an interest payment, it would blow Lehman Brothers out of the water."

And this from Bloomberg news—it would be "an economic calamity like none the world has seen."

There is a FOX News economist, Peter Morici, who thinks default would be the best thing that could ever happen to the United States, but his evaluation gets neutered by the sheer weight of the other side.

At stake is the perception the world has of us. That perception has already been scarred a little by the government shutdown.

But U.S. Treasury Bonds are thought of as the world's primary risk-free asset.

That rock-solid confidence, despite our $17 trillion deficit, is what has made the dollar the world's most widely-used currency.

If we fail to make payments on those bonds, the perception of us as the world's richest and most stable country will take a dive, along with anyone willing to buy a little slice of America’s debt.

And its beyond my perception that the right wing of the Republican party would be willing to carry the specter of of default, with all of its dark possibilities, to the brink or beyond because it doesn't like Obamacare.

And if Justin Amash and his friends are so willing to reject the warnings of economists all over the country, maybe they'll listen to two organizations that have long supported conservative politics: the U.S. Chamber of Commerce and the National Association of Manufacturers.

In letters written a few days ago, both are urging Congress to rise above their differences and do what's right for the country.

Raise the debt limit. And do it now.

I couldn't say it any better myself.

In this corner...I'm Tom Van Howe.

Business News

Last Update on August 29, 2014 17:14 GMT

CONSUMER SPENDING

WASHINGTON (AP) -- U.S. consumer spending fell in July, with a drop in auto purchases accounting for most of the weakness. Income growth also slowed in July.

The Commerce Department says consumer spending edged down 0.1 percent last month after a 0.4 percent increase in June. It was the first decline in spending since January. Income growth slowed to a 0.2 percent rise in July, the weakest showing in seven months.

The fall in spending came primarily from a decline in auto sales, which took a breather in July after posting big gains in recent months, although spending in other areas was also weak.

Consumer spending accounts for 70 percent of economic activity, so it needs to recover for the economy to keep its momentum in the second half of the year.

CONSUMER SENTIMENT

WASHINGTON (AP) -- U.S. consumer sentiment ticked up in August, driven by greater optimism about jobs, rising incomes, and increasing wealth. The increase largely occurred among higher-income groups.

The University of Michigan says its index of consumer sentiment rose to 82.5 from 81.8 in July. Still, it has barely risen in the past year.

Consumers have sent mixed signals in recent months. The Michigan index has fluctuated between 80 and 82.5 since December. A measure of consumer confidence by the Conference Board rose this month to nearly a seven-year high. And yet Americans cut back their spending in July.

Nearly 60 percent of households in the top third of income earners say they are financially better off this month, the Michigan survey found, compared with only 36 percent in the bottom two-thirds.

US-FIAT-CHRYSLER

DETROIT (AP) -- U.S. investors should soon be able to buy stock in Chrysler for the first time in seven years.

Italy's Fiat and Chrysler are merging to form Fiat Chrysler Automobiles. Fiat says Friday that an ongoing tally of investors suggests there is not enough opposition to derail the deal.

Earlier this month, Fiat shareholders approved combining the companies. But Italian law gives dissenters the right to cash out. Fiat has said that if investors offered more than 500 million euros ($650 million) in shares, the merger would be off.

Fiat SpA will announce the final tally by Sept. 4. So far the maximum number of shares to be cashed is below the cap.

Shares of Chrysler haven't been publicly traded since 2007 when it was still combined with German automaker Daimler.

REYNOLDS AMERICAN-LORILLARD

RICHMOND, Va. (AP) -- Federal regulators are putting Reynolds American Inc.'s planned $25 billion takeover of rival cigarette maker Lorillard Inc. under the microscope.

The nation's second-biggest tobacco company said Friday that the Federal Trade Commission has asked for additional information as part of an antitrust review of the deal.

In July, Reynolds announced the deal to combine two of the nation's oldest and biggest tobacco companies, creating a formidable No. 2 to rival Altria Group Inc., owner of Philip Morris USA.

Reynolds markets Camel, Pall Mall and Natural American Spirit cigarettes. Lorillard sells Newport, Maverick and Kent cigarettes.

The companies plan to sell the Kool, Salem, Winston, Maverick and blu eCig brands to Imperial Tobacco Group for $7.1 billion to ease regulatory concerns about competition.

HEALTH OVERHAUL-TAX FORMS

WASHINGTON (AP) -- The federal agency that brought you the glitchy HealthCare.gov website has a massive new project.

If the Health and Human Services department has trouble this time, that could delay tax refunds for many people.

Complicated connections between the new health care law and income taxes will start to surface in 2015.

HHS has to send millions of people who got health insurance tax credits this year a new tax form that's like a W-2 for health care. It's called a 1095-A.

If they're delayed beyond Jan. 31, people who got coverage through the new insurance exchanges may have to wait to file their taxes -- and collect their refunds.

Some tax preparation companies are worried.

The Obama administration says it's on task, but won't provide much detail.

EUROPE-ECONOMY

BRUSSELS (AP) -- Inflation has fallen to an annual 0.3 percent in August for the 18 countries that use the euro, underlining the shakiness of the continent's economic recovery.

Eurostat, the EU statistics agency, says the figure is down from 0.4 percent in July, as expected by market analysts.

Core inflation, which excludes volatile food and energy, sent a modestly brighter signal as it rose to 0.9 percent from 0.8 percent.

The eurozone economy showed no growth in the second quarter as fears about the Ukrainian crisis weighed on consumers and investment decisions.

The European Central Bank has warned that inflation expectations are worsening and says it will add more stimulus if needed. Many analysts are predicting the bank will launch large-scale purchases of financial assets to pump more money into the economy.

BRAZIL-ECONOMY

SAO PAULO (AP) -- Brazil's government says the country's gross domestic product contracted 0.6 percent in the second quarter compared with the previous three months, sending the country's economy into a recession.

The government's IBGE statistics bureau said Friday it was the second consecutive quarterly contraction of the economy.

In the first quarter of the year, GDP was reported as having grown 0.2 percent. But that figure was revised downward to minus 0.2 percent.

The IBGE says the country's GDP stands at 1.27 trillion reals ($567 billion).

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