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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 January 30, 2015 18:13 GMT

ECONOMY-GDP

WASHINGTON (AP) -- The U.S. economy slowed in the final three months of 2014 as a big burst in consumer spending was offset by weakness in other areas.

The Commerce Department says the overall economy grew at a 2.6 percent rate in the October-December period, down from sizzling gains of 4.6 percent in the second quarter and 5 percent in the third quarter.

Consumers did their part in the fourth quarter, pushing up spending by fastest rate in nearly nine years. But businesses investment, trade and government spending weakened.

For the year, the economy grew at a moderate rate of 2.4 percent. But economists believe 2015 could be a breakout year for growth, with consumer spending boosted by strong employment gains and falling gas prices. Many expect growth above 3 percent this year.

EMPLOYMENT COST

WASHINGTON (AP) -- Wages and benefits rose at the fastest pace in six years last year, a sign strong job gains could be forcing companies to pay a bit more for workers.

The Labor Department says the employment cost index, which measures pay and benefits, rose 2.2 percent in 2014, up from 2 percent the previous year. That's the biggest gain since 2008. It's also ahead of inflation, which rose 1.3 percent.

Yet the increase is still sluggish by historical standards. In a healthy economy, the index usually rises at about a 3.5 percent pace.

The Federal Reserve is closing watching wages as it considers when to raise the short-term interest rate it controls. Fed Chair Janet Yellen considers rising wages a key sign that the job market is nearing full health.

US-CONSUMER-SENTIMENT

WASHINGTON (AP) -- U.S. consumers are more confident than they've been since January 2004.

The University of Michigan says that its index of consumer sentiment rose to 98.1 in January from 93.6 last month.

Consumers say the prospects for the U.S. economy are the strongest in a decade, and half of consumers expect the expansion to keep going another five years.

The Michigan survey was the latest evidence that strong job growth and tumbling oil prices have lifted consumers' spirits. The Conference Board on Tuesday reported that its consumer confidence index climbed to the highest level since August 2007. And the Commerce Department reported Friday that consumer spending rose from October through December at the fastest pace in nearly nine years.

AMERICAN AIRLINES-PILOTS

DALLAS (AP) -- Pilots at American Airlines and US Airways have approved a single labor contract. That's a step toward combining workforces at the two carriers, which merged in December 2013.

The multiyear deal gives pilots a 23 percent pay raise retroactive to Dec. 2.

The pilots' union said Friday that the contract was approved 66 percent to 34 percent, with 95 percent of eligible pilots casting a vote.

TOYOTA-FATAL CRASH

MINNEAPOLIS (AP) -- A jury of six men and six women is continuing deliberations in a case alleging a 1996 Toyota Camry had a design defect that caused a fatal crash.

Jurors received the case late Wednesday afternoon and deliberated all day Thursday without reaching a verdict. They returned to a federal courthouse in Minneapolis on Friday to keep working.

The jurors must decide whether Toyota's design of the 1996 Camry had a defect that was unreasonably dangerous. If they find there was a defect, they must decide if it directly caused injuries to those hurt or killed when Koua Fong Lee crashed into another car in 2006.

Lee spent 2 1/2 years in prison before being released after reports suggested some Toyota cars had sudden acceleration problems.

GERMANY-BMW-SECURITY FLAW

BERLIN (AP) -- German automaker BMW says it has fixed a security flaw that made 2.2 million of its vehicles vulnerable to break-ins.

The company says the problem affected BMW, Mini and Rolls Royce models equipped with its ConnectedDrive technology, which allows drivers to access certain car functions with a smartphone.

German automobile club ADAC, which discovered the flaw last summer, says hackers could have used a fake cellphone base station to intercept network traffic from the car and lower the windows or open the doors. There are no reports such a break-in ever took place.

BMW spokeswoman Silke Brigl said Friday that hackers wouldn't have been able to start or stop the engine.

Brigl said the problem has been fixed with an automatic update and customers don't need to take any action.

POM JUICE-RULING

WASHINGTON (AP) -- A federal appeals court says many advertising claims for POM Wonderful juice were deceptive in asserting that it curbs the risk of heart disease, prostate cancer and erectile dysfunction and is clinically proven to work.

In a 3-0 decision, the U.S. Court of Appeals for the District of Columbia Circuit upholds the conclusion that many of POM's ads made misleading or false claims. The conclusion was reached by the Federal Trade Commission.

The ads appeared in national publications, on Internet sites, bus stops, billboards, newsletters and on tags attached to the products.

POM Wonderful LLC produces a number of pomegranate-based products.

RUSSIA-FINANCES

MOSCOW (AP) -- Russia deputy sports minister Yuri Nagornykh says his country's economic crisis is forcing athletes to scale back their training plans for next year's Olympics in Brazil.

Training camps abroad can be crucial in acclimatizing athletes for Rio de Janeiro's tropical conditions, but they are rapidly becoming unaffordable after the ruble lost almost half of its value against the U.S. dollar in the last 12 months.

Nagornykh tells Russian agency R-Sport that, with the ruble's value low and the Sports Ministry's budget facing cuts, athletes should stay in Russia rather than train abroad "in order to spend less of the currency reserves."

Officials will select priority sports and athletes for scarce funding, Nagornykh said.

The measures affect athletes for the Rio Olympics, and the 2018 Winter Olympics, he added.

OHIO STATE-ROYALTIES

COLUMBUS, Ohio (AP) -- The Ohio State University is cashing in after the Buckeyes' national championship victory.

The Columbus Dispatch reports the university expects a $3 million increase this year in royalties from licensed merchandise sales as fans continue to buy national championship gear and keepsakes.

Retailers say the team's special story has helped boost sales. The Buckeyes, who defied naysayers in their 42-20 victory over the University of Oregon, earned the final playoff spot after losing two starting quarterbacks to injuries.

Licensing officials also attribute increased sales to the fact Ohio State hadn't won a championship since 2002.

More than half of each dollar that comes into the school's licensing office goes to academic affairs. The athletics department, alumni association and student life program also receive portions of the revenue.

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