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 September 19, 2014 17:24 GMT

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NEW YORK (AP) -- Alibaba's stock is surging as the Chinese e-commerce powerhouse begins its first day trading as a public company.

The stock opened at $92.70 on the New York Stock Exchange this morning, up 36 percent from the initial $68 per share price set Thursday evening.

At that price the company would be worth $228.5 billion, more than companies such as Amazon, Ebay and even Facebook.

On Thursday, Alibaba and the investment bankers arranging the IPO settled on a price of $68 per share. The company and its early investors raised $21.8 billion in the offering, which valued Alibaba at $168 billion in one of the world's biggest ever initial public offerings.

But after a two-hour trading delay due to strong demand, it opened much higher than that price. If the stock closes at $92.70, the IPO will have raised close to $30 billion.

LEADING INDICATORS

WASHINGTON (AP) -- A gauge designed to predict the economy's future health rose in August but at a much slower pace than in July.

The Conference Board says its index of leading indicators rose 0.2 percent in August, the seventh straight increase. But that was much slower than the revised 1.1 percent gain in July.

Conference Board economist Ken Goldstein says even with the slowdown in August, the index shows the economy is still gaining traction.

STATE UNEMPLOYMENT

WASHINGTON (AP) -- Unemployment rates rose in nearly half of U.S. states in August, even as employers in two-thirds of the states added jobs.

The Labor Department says unemployment increased in 24 states, fell in 15 and was unchanged in 11. Hiring picked up in 35 states, while it fell in 15.

Unemployment rates can rise even when hiring increases if more people start looking for work and don't immediately find jobs. The figures suggest hiring was broad-based across most regions of the country last month, even as nationwide job gains in August were the weakest this year.

Georgia reported the nation's highest unemployment rate, at 8.1 percent, followed by Mississippi at 7.9 percent. That's the first time Georgia has had the highest rate since the Great Recession ended.

BRITAIN-SCOTLAND-ECONOMY

LONDON (AP) -- Businesses and investors have reacted with relief to Scotland's decision to reject independence from the United Kingdom.

The No campaign won 55 percent of the votes cast in Thursday's referendum. The 10-point victory margin was wider than expected -- most opinion polls on the eve of the vote showed a narrower 4-point victory.

British stocks responded positively to the news Friday, with the FTSE 100 index up 0.3 percent. Royal Bank of Scotland shares were up, and the bank, which is majority-owned by the U.K. government, said it was "business as usual" for its customers.

Some had warned that if Scotland left, uncertainty over the future value of the British pound and government debt would have rattled the U.K economy.

In the currency markets, the pound was solid too, rising to a two-year high against the euro.

EXXON-RUSSIA DRILLING

IRVING, Texas (AP) -- Exxon Mobil says it will stop drilling an exploratory well in Russia's Kara Sea in compliance with U.S. sanctions against Russia over Russia's involvement in the Ukraine.

Exxon planned to drill the well between August and October. The latest round of sanctions called for the removal of U.S. workers on projects in the Russian Arctic by Sept. 26.

Exxon says it has received a license from the U.S. Treasury Department to wind down operations, but it is unclear whether the license will allow Exxon to stop drilling on the schedule it had already laid out. Exxon could not be immediately reached for comment.

PABST BREWING-SALE

NEW YORK (AP) -- The maker of Pabst Blue Ribbon beer is being sold to Russian company Oasis Beverages for an undisclosed sum.

In addition to its namesake beer, Pabst Brewing Co. makes Colt 45, Old Milwaukee and Schlitz. Pabst was acquired in 2010 by C. Dean Metropoulos & Co., which is known for investing in food brands.

Pabst Brewing, now based in Los Angeles, traces its roots back to 1844 in Milwaukee. Since purchasing it in 2010, Metropoulos has enlisted comedian Will Ferrell to market the company's beers. Pabst Blue Ribbon has also grown in popularity in part for its blue-collar appeal and cheap price.

Oasis is buying Pabst with TSG, an investment firm known for its work with consumer products companies. TSG Consumer Partners will take a minority stake in Pabst.

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