Looking at a looming default

Updated: Thursday, October 17 2013, 05:05 PM EDT
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.
Looking at a looming default
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Last Update on April 24, 2014 07:31 GMT

WORLD MARKETS

TOKYO (AP) -- Asian shares lacked a clear direction today as players took a mostly wait-and-see view ahead of talks between Japan's prime minister and visiting President Barack Obama.

The focus is on what Obama and Prime Minister Shinzo Abe may say about negotiations on a wide-reaching trans-Pacific trade agreement, despite resistance from local interests on both sides to wiping out tariffs.

Sentiments on Asian markets were dampened by worries about the U.S. economy, highlighted by a surprise drop in new home sales as well as dismal earnings.

The pessimism overshadowed confirmation from the European Union that Greece achieved a primary surplus in 2013 -- what's left when interest payments are stripped out.

The dollar fell against the euro and was little changed against the yen.

Benchmark crude oil fell but remains above $101.50.

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Major business and economic reports scheduled for today

WASHINGTON -- The government's weekly jobless claims report comes out today.

Also, the government will release March durable goods numbers and Freddie Mac will report weekly mortgage rates.

A slew of quarterly earnings reports will be released today.

Before the market opens, investors will hear from Aetna, Starwood Hotels & Resorts Worldwide, Altria Group, General Motors, Southwest Airlines, United Airlines, American Airlines, 3M , Caterpillar, Verizon, and UPS.

After the closing bell, Amazon.com, Starbucks, Visa and Microsoft will report their quarterly financial results.

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The social network says it earned $642 million, or 25 cents per share, in the January-March quarter, up from $219 million, or 9 cents per share, in the same period a year ago. Adjusted earnings were $885 million or 34 cents per share.

Facebook says its revenue was $2.5 billion, up 71 percent from $1.46 billion in the same period a year ago.

Analysts expected adjusted earnings of 24 cents per share on revenue of $2.36 billion.

Facebook says its finance chief, David Ebersman, is leaving on June 1 after five years. He'll be replaced by David Wehner, currently vice president of corporate finance and business planning.

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DALLAS (AP) -- Texas Instruments is giving an upbeat forecast for the current quarter after the chipmaker's first-quarter profit rose 35 percent.

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BEIJING (AP) -- China's government says it will open 80 projects in eight state-run industries to private and foreign investors as part of efforts to make its slowing economy more efficient.

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Other industries cited by the statement were wind power, natural gas storage and distribution, solar power, coal, railways and port operations.

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LOS ANGELES (AP) -- The Federal Communications Commission is set to propose new open Internet rules that would allow content companies to pay for faster delivery over the so-called "last mile" connection to people's homes.

The proposed rules also call for enhanced scrutiny of such deals so they don't harm competition or limit free speech.

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The new rules are meant to replace the FCC's open Internet order from 2010, which was struck down by a federal appeals court in January.

While the older rules technically allowed for paid priority treatment, such dealings were discouraged.

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She said the risks of such accidents are clear and waiting will only lead to a "higher body count."

Hersman praised Canadian authorities who announced Wednesday that they banning or phasing out older, more dangerous tank cars.

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COCA-COLA-BUFFETT

NEW YORK (AP) -- Warren Buffett says he disapproves of Coca-Cola's highly contested pay plan for its executives.

Buffett, the beverage maker's largest shareholder, called the plan "excessive" in an interview on CNBC after the plan was approved at the company's annual meeting.

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In a statement, Coca-Cola Co. says it respects Buffett's "philosophical stance on equity-based compensation."

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