The head of the International Monetary Fund has warned of a worldwide recession if the United States government defaults on its debt. The head of the World Bank has said much the same.
Christine Legard, the IMF head, made this statement: “If there is that degree of disruption, that lack of certainty, that lack of trust in the US signature, it would mean massive disruption the world over and we would be at risk of tipping yet again into recession.” The words “massive disruption” are scary. But she did not describe exactly how this disruption will take place. She did not offer a sequence of disruptions.
Jim Yong Kim, the World Bank head, warned of “a very dangerous moment.”
“Inaction could result in interest rates rising, confidence falling and growth slowing.
“If this comes to pass it could be a disastrous event for the developing world and that will in turn greatly hurt the developed economies as well.”
Interest rates on U.S. Treasury debt have been lower than at any time since the middle of the Great Depression in the 1930s. Why rising rates would be bad now, he did not say. Savers who buy short-term Treasury bills might actually get a rate of return higher than the rate of price inflation. The rate has been one-tenth of one percent until two weeks ago. It is still below one percent on 90-day T-bills.
So, we need to know why this default will be so terrible. The world knows that it would be temporary. The federal government would cut other expenses. The likelihood that the government would default is minimal. Debt repayment is about 6% of the annual federal budget.
We are seeing the heads of two government-supported international agencies defending their turf. The do not want to pay higher interest rates on the money they borrow from governments and Western lenders. They prefer that the market for debt remain subsidized by Federal Reserve purchases of U.S. Treasury debt.
The supposed experts do not know what will happen. The head of J. P. Morgan covered his lack of specifics this way. “You don’t want to know [what would happen].” Yes, I do. “It would ripple through the world economy in a way that you couldn’t possibly understand.” Really, I could understand it. Please give me specifics. Explain it to me.
This is Keynesian propaganda for burying the U.S. government in more debt.