amna: Congressional and white
house negotiators met again
today as they tried to meet --
reach a deal on the debt
ceiling.
President Biden and speaker
Mccarthy says they believe they
can get to an agreement in the
coming days, and fears of a
default still loom since both
sides remain divided on a number
of issues, including federal
benefits and spending cuts.
Some experts are waiting what
could happen in the case of
default.
Our economics correspondent Paul
Solomon is our god.
-- Guide.
Correspondent: The debt ceiling
clock is ticking, but what would
happen if the was defaulted on
its debt?
That has not happened since the
treasury was established in
1789.
The debt ceiling is the captain
on the total amount of money at
the federal government is
authorized by congress to
borrow, created in 1917, it made
up about 10% of U.S. Gdp
compared to this year's
projected 100 plus percent.
At long last a default?
>> That is a big deal.
That's send shocks waves
throughout the world.
Correspondent: Not only that
says Simon Johnson former chief
economist.
>> It impacts national security
badly.
That is the cataclysmic crisis
everyone fears.
Correspondent: A longtime bond
trader.
>> There is no other country in
the world that separates the
process of appropriating funds
to spend from the process of
determining the financing, the
amount of debt.
Correspondent: He thinks U.S.
Debt default would be a
financial armageddon.
>> It lends itself or a
political confrontation.
>> What is most alarming is we
do not really know what would
happen.
Correspondent: Which is why
Wendy adelbert thinks treasury
will not default but will make
regular payments to current
bondholders.
>> What is assumed is it will
make the principal and interest
payment so that it would not
strictly be in default on U.S.
Treasury securities.
Correspondent: But the treasury
would need to stop paying
someone?
>> The U.S. Taxpayer owes a lot
of people money on any given
day.
We owe anybody who is treasury
securities, we owe them interest
, but we also owe doctors and
hospitals money who have traded
-- treated medicare and medicaid
patients.
We are money because they have
done work on the U.S. Taxpayer.
We owe people money who are
entitled to benefits.
Correspondent: 70 million
Americans receive social
security benefits, more than one
in five of us.
Isn't the money supplemental?
>> Some people can wait to pay,
but many tens of millions of
people cannot afford to wait.
Correspondent: For 40% and if a
series social security is their
sole means of support.
>> Cannot buy food, pay
essential medical bills, that
would be a horrible human cost.
Correspondent: What about
America's millions of federal
employees, 2 million military
personnel, postal workers, and
TSA security at the airport and
employees at our national parks?
>> Anyone living
paycheck-to-paycheck, if you do
not give them a paycheck for one
week or a couple of days, how
will they feed their families?
How will they buy gasoline and
pay rent.
If you do not pay rent you get
evicted pretty quickly.
Correspondent: Workarounds have
been proposed.
Mint a trillion dollar coins.
Interest-only treasury bonds
that had nothing to the debt
total.
New high interest bonds sold at
a steep discount that would
profit the treasury on the books
and reduce the total debt rather
than risk anesthetizing you with
the details, suffice it to say
all such gimmicks will wind up
in court.
>> Who wants to buy those
treasury securities knowing they
might prove to be illegal?
And canceled.
Doing any of these workarounds
creates its own flavor of chaos.
Correspondent: What is likely to
happen?
>> I expect this to get resolved
one second before the ultimate
deadline when the United States
will start the process of
getting into default of one or
other forms of payments they
need to make.
In theory, it does not make any
sense to reach an agreement
before the last second.
Correspondent: When I asked
Wendy, former chief economist,
what are your odds as to whether
or not this is resolved before
zero hour?
>> I put the odds of this
happening and getting to the
point where treasury has two
double payments and make one
payment and not another one, I
put hi odds on that.
Correspondent: This trader has a
game theory from the game of
chicken, two cars coming
straight at each other.
>> To some extent the
Republicans are about to throw
the steering will out the window
and they can only go straight
and they were forced Biden to
basically do something.
Correspondent: Simon Johnson
does not expect to head-on
collision.
>> The risk of a serious
accident that could have massive
damage to the economy in the
world.
It is something we should worry
about.
Correspondent: My own reaction
too, no kidding.
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