DataPoints
"It is easy to be gloomy about our nation's fiscal problems. The federal government narrowly averted a shutdown over the 2011 budget and it looks as if lawmakers plan to play chicken over the fast-approaching national debt ceiling. These same lawmakers must soon reach agreement on long-term government spending and tax policy, or the nation will suffer fiscal and economic ruin. Yet I'm optimistic.
Lifting the debt ceiling by July 4 is absolutely vital; otherwise the Treasury will be unable to borrow and be forced to slash spending. As it happens, the gap between federal revenue and expenses reaches its deepest point of the year in mid-July, nearly $6 billion per day. The Treasury will pay its bills until nothing is left, then simply stop."
This is one of the few pieces by Zandi lately that I sort of agree with. However, that does not change the fact that his ideas will not be listened to, which is unfortunate. The only grievance I have is his use of financial mutually assured destruction rhetoric when talking about the debt ceiling timeline. The financial establishment can have their debt ceiling opinions aggregated into, "policymakers should act to do things, and then when it gets too close to Armageddon, give up all negotiations, sign something, and then try again later." This has created a negative feedback loop which is essentially now an established part of the debt ceiling negotiation process (I use the term negotiation loosely). Developed world nations default quite regularly, and I strongly recommend the book, "This Time is Different" by Ken Rogoff and Carmen Reinhart.
HUGE DISCLAIMER: I am not advocating a federal bankruptcy, I just do not like how people pretend that such an event would destroy the world so many times over that not even a lizard could live in the desert for a thousand years. Such an outcome has never happened, even in the midst of some very large sovereign bankruptcies.