Martin D. Weiss: If you’re worried about government shutdowns created by warring politicians in Washington … wait till you see the consequences of a true shutdown forced upon us by bond investors all over the world.
Despite the intense pain and embarrassment, born-in-Washington, garden-variety government shutdowns are temporary. They disappear just as soon as enough people on either side of the aisle come to their senses.
By contrast, even with herculean efforts and massive policy shifts to appease foreign investors, true shutdowns are more difficult to end and far harder to recover from.
In a moment, I’ll tell you about one such shutdown that took place 33 years ago.
But first, let’s focus on a more immediate concern — the debt limit and the threat of a U.S. government debt default just a couple of weeks from now.
According to the U.S. Treasury Department, Congress has only until October 17 to raise the limit. If it doesn’t, the Treasury says it will be down to just a small wad of cash that would be gone in a matter of days. The entire nation would be close to falling off the dangerous cliff of default.
Here are some possible scenarios:
At the 11th hour, the warring factions reach a compromise and Congress raises the debt limit to fund the government’s operations normally.
Based strictly on history, this is the most likely result. It’s what has happened every single time in the past.
The outcome: Business as usual. No end to the rampant borrow-and-spend addiction of Congress; no end to the print-and-pump madness at the Fed … until, that is, bond investors rebel and force a different kind of shutdown (scenario #5).
The U.S. government defaults on its maturing debts.
Until today, I have taken the position that this scenario is too remote to deserve more than one line of ink.
But a closer analysis of today’s political posturing uncovers a growing group of Congressmen who would rather fight than switch … plus some who would even prefer a government default than compromise their values.
Their line in the sand: Unless Obamacare is postponed or modified in some way, let the default happen! In fact, they say, in the long run, the horrible consequences of default might even be a healthy wake-up call for the country.
The fact that these leaders haven’t flinched an inch — even in the face of a massive government shutdown — leads some observers to believe that they may pursue the same tactic even in the face of a government default.
If they do, and if the president abides by the law, we face the ultimate financial Armageddon for any government — not only the collapse of U.S. government bonds, but also the end to our global financial system as we know it today.
Regardless of the political radicalization of Congress, I continue to believe this scenario is the least likely.(...)Click here to continue reading the original ETFDailyNews.com article: 5 Shocking Debt-Limit ScenariosYou are viewing an abbreviated republication of ETF Daily News content. You can find full ETF Daily News articles on (www.etfdailynews.com)
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