Some members of Congress, including presidential candidates Michelle Bachmann and Ron Paul, say defaulting on the nation's debt ain't no big thing. They're not worried about the federal debt limit, and they're not going to vote to raise it, no matter what. By some accounts, a few dozen U.S. House members are in this group.
They can't possibly be serious! Even if, as they claim, the Treasury would have enough money coming in from taxes to make payments on the federal debt and meet a few other obligations, the ramifications of even a near-default would be enormous. America would lose its prime credit rating, meaning fewer people around the world would invest in U.S. securities, and America would have to pay more for any borrowing it did well into in the future. Consumers would see their borrowing costs escalate. Housing, already in a giant hole, would sink into the abyss. Auto sales would collapse as car loan rates would jump from near-zero interest into double digits. Businesses would have to pay more for their routine borrowing for expansions or operating capital. More jobs would be eliminated to compensate for higher interest costs.
The costs of imports would soar as the dollar falls in value. Consumers would be paying more for nearly everything and would pay more interest on every penny they borrowed. Houses might be the exception. Already faltering housing prices might collapse if potential buyers are faced with mortgage interest rates of 15 percent or more. And the government would have to pay more in interest on the $14 trillion in debt it already has incurred.
The disdainers of the debt limit crisis and other Republicans who complain that higher taxes (on anybody) would hurt the economy will get a look at what soaring borrowing costs will do to an economy. A four- or five-fold increase in borrowing costs would hurt most businesses and do more damage to the economy than the relatively small tax changes the Obama administration has proposed.
Along with all these very tangible impacts of defaulting on the national debt would come another embarrassment: The United States would find itself in the dustbin of once-proud failed nations, lumped with Greece, Zimbabwe, the Weimar Republic and others. "Solid as a dollar" would be a joke.