Establishment Republicans including Tim Pawlenty, the former Minnesota governor who announced his presidential candidacy last month, are backing a short-term default if it leads to deep, immediate spending cuts.I would like to know exactly why these people believe that a short term default would either be a) short term or b) not trigger a credit event?
Jeff Sessions and Paul Ryan, the top Republicans on the Senate and House Budget Committees, have also said failure to raise the debt limit would not trigger immediate catastrophe.
Let's address "a" first. Once the "technical default" happens, what makes anyone believe that a deal will be quickly cut (and one where the Republicans get everything they want and the administration gets nothing). I would argue that once the event takes place, both sides will become more entrenched (since default has already happened and your positions haven't changed) which could easily lead to a dragged out fight (mostly in the press) but no movement and thus real risk of an actual default. Any dragged out fight after August 2, would also likely lead to another US recession, as credit market turmoil, uncertainty, and potential missed payments (to anyone ie doctors, seniors, defense contractors, etc) would lower GDP and cost US jobs. I simply do not believe it is appropriate to risk the full faith and credit of the US government to score a political victory.
As for "b", I would love to know where Senator Sessions and Representative Ryan are getting their information from. Have they called around to our foreign creditors? How about pension funds? Are they talking with the folks who run treasury backed money market funds (remember, the breaking of the buck on a non-treasury backed money market was one of the tipping points of the panic of 08)? Their statements are not only horribly speculative, but also terribly risky, and if they are wrong we are staring at a black swan event that could make the recent panic look like a walk in the park as money/investment flees the US for another "safe-haven", which would further reduce our ability to obtain favorable credit and likely exacerbate the debt problem we already have.