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Home Publications Blogs Beat the Press Problems of Reading Comprehension at Zero Hedge: No One Advocated Default

Problems of Reading Comprehension at Zero Hedge: No One Advocated Default

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Sunday, 10 April 2011 14:59

I don't like to use this blog to settle personal scores, but I think it is important to clear up a serious misrepresentation that stemmed from an earlier post. Zero Hedge has me advocating default on the national debt because I had the audacity to point out that the world will not end if the U.S. defaults on its debt.

It did not occur to me that anyone could think that saying "the world will not end if we do X," is the same as saying "we should do X," but apparently the folks at Zero Hedge cannot see the distinction. Let me try to clarify. Defaulting on the national debt is very bad policy. It would lead to a financial crisis, as I said in my prior post. This would lead to a severe downturn in the economy and a big jump in the unemployment rate.

However the economy would eventually recover. The underlying factors that determine the country's wealth -- the physical stock of capital, the skills of the workforce, the state of technical knowledge -- will still be there following a default.

For this reason I would consider some policies worse than default. Representative Ryan's plan for ending Medicare as we know it would fit this bill. It would mean that people who spent their entire life working could not count on decent health care in their old age.

In my view, if the Republicans say "end Medicare or default," then the correct response for President Obama is "I'll see you after the crash." My guess is that in this scenario we don't get a default. Rather we get Jamie Dimon screaming his lungs out at the Republican leadership, and we get the Republicans running to compromise with their tails between their legs.

But, this assessment could be wrong. Still, in my view there has to be a bottom line. I draw the line before the elimination of Medicare.

I'm afraid that I don't really understand the opposite position. Is it the view of Zero Hedge that nothing is worse than defaulting on the national debt? If Speaker Boehner wants to bring back slavery as a condition of raising the debt ceiling should President Obama sign the bill? (We'll worry about the 13th amendment later.) If they agree that bringing back slavery is worse than defaulting on the national debt then is Zero Hedge also an advocate of default? 

If we want to have a serious argument on this issue it is going to have to be based on what I actually said, not positions that Zero Hedge has invented for me.

 

 

Comments (16)Add Comment
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written by foosion, April 10, 2011 5:11
I can't see how anyone could reasonably read anything you said as remotely advocating default.

>>In my view, if the Republicans say "end Medicare or default," then the correct response for President Obama is "I'll see you after the crash." My guess is that in this scenario we don't get a default. Rather we get Jamie Dimon screaming his lungs out at the Republican leadership, and we get the Republicans running to compromise street with their tails between their legs.>>

Exactly. As I noted in the original thread, the Republicans' corporate masters would never allow a default. The question is whether Obama caves completely. He's scheduled a speech Wednesday night with the seeming purpose of preemptively caving. We'll see how badly.
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written by Britonomist, April 10, 2011 5:21
Zero-Hedge is just about the worst, most ideological and irrational blog on finance I have ever seen. Unfortunately, it is also one of the most important so I read it usually every day. I saw their pathetic attempt at taking your words out of context and it made me bash my head against the wall, I'm glad that you clarified your position for their infantile brains. Unfortunately they are unlikely to listen.
"Things bad begun make strong themselves by ill"
written by Scott ffolliott, April 10, 2011 5:38
"Enough already! After the Enron affair and so many others in 2000-2001, the present crisis confirms - if that were necessary - that it is well past time to limit the fantastic inequalities that have been widened over the last 30 years and to finally bring democracy into banks and companies. Why should shareholders alone, with the management they appoint, decide on the future of these institutions? Especially when it's the employees - as well as the society that surrounds them - who pay the price when things go badly. Without counting that these crises also virtually systematically involve the government - hence, at the end of the day, taxpayers - in sponging up private actors' losses to avoid a collapse of the economy. " - And If the Economy Were To Be Harnessed in the Service of Everyone?
by Guillaume Duval
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written by tom, April 10, 2011 5:40
Judging from the comments on my tea party congressman's facebook page, there are an awful lot of tea parties who do not want to see the debt limit raised, even if it means default.
No need to default on dollar debt., Low-rated comment [Show]
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written by joe, April 10, 2011 7:49
AndrewDover, opposing the elimination of medicare and opposing a default on the bonds held by the social security trust are not inconsistent positions.
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written by AndrewDover, April 10, 2011 8:11
DB minimized the impact of defaulting on the national debt, and gets wrongly attacked for advocating such a course.

JK minimized the impact of defaulting on special issue bonds, and DB attacks him for
"badly wanting" such a course.

It is inconsistent, whther you favor Dean's views or not.

http://www.washingtonpost.com/opinions/its-still-an-empty-lockbox/2011/03/17/ABPpoym_story.html
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written by Tony, April 10, 2011 10:29
I follow Business Insider every day, as they give you many different points of view, and they posted Dean's blog on debt default thru Zero Hedge as well. And I think, like Dean, that they showed poor judgment posting it the way they did. Usually they go over a blog, and then give there point of view. They did not do it this time. Shame.
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written by liberal, April 10, 2011 10:48
It's a moot point, since we can't default on the debt anyway; we're obligated by the Constitution not to.

Of course we could effectively default by just printing the money.
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written by bobbyp, April 10, 2011 11:27
liberal,

In a sovereign fiat currency system, there is no debt in that currency that is so large that the issuer of the currency could not pay it back.

There is no possibility of default unless the political choice is made to do so.
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written by bobbyp, April 10, 2011 11:28
"Of course we could effectively default by just printing the money."

But then it would not be a default.
http://www.hats-newera.com/Fox-Racing-Hat_81.html
written by DC Hats, April 11, 2011 3:42
DB minimized the impact of defaulting on the national debt, and gets wrongly attacked for advocating such a course.
...
written by Calgacus, April 11, 2011 3:53
Yes, liberal - the Constitution and a long line of cases say that the Congress simply does not have the power to default on its debt. As bobbyp says, fiat currency defaults simply don't make sense. There are none in history, ever, of a country like the US. (Japan during WWII didn't pay the US&UK, and Russia in the 90s, under weird circumstances are the only arguable cases).

Paying debts by printing money is not even an "effective default." All money is created by "printing it." The main point of all the monetary antics that the Treas & Fed perform is to hide this simple fact. The government does not and cannot borrow from the public. Printing a thousand bucks or so for everyone in the country would not cause inflation, depreciation of the value of the dollar. It would be a pure win for everyone, except those who want a return to a slave economy. Paying off debt by newly printed money would be a reasonable idea, except that it may be too deflationary.
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written by fuller schmidt, April 11, 2011 12:20
I've thought for awhile that people don't understand the subjunctive mood very easily any more.
There, there
written by Fempus Tugit, April 11, 2011 1:15
@fuller: My mood is past being subjunctive and passing into the future active.

Or as Tony might say: their's more than one way to peel a potato.
Pojama people
written by fuller schmidt, April 12, 2011 6:35
Great satire Fem-pus. That's exactly what I'm talking about.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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