With just 10 days left to raise the debt ceiling and congressional Republicans threatening to force the government to default on its obligations, banks are taking some dramatic steps to prepare for the economic chaos that would result should the brinkmanship continue.
The Financial Times reports that one major U.S. bank has started stuffing its automatic teller machines with extra cash in preparation for a possible bank run from panicked depositors. The New York Times reports that another bank is weighing a plan to advance funds to customers who rely on Social Security and other government payments that could stop in the event of a default.
The FT said the moves are part of “a ‘playbook’ used in August 2011 when the government last came close to breaching the debt ceiling.” The 2011 debt ceiling episode produced serious economic harm, costing the country a million jobs and a knock on its credit rating. Despite the GOP’s stated goal of reducing spending and protecting taxpayer money, their 2011 debt ceiling hostage-taking added $19 billion in borrowing costs.
As banks dusted off their 2011 debt ceiling playbooks last week, the list of major economists sounding loud alarms about the consequences of a default was growing longer. Christine Lagarde, who heads the International Monetary Fund, said last week that failing to raise the debt ceiling “could very seriously damage not only the U.S. economy but the entire global economy,” and called a hike to the nation’s credit limit “mission-critical.” Mark Zandi, chief economist for Moody’s and a former adviser to Sen. John McCain’s (R-AZ) presidential campaign, warned that failing to raise the debt limit would bring a “very, very severe recession with no obvious way out.” The Treasury Department said the recession wrought by a default would be at least as bad as the 2008 crisis and possibly worse.
Despite these warning signs, Republican lawmakers insist a debt ceiling breach would be no big deal. Rep. John Fleming (R-LA) thinks Congress shouldn’t listen to economists because “many times they’re wrong.” Rep. Steve King (R-IA) remains certain that nothing bad will come of blowing past the October 17 deadline. Rep. Ted Yoho (R-FL) even thinks that financial markets would actually stabilize on news of a U.S. default. For his part, Speaker John Boehner (R-OH) acknowledges that default would indeed happen and be very bad, but says the only way to avoid it is for President Obama to adopt the Republican position on every major policy dispute of the past few years.