As Congress and President Obama continue to mull over their tactical options in the midst of a government shutdown and a looming debt ceiling deadline, the Financial Times reported last week that one US bank, which has chosen to remain anonymous, is overstocking its automated teller machines with cash in case of a national credit default. In a similar story, the New York Times reported that many major US banks are considering stopgap measures, such as cash advances for people on Social Security, just in case Congress decides not to pay its debt.
"To guard against possible mayhem from a debt ceiling crisis, some of the nation’s largest banks are deploying plans that were developed in 2011 — when the government first looked as if it were on the verge of surpassing its debt ceiling limits. One senior bank executive said his bank’s plan includes stocking retail branches with at least 20 percent more cash," the Times reported, suggesting that "confidence in Washington has waned." Today Bloomberg News took that assertion to its next logical step: if the debt ceiling is not raised, "global markets will see the US government as grossly and dangerously incompetent." An explanation follows:
Refusing to raise the debt ceiling is fundamentally different from cutting the government’s funding. It’s as if Congress were sending the Treasury two contradictory and legally binding orders -- one that requires it to make hundreds of billions of dollars a month in payments, another that prevents it from borrowing the money it needs to do so. Which order is the Treasury supposed to obey? This is the stuff of absurdist theater. Confidence matters, and this event would destroy confidence.