JPMorgan's Dimon on US default: 'You don't want to know'

[frigidmagi]

yahoo

Top US banker Jamie Dimon of JPMorgan Chase warned Saturday that the United States needs to avoid defaulting on its debt, saying the possible repercussions are unfathomable.

"You don't want to know," Dimon said when asked what would happen if the US is forced into default because Congress did not raise the country's borrowing limit.

"It would ripple through the world economy in a way that you couldn't possibly understand," he said at a discussion held by the Institute of International Finance, a leading forum for the world's banks.

He said it would shock the money market, where trillions of dollars in cash are invested in ostensibly top-quality securities like US debt based on expectations that the borrowers will not default.

"You don't know the ripple effect of that through money-market funds," stressed Dimon, head of the largest US bank by assets.

"The money markets are the most fickle markets in the world, they're like a rabbit."

Dimon was speaking as the White House and congressional Republicans remained deeply at odds over passing a budget and raising the US debt ceiling, a move needed to ensure the government can continue to pay its bills.

The US Treasury has repeatedly warned that as soon as October 17 it will be short of cash and forced to default on its obligations, though not saying whether it would skip debt payments or others, like social security payments to retired Americans.

With no compromise apparent, and the government partially shut down now for 12 days due to lack of a budget, Dimon warned that the deadline was looming.

"As you get closer to it, the panic will set in," he said.

On the other hand, he emphasized: "The US cannot default. I think every responsible person knows that."

[Dark Silver]

Everyone knows it, but the TEA Partiers in the House seem fit to let us default because "there is no way we should ever default".

While ideally, I'd agree with them - we bring in enough money in taxes to be able to service a debt, but then we'd be defaulting on OTHER obligations.

[Lys]

The Tea Partiers don't understand simple economics or business management. A State is not a fixed-income entity, it's a variable income entity, which means that the way it does its accounting is completely different from, say, a household. Generally speaking, you can borrow indefinitely provided you return on investment on the borrowed funds exceeds the interest rates. With interests rates at rock bottom in the last few years, the United States should be borrowing as much money as it can and making solid investments with it. It's criminal negligence not to, we're looking at interests rates around 1% which means that a modest 2-3% net return on investment means we come out ahead. But Congress doesn't understand this, and the Tea Party sure as fuck doesn't either. They're ideologically stuck on small government and less debt and incapable of taking a holistic approach and realizing that big government projects can oft times pay enormous dividends down the line and more than justify their cost.

In any case, we have 3-4 days to get this shit sorted out. Lest the United States default on its debt for the first time since the 18th century. That would be pretty damn ugly, and I wonder what the Tea Partiers hope to gain by letting this happen. Or, well, I don't actually wonder, it's obvious what they hope to gain. They're expecting the other guys to blink first, and that way they get what they want. Unfortunately, the utter spinelessness of the Obama administration has taught the Republicans that they can largely get by they want by simply sticking to their guns. Now they've taken the country hostage, and the problem here is that you can't negotiate with hostage takers, if they're allowed to get away with this they'll do it again, and again, just as they've have thus far.

This also runs into one of the perennial problems of separated executive and legislatures. When the President and Congress are at odds, who represents the will of the people? What about when the President and only half of Congress are at odds? Senators are elected by free votes of the entire population of their states, and the Senate is controlled by the Democrats same as the White House. In parliamentary systems this problem is sidestepped, because the executive and the legislature are controlled by the same party. The head of government and the leader of parliament are one and the same. Not to say the United States needs to switch to a parliamentary system, much of the problem is averted by adopting proportional representation, which can be done without Constitutional amendment. Such proportional representation would allow the rise of small and minor parties, which would have salubrious effects on the legislature. Unfortunately neither the Democrats nor the Republicans are likely to go for it, given that it would fracture their stranglehold on the country's politics.

I had a random thought with respect to the government shut down: If this were damn near any other country, there would have been a coup d'etat by now. The government's shut down, the military is not getting paid, and the military not getting paid enough is one of the leading causes of coups in history. It says a lot about America that this is not an even vague concern.

[Hotfoot]

I sincerely doubt the US will default even if the deadline is hit. There are emergency measures put in place to prevent that from happening, and the people up top know it, hell, it may be the reason why Boehner was so willing to make this move. He probably figured he could spin public pressure on the White House hard enough that eventually the President would cave. The problem is that the stakes involved don't play well for him. Most of America wants the bill in question, it's been backed by the SCOTUS, and Obama doesn't need another term, so he can play hardball. Despite a lot of the spin on this one, most of America blames the Republicans here more than the democrats, and only the really fucking stubborn assholes put the blame fully on the dems. Even the pretty hardcore people are trying the "it takes two to tango" line to make themselves seem reasonable and to recognize that they do share in the blame.

As far as the shutdown, it's entirely possible the SCOTUS will get involved, or barring that, the House ejecting the current speaker in favor of one who will end the current deadlock. Sooner or later the GOP will realize that they are committing suicide by supporting the Tea Party in any way, and the Tea Party themselves may try to distance themselves from this. Most Americans either want or don't care about ACA, and they certainly don't want to kill it by this method even if they think it's a bad idea.

[Josh]

I don't think Boehner particularly wanted it to play out this way. The problem he has is that the saner portion of the party runs in fear of being primaried out by the nutso wing, not to mention anybody with presidential ambitions knows that going the Huntsman route is career suicide in the current political window.

As for the Tea Party themselves, they feel so dislocated by the recent movement of the country that by and large they feel that only radical measures will preserve the republic. They honestly think that it would be better to go over the cliff and pick up the pieces than continue what they regard as social suicide.

[frigidmagi]

Such proportional representation would allow the rise of small and minor parties, which would have salubrious effects on the legislature. Unfortunately neither the Democrats nor the Republicans are likely to go for it, given that it would fracture their stranglehold on the country's politics.

With all due respect I wish to present a different viewpoint.

I have looked at a number of nations with proportional representation... Like Israel, where a minority party of religious fundamentalist basically can hold coalitions at gun point (why does that sound familiar...). Or Japan, where the result was not the rise of a number of 3rd parties, but a single party government for fucking decades. Germany, where the voting results in frankly muddled government to the point that in order to stay in power Murkel has to create a coalition with a party whose ideology is fairly opposed to her own (still not as bad as the greens I'll admit).

The best results of this system so far seem to be nations like Norway with small homogeneous populations. I submit for consideration that the US populace is many things but it is not small, nor is it homogeneous.

Additionally, I would submit that our problem is a de facto 3rd party! The tea party relies on a separate infrastructure for candidates, funding and policy. It's leadership is not the Republican Party's leadership. It governs in a coalition with the GOP, making demands or else the GOP members will face Tea Party candidates in their districts, forcing them to fight 2 front wars they cannot hope to win.

You want to fix this? We don't need to burn down our voting system and try another one, we just need to adjust how we draw our districts. A non-partisan district drawing would have meant a completely different Congress where something like this never happened.

[rhoenix]

You want to fix this? We don't need to burn down our voting system and try another one, we just need to adjust how we draw our districts. A non-partisan district drawing would have meant a completely different Congress where something like this never happened.

So, down to the issue of gerrymandering. Makes sense to me - get rid of the practice of gerrymandering in an attempt to make sure that representation is more... representative of the people that elected them.

[Josh]

That and the Tea Party may well be on the way to going the third party route finally. That'll give us the '72 Wallace scenario but hopefully without a Nixon.

Oh wait it gets us a Clinton. Same diff.

[SirNitram]

I sincerely doubt the US will default even if the deadline is hit. There are emergency measures put in place to prevent that from happening, and the people up top know it, hell, it may be the reason why Boehner was so willing to make this move.

I have to speak up here. There are emergency measures, yes. They were employed.

Because the Debt Limit was hit on May 18th(Shittiest. Birthday. Present. EVER.). It was set to be hit then back in the Fiscal Cliff nonsense. Link

Bonus points: During the shutdown we just emerged from, the GOP repeatedly tried to outlaw those emergency measures.

[Cynical Cat]

Merkel isn't in a coalition strictly because of Germany's semi-proportional elective body (half of them aren't elected by proportional voting and there's a 5% minimum that stops a lot of the wacko parties from getting representatives) but also because her party didn't do too well in the last election. That happens in other voting systems as well.

Proportional voting, however, totally sucks.

[Lys]

I have looked at a number of nations with proportional representation... Like Israel, where a minority party of religious fundamentalist basically can hold coalitions at gun point (why does that sound familiar...). Or Japan, where the result was not the rise of a number of 3rd parties, but a single party government for fucking decades. Germany, where the voting results in frankly muddled government to the point that in order to stay in power Murkel has to create a coalition with a party whose ideology is fairly opposed to her own (still not as bad as the greens I'll admit).

Not all of proportional representation systems are built the same way. Israel runs on party lists, Japan uses parallel voting, and Germany uses mixed-member. None of these systems is exactly what I would see the United States using. I would apply proportionality to the Representatives from each state, not to the totality of the House. By this I mean the voters of each state vote on who they want to represent them in Congress, and then the membership of the delegation is apportioned proportionally. So you would have each state delegation proportionally representing the voters of their state, not the entirety of the House proportionally representing the entirety of the United States.

You want to fix this? We don't need to burn down our voting system and try another one, we just need to adjust how we draw our districts. A non-partisan district drawing would have meant a completely different Congress where something like this never happened.

Proper district drawing is important in any system, unless the system does not use districts per se as is the case in the US Senate. For example, the principal reason why the Liberal Democratic party controlled has controlled the Japanese government since the Second World War is that the districts have changed little in that span.

Regardless, I like first past the post with instant run-off much better than proportional representation.