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Would a short-lived default be that bad?

The National Debt Clock is seen February 19, 2004. The clock has since been redesigned to accommodate more figures.

JEREMY HOBSON: Let's get some analysis now from Richard Dekaser. He's an economist with the Parthenon Group and he's with us live from Boston, as he is every Wednesday. Good morning.

RICAHRD DEKASER: Good morning.

HOBSON: So what do you think, Richard, would a short-lived default be so bad for the U.S. economy?

DEKASER: It's very hard to say how foreign investors in particular are going to respond to a short term default. But I think it's possible that it would not be as apocalyptic as people had feared. But I think that misses the larger point. It's not what happens on August 3, it's what happens for the decades to follow. If the U.S. defaults on its debt if could suffer a permanent - and when I say permanent I mean ten years or more -- impairment of its credit-worthiness. And the long-term consequences there would unambiguously be bad.

HOBSON: Why would it suffer for ten years or more because of just a few days of a default?

DEKASER: Well one of the reasons that investors flock to U.S. securities is because they believe them to be free of these kinds of risks. Payment is made on time and without question. If that fundamental premise is challenged, you could see investors confronting greater risks. They would charge for that risk. We would have to pay them more in interest rates. And even if it was small - just say a tenth of a percentage point -- over decades that would amount hundreds of billions of dollars. And the irony is it would impair our budget situation, rather than improve it.

HOBSON: Richard DeKaser, economist with the Parthenon Group, thanks so much.

DEKASER: My pleasure.

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A default for even a single day is totally irresponsible. We will all pay for years to come for the actions of a few stubborn, ignorant, dishonest politicians.

the FED is not likely to default even without a ceiling increase why because interest on the debt is about 200 billion per year tax an fees is over 2 trillion per year and short term debt can be reissued as long term debt in the same amount when it comes due. The cuts will come from govenment worker headcount since we have no minimum federal staffing limit the default is hype. The federal government will do what the states have done. California and Illinois did not default and they can not print money.

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