The Fire Next Time

1) Treasurys get downgraded—as does virtually every other asset on earth
Treasurys are regarded as risk-free, w/ everything else benchmarked against them. realization that Treasurys are unsafe cascades through other assets, including bonds of US corporates https://t.co/elW9YJv37L

— Catherine Rampell (@crampell) May 5, 2023

Somewhere I remember Chip Roy saying the more Biden refuses their terms, the more they raise their demands. So here’s what they’re willing to see happen (and why it’s nuts we still have this situation come up over and over).

2) Interest rates rise for consumers, biz, government. Federal debt problems—the concern supposedly motivating default threats in Congress—also worsen. (Merely flirting with default in 2011 increased government borrowing costs by $1.3 billion that year.) https://t.co/elW9YJv37L

— Catherine Rampell (@crampell) May 5, 2023

4) Stock markets plummet. Investments that are even slightly risky become less attractive to hold amid so much uncertainty. https://t.co/elW9YJv37L

— Catherine Rampell (@crampell) May 5, 2023

6) Treasury-based collateral, used to back tons of other transactions, suddenly worth a LOT less. You might get a global margin call. Huge sell-offs/volatility across markets as everyone scrambles to raise funds to close out trades etc. https://t.co/elW9YJv37L

— Catherine Rampell (@crampell) May 5, 2023

Some more detail on this point: After the 2008 crisis, regulations required that the post-trade processing of many financial transactions be moved to CCPs, such as those run by the Chicago Mercantile Exchange or London Stock Exchange

— Catherine Rampell (@crampell) May 5, 2023

CCPs are supposed to have set of mechanisms to absorb losses ("waterfall"). But not clear “waterfalls” would be sufficient in face of such systemic losses. Clearinghouses are also tightly interconnected with each other + other financial infrastructure. Contagion spreads fast pic.twitter.com/VfXqMrxNGA

— Catherine Rampell (@crampell) May 5, 2023

And here’s why Biden won’t negotiate:

2. Defund the tax police - make it harder for IRS to collect taxes legally owed by wealthy/corporate tax cheats, and set back the agency’s other IT upgrades.
(Would also increase deficits) https://t.co/DXeyUIweFe

— Catherine Rampell (@crampell) May 16, 2023

4. Provision to grind entire regulatory system to a halt, by requiring Congress’s approval for all major regs. That includes deregulatory action too btw
Congress can barely do the things it’s responsible for now. Like, say, paying our existing billshttps://t.co/biSBM4JgEX

— Catherine Rampell (@crampell) May 16, 2023

So...yeah. The argument/negotiations are over something that’s never gonna happen, to prevent something that never can happen.

So why won’t Biden negotiate?