Interest rates will collapse if the debt ceiling isn't increased

Many financial pundits and politicians are speculating that interest rates will rise if the debt ceiling isn't increased. (Talk of default is utter nonsense, as the government collects enough revenue to pay interest costs 10 times over.) Instead, refusal to lift the debt ceiling will shut down almost all of the government. It will pull billions out of the economy and plunge it into recession. Resource prices will tumble and debt problems in China and Europe will explode. This crisis alone will force interest rates down. If Congress refused to raise the limit ever again, or only did so after enacting serious cuts, investors would recalculate future U.S. liabilities. The dollar would strengthen as well, as it did in 2008. The Federal Reserve would step in with quantitative easing, setting up the nation for higher inflation once this crisis passed. The U.S. would be on a sustainable fiscal path, such that inflation would eat away at the deficit and future liabilities. GDP would be lower, probably more than 10% lower, but the debt crisis would be over.

I don't expect any of this to happen, and the fact that most of the country, including the top decision makers, are this misinformed is a big reason why it will never happen. Otherwise, Obama would be out saying refusing to raise the debt ceiling will cause a depression, not a default, since politically either one works as a threat/warning.

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