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Washington Politicians Won't Risk 'Cataclysmic' Default Over Debt Ceiling Crisis

© Chris WattieThe Federal Reserve building is pictured in Washington, D.C., U.S., August 22, 2018.
The Federal Reserve building is pictured in Washington, D.C., U.S., August 22, 2018. - Sputnik International, 1920, 24.05.2023
Letting the US Treasury default on its debt repayments would have disastrous results, warned economist, professor and consultant Mark Frost — but that is why Americans should not fear that political rivals would let it happen to spite each other.
Republicans and Democrats will inevitably strike a deal on raising the debt ceiling for fear of undermining the dollar, an economist says.
With the June 1 deadline set by Treasury Secretary Janet Yellen for lifting the government borrowing limit rapidly looming, Democrat President Joe Biden and Republican House of Representatives Speaker Kevin McCarthy have failed to reach agreement after a third meeting on Monday.
Yellen has warned that the government would be unable to pay its bills — possibly including state employees' wages and welfare payments — if Congress does not approve lifting its borrowing limit from $1.1 trillion to $1.5 trillion. Republicans have demanded cuts to public spending in return.
But Mark Frost told Sputnik that mainstream media reporting of the debt ceiling stand-off and the risk of a federal default were "just hyperbole."
"First of all, there's not going to be any default," he insisted. "I don't care how much those people hate each other across the aisle. Each side knows that scorched earth ain't what they want. And that's what it would be right now."
"They might do a government shutdown. They might do all kinds of little dramas. But the only thing that matters in this is whether the interest on the debt is paid or it's not paid," Frost said. "If it's not paid, if it's postponed, whatever that's not being paid. That's a default. The interest on the debt is not paid when it's due."
Neither Democrats nor Republicans would risk such an outcome, the economist said.
"The interest on the national debt is going to get paid because the cost, the cataclysmic dystopian consequences of letting it default, both sides know, is just prohibitively high," Frost warned.
One major fallout from a debt default would be loss of confidence in the US dollar as an international reserve and trade currency — already in question as Russia, China, India and other nations move towards settling payments in their own denominations.
"The reason the dollar is the unit of account and the reserve currency, and the reason that the demand for US dollars is 60 to 70 per cent represented outside the United States, is precisely because we've never not paid the interest on the debt," Frost explained.
US Dollar - Sputnik International, 1920, 23.05.2023
Are You Worried About Stand-off Over US Debt Ceiling?
"At the end of the day, at the 11th hour, the two sides are going to get together," and make a deal, the academic predicted. "And each side is going to claim a win."
"Being a math guy, I don't ever use the word zero probability or 100 percent probability," Frost stressed, "But the probability that they're going to default on the debt is lottery odds-type math. I mean, it's just not going to happen."
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