Speaker John Boehner said in an interview with ABC News on Sunday that the United States government is on the path to defaulting on its debt . A default on US bonds would likely cause another financial crisis given the global financial system’s dependence on the stability of US treasury bonds both to hedge risks and backstop currencies. A default would trigger a mark down and likely collapse of numerous financial institutions which rely on current values of the bonds. A major mark down of US debt would also likely throw the derivative market into chaos given the low probability of the event and subsequent betting by speculators. Boehner claimed President Obama would be chiefly responsible for default due to an unwillingness to negotiate.
BOEHNER: My goal here is not to have the United States default on their debt. My goal here is to have a serious conversation about those things that are driving the deficit and driving the debt up. And the president’s refusal to sit down and have a conversation about this is putting our nation at risk of default.
STEPHANOPOULOS: So are you saying that if he continues to refuse to negotiate, the country is going to default?
BOEHNER: That’s the path we’re on. The president canceled his trip to Asia. I assumed — well, maybe he wants to have a conversation. I decided to stay here in Washington this weekend. He knows what my phone number is. All he has to do is call.
Obama has been equally steadfast so far in claiming that he won’t negotiate further concessions to Republicans over the debt ceiling bill. Obama has demanded a clean debt ceiling vote which he noted is not a favor to him but just responsible governing. Though that is a fair argument it is also somewhat problematic given that the Obama Administration has previously negotiated on the debt ceiling (as have other presidents).
Boehner said explicitly in his ABC interview that “We are not going to pass a clean debt limit.” He claimed there were not enough votes in the House to pass it though he likely meant not a majority of Republican votes. In any case the two positions are irreconcilable. If Obama and Boehner both hold to their stated positions the country will default on its debt obligations and likely trigger a financial crisis.
As we enter day 7 of the government shutdown it seems we are not just without a functioning federal government but may soon be without a functional financial system.