NEW YORK (TheStreet) -- Investors should understand why some Republicans are willing to allow the U.S. to default on its debt.
President Barack Obama on Monday took a preemptive approach to criticize Republicans on the looming debt-ceiling clash, as he said they had the choice between acting responsibly and paying Congress' bills, or acting irresponsibly by allowing the economy to crash.
"They [Republicans] will not collect a ransom in exchange for not crashing the American economy," Obama said. The president said legislators' inability to raise the debt ceiling would leave investors in a tough position.
"Investors will ask if the U.S. is a safe bet. ... Markets would go haywire, interest rates would spike for anyone who borrows money," he said.
The comments came after a Politico report emerged Monday morning that House Republicans were "seriously" considering allowing the country to default on its debt.
House Republicans and Obama clashed in the summer of 2011, when tea party conservatives refused to caucus with Speaker John Boehner to raise the debt ceiling. The House, at that time, eventually garnered enough votes to avoid a default, but it triggered Standard & Poor's to downgrade the United States' credit rating from AAA for the first time in history Republican lawmakers find themselves in a tough political position as the president's re-election has afforded Obama a powerful bargaining chip -- he repeatedly argues that his 2012 victory signaled Americans' willingness to side with his policies -- and as their Jan. 1 agreement to increase taxes in order to avoid the so-called fiscal cliff could lead many constituents in deeply conservative districts to question their representatives' commitment to fulfill campaign promises.
"People are fed up with the Republicans they elected not doing what they were elected to do," a national Republican operative said in an interview. "They wanted them to cut the debt, they wanted them to get rid of some of these programs, they wanted them to make sure taxes don't go up."
Though the president paints a grim portrait of what could happen if Congress fails to reach a deal, some analysts say Republican calls for spending cuts in exchange for a debt-ceiling agreement have legitimate standing.
"If they raise the debt limit without any meaningful spending [cuts], you're going to get a downgrade," said Frank Fantozzi, chief executive of Planned Financial Services. "I really think the ratings agencies realize that ... the direction we're going in is unsustainable."
All of this talk of "default" is pure BS. On average, the debt service requires about 10% of the monthly tax revenue collected. There is absolutely no reason that these payments would not be made unless Treasury is directed to NOT make the payments. But, if you take a drink every time you hear the word "default" for the next several weeks and you'll end up in rehab by late March!
Yeah, it's like the local government always talking about having to "cut police and firefighters" as soon as any budget issues arise. They will never mention cutting the scores of "civil servants" sitting around city hall doing about 30 minutes of "work" in a given day; nope, can't talk about them!
"Investors will ask if the U.S. is a safe bet. ... Markets would go haywire, interest rates would spike for anyone who borrows money," he said.
This is said the president who ridiculed Americans when he sarcastically said, "WE ARE NOT GREECE."
Orthodoxy SUCKS.
"I do not feel obliged to believe that the same God who has endowed us with senses, reason, and intellect has intended us to forgo their use and by some other means to give us knowledge which we can attain by them."- Galileo Galilei