"It is easy to confuse what is with what ought to be, especially when what is has worked out in your favor."
- Tyrion Lannister

"Lannister. Baratheon. Stark. Tyrell. They're all just spokes on a wheel. This one's on top, then that's ones on top and on and on it spins, crushing those on the ground. I'm not going to stop the wheel. I'm going to break the wheel."

- Daenerys Targaryen

"The Lord of Light wants his enemies burned. The Drowned God wants them drowned. Why are all the gods such vicious cunts? Where's the God of Tits and Wine?"

- Tyrion Lannister

"The common people pray for rain, healthy children, and a summer that never ends. It is no matter to them if the high lords play their game of thrones, so long as they are left in peace. They never are."

- Jorah Mormont

"These bad people are what I'm good at. Out talking them. Out thinking them."

- Tyrion Lannister

"What happened? I think fundamentals were trumped by mechanics and, to a lesser extent, by demographics."

- Michael Barone

"If you want to know what God thinks of money, just look at the people he gave it to."
- Dorothy Parker

Tuesday, October 01, 2013

no default prediction

The Shutdown and the Economy by Jared Bernstein
If you think that the extremist wing of the Republican party will have been sated by shutting down the government, or, more realistically, if you believe that the moderate R’s will decide that it’s time to turn off the Cruz control and regain control of the vehicle, then you believe that the shutdown lowers the odds of default.

But if you think this just heightens their blood lust, and the moderates have lost, or ceded, control, then you believe the shutdown heightens the odds of default.

I’m in the former camp—I don’t think we’ll default. But I’m not sure, and you simply can’t over-estimate the recklessness of the House R’s and the dyfunctionality of the current governing process.

Just for fun, and admittedly using made up numbers, let’s say there’s a 15% chance of default, and that this would raise the risk premium on government bonds of the average maturity by 75 basis points (0.75%). The debt held by the public is now $12 trillion (that number is not made up). That means my expected increase in debt service as a result of this dysfunction is $14 billion. If you think there’s a 40% chance of default, you’re at $36 billion.

That’s real money.

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