Stop Flirting with Debt Disaster

The Wall Street Journal's weekend interview with famed investor Stanley Druckenmiller may have the most eyebrow-raising statement I've ever heard from a financial personality.

Druckenmiller muses at length about why a debt default by the United States would not be a reckless act of financial irresponsibility:

"I think technical default would be horrible," he says from the 24th floor of his midtown Manhattan office, "but I don't think it's going to be the end of the world. It's not going to be catastrophic. What's going to be catastrophic is if we don't solve the real problem," meaning Washington's spending addiction.

Druckenmiller uses a euphemism we may soon hear more often: "technical default." A "technical default" you see is a default whereby the country could pay the money - it just doesn't choose to.

By that definition, almost all defaults are "technical," since it's very rare that a country cannot find some way to pay its debt if it really, really wants to: say by rounding up billionaires and confiscating their wealth at bayonet-point.

What is ominous about the Druckenmiller interview - and even more about its placement in the Wall Street Journal and the non-horrified reaction of conservative pundits to the statement - is the trend of mind it reveals. Here is John Boehner speaking last week to the New York Economic Club:

It's true that allowing America to default would be irresponsible. But it would be more irresponsible to raise the debt ceiling without simultaneously taking dramatic steps to reduce spending and reform the budget process.

Wrong! Default would be the single most irresponsible thing the United States of America could possibly do. America's debt has been paid in full and on time since 1789. To cast away that record even in a genuine financial emergency would be a terrifying action. To cast away that record to score a political point? Reckless almost beyond description.

I always assumed that the first American political party to contemplate default as a way to achieve its political goals would be the Communist Party of the USA, not the GOP. I'm going to tell myself that it's all just a bluff, and that Boehner is talking wild as a prelude to lowering the boom on the Tea Party. But wild talk has a way of generating its own momentum - and leading to wild results.

The GOP wants to push for a budget deal? That would be welcome.

But what this default talk looks like is that the GOP wants a crisis, not a deal. A deal would involve real pain for real voters: Medicare reductions, farm spending reductions, military reductions, and revenue measures. A crisis creates an exciting substitute for such a deal - especially if the GOP can temporarily and delusively convince itself that it can pin the blame for the crisis on President Obama. That will not be true. The whole world will see that the crisis was avoidable, and will see who insisted on forcing it. And however high you imagine the financial and political price - it will be higher.

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