Financial Armageddon; Hello Mongolia; Hello, Uganda!

Today, this blog has had a hit from Mongolia and one from Uganda. I have no way of knowing whether any of these hits correspond to someone actually reading an item. WordPress, the sponsor of this blog, does not keep this kind of numbers. And, perhaps, it’s just as well. Visitors from outside North America are very welcome on this blog. They are also welcome to make requests. And I prize their rare comments.

This is the Nth day of federal government so-called “shutdown.” The American Left, the Obama Administration, various international pundits, have been predicting world financial Armageddon because of the shutdown and because of the budget battle that will probably follow. Instead the most common stock index, the Dow Jones Industrial Average, was up 62 points today. That’s not much but it’s not nothing. It’s up, not down. It’s not quite half a percentage point up (.42%). The French CAC40 was also up. Up is not down, no matter how you look at it.

The coming federal budget showdown (don’t confuse with “shutdown”) is about the executive branch borrowing money. It’s not borrowing money because it’s facing some extraordinary expense. It’s become routine. The belief that the federal government cannot operate within its financial means has become deeply anchored without ever being presented to the people for a vote or even for a talk. Conservatives object.

Many conservatives affirm that government borrowing should never occur except under dire and exceptional circumstances. Me, I am a wishy-washy moderate conservative. I could be convinced that federal borrowing is virtuous but I want the discussion to take place in the open. We are working on it.

There is a small technical thing that bothers me around talk of government “defaulting.” Perhaps, something can help me with this. Suppose I own government debt; suppose I own a Treasury Bond for $1,000 coming due on October first. If the federal government fails to give me my money on October 1st but, instead hands me on an IOU confirming it owes me $1,000 that it will pay soon, how worried should I be? Is my landlord not going to accept the IOU? Is the bank going to toss it into the waste basket?

And would the executive branch of government do something illegal, unconstitutional by issuing such an IOU?

My article in THE AMERICAN

“The Upside of Government Default,” where I discuss the state defaults of the 1840s.

Some Possible Consequences of a U.S. Government Default

My Econ Journal Watch article on Treasury default is now available online. It appears in a special issue that is devoted to various articles with differing perspectives on the probability and consequences of a U.S. government default.

Rainy Day

Here is a quick list of links around the web from our bloggers at the consortium:

Fred Foldvary weighs in on the 2011 Nobel Prize winners in Economics

Some Possible Consequences of a U.S. Government Default by Jeffrey Rogers Hummel

One of Jacques Delacroix’s famous short stories (and this co-editor’s personal favorite)

Brian Gothberg introduced me to Colossus: The Forbin Project at a summer seminar in 2009

I hope everybody stays dry out there!