Default follies: Big papers arrive at the scene of the fire!


After the flames are extinguished: Yesterday, it became official. The House GOP will not refuse to extend the debt limit next month.

In this blog post, Paul Krugman hailed the good news, referring to what was averted:
KRUGMAN (1/18/13): And it’s a big deal. Yes, the GOP could come back on the debt ceiling, but that seems unlikely. It could try to make a big deal of the sequester, but that’s a lot more like the fiscal cliff than it is like the debt ceiling: not good, but not potentially catastrophic...
According to Krugman, we’ve reached the end of an episode that was “potentially catastrophic.” And how typical! Just as the GOP folded its tent, only then did the Washington Post and the New York Times start explaining, or trying to explain, the shape of this looming disaster.

Right on time! Yesterday morning, the New York Times offered this news report in which Annie Lowrey began explaining what was at stake in the debt limit threat. (Headline: “Difficult Choices on Debt if the U.S. Hits the Ceiling.”)

But how perfect! Right next to Lowrey’s detailed report, this second report explained that the GOP seemed to be dropping its threat! In its news reporting, the Times had arrived at the scene of the fire just as the fire went out!

This morning, a similar circumstance obtains at the Washington Post. On page A12, Zachary Goldfarb starts explaining the danger of screwing around with the debt limit. (Headline: “Last debt debate shows how fight can hurt economy.”)

But sure enough! Out on the Post's front page, this news report is telling the world that the GOP has abandoned its threat! Like the Times, the Post arrived at the scene of the fire just as the flames were extinguished.

In the past few weeks, we’ve been struck by the press corps’ failure to start explaining this topic. The fiscal cliff was resolved at the start of the year. At that time, the nation began moving toward a “potential catastrophe.”

But days went by, then several weeks, and our big news orgs made no attempt to explain this matter to the public. And by the way—the issues involved here are complex and confusing. How many people understand this matter, even after reading the reports which appeared in the past few days?

Here's the way Lowrey’s report started in yesterday’s Times. How many readers understand the highlighted passages?
LOWREY (1/18/13): By mid-February or early March, the United States could face an unprecedented default unless it raises its debt ceiling, the Treasury Department said this week.

Some legislators have theorized that a quick breach in the debt ceiling might cause only a minor disruption to government finances. And some commentators have suggested that the United States could pass legislation to prioritize or guarantee payments to bondholders, thus erasing what they describe as the worst of the financial market reaction and removing the threat of technical default.

But experts in government finance and markets described running up against the debt ceiling as an event that might quickly precipitate a financial crisis and eventually lead to a recession—an event with far greater disruptive potential than the “fiscal cliff” package of tax increases and spending cuts, a government shutdown or even the collapse of Lehman Brothers.
According to Lowrey, the failure to raise the debt limit could have caused “a financial crisis;” it was a potential catastrophe. That said, how many New York Times readers understand what “technical default” is?

How many readers could really explain what “default” is at all?

We'll guess the number is small. Later, Lowrey offered what follows. Do you understand what this means?
LOWREY: A standoff in the debt ceiling—even a brief one, with bondholders paid on time—might also raise the country’s borrowing costs permanently. “It is not assured that the Treasury would or legally could prioritize debt service over its myriad other obligations, including Social Security payments, tax rebates and payments to contractors and employees,” Fitch, the major ratings agency, said on Tuesday. “Arrears on such obligations would not constitute a default event from a sovereign rating perspective but very likely prompt a downgrade even as debt obligations continued to be met.”
How many Times readers could explain that paragraph? Could explain what “bondholders” and “ratings agencies” are? Could explain what “a default event from a sovereign rating perspective” might be?

We don’t offer this as a criticism of Lowrey; her report contained a lot of information about what would happen if the federal government ran aground on the debt limit. We especially like the granular detail with which she explains what might happen on February 15. Rather, the way she explains what could have happened on that date, if the Times had published her report before the threat was settled.

Goldfarb’s outdated report in the Post is informative too. But how many readers understood the way he started?
GOLDFARB (1/19/13): As Washington debates whether to raise the limit on government borrowing, an earlier conflict over the debt ceiling offers a cautionary tale about how brinksmanship can damage the economy.

The U.S. economic recovery was chugging along in the summer of 2011 when a partisan fight broke out over whether Congress would raise the federal debt limit and avoid a national default.
How many readers of the Post could explain what “a national default” is? We’ll guess the number is small. But Goldfarb continues to use such terms without attempting an explanation. Before long, he tells us this:
GOLDFARB: The Treasury Department says the government will be unable to meet all its obligations at some point between the middle of February and early March unless Congress allows for more borrowing. If it does not, Treasury says the government would default—and most economists say this would severely hurt the economy.
We will guess that very few readers can really explain the highlighted passage. How many such readers could explain why Fox News has been saying, perhaps correctly, that a default wouldn’t have to occur if the debt limit goes blooey?

(We asked that question, and Kevin Drum answered. To review what Drum said, just click here.)

For the past few weeks, the United States has been facing a “potential catastrophe”—a “default” which “would severely hurt the economy.” But so what? The Post and the Times dragged their feet in the face of the impending disaster. Only in the past two days did the mighty papers get off their keisters and start explaining how this fandango works. And trust us:

These first explanations leave much unexplained. In a more rational world, these newspapers would have started explaining long ago, with the expectation that they would have to explain early and often.

Alas! Information plays almost no role in our public discourse. Occasionally, our big newspapers pretend to explain matters such as these. But the Post and the Times aren’t especially skilled at this task, and information is rarely the fuel which drives our national discourse.

Our biggest newspapers rarely stoop to explain. Among other points of incomprehension, this helps explain decades of mass confusion about the claim that Social Security will be going “bankrupt.”

In this case, the public wasn’t invited to get involved in a robust discussion of a potential catastrophe. (Among other things, this helped obscure the recklessness of the GOP's threats.) Instead, the matter was settled in quiet rooms. The GOP bowed to forces which made their pleas behind a set of closed doors.

We were struck by the sloth of the Post and the Times as weeks passed without an attempt to start this vital discussion. In the past two days, the mighty newspapers finally arrived at the scene of the fire. But alas!

The papers arrived at the scene of the fire right after somebody snuffed out the flames! So it goes when our biggest news orgs conduct our Potemkin discussions.


  1. Interestingly, the discussion of the concept of 'default' is one time when analogies to household budgeting might actually help enlighten the reader. Most people would understand what happens when the cash-stapped individual fails to pay the mortgage, the gas bill, the bar tab, the credit card bill, etc. It might take a month or two, but eventually bad things happen...

  2. Interestingly, the household analogy is wholly inapt. If the household runs out of cash or borrowing ability, it could de die what bills to pay such as the mortgage but not the credit card bill, the gas but not the water. The government has no such ability. Enabling legislation would need to pass Congress setting forth in detail what and in what order payments could be made. This is where Toomey's idea falls down. Yes, there is cash coming into the coffers but no ability to pick and choose which obligations to meet.
    Without an increase in the debt ceiling, no ability to sell new bonds, bills or notes to have sufficient cash to meet all of the outstanding obligations.

  3. IMHO the media has done an even worse job of covering the other economic threat, the ongoing deficit. E.g., Fitch warned that,

    A failure by Congress to raise the debt limit "in a timely manner" could lead to a downgrade of the nation's AAA credit rating

    But, Fitch also warned that

    The failure to come up with a plan that would reduce the long-term deficit while not damaging the economic recovery also could lead to a credit-rating downgrade.


    IMHO the former warning received more extensive coverage than the latter warning.

    1. You're focusing on the credit rating -- it's been downgraded in the past -- to no effect!

      Other than *Fitch's* threat (we'll downgrade your rating), you have no evidence that "the ongoing deficit" represents a threat to the economy of the USA.

      Also, you are happy to gloss over the fact that if you interpret Fitch as saying that the deficit is problematic, you must also give equal weight to the fact that it is described as important in "the long term," not immediately, and that equal weight is given to the importance of "economic recovery."

      In contrast to the "long-term" deficit, economic recovery is important immediately.

      Most (yes, most!) economists of course, understand that 1) economic recovery is greatly threatened by any immediate reductions in government spending, and 2) economic recovery is the single greatest source of deficit reduction.

    2. Would that be the same Fitch -- along with Standard & Poor's and Moody's -- which gave mortgage junk bonds AAA ratings?

      And you, David in Cal, find these companies trustworthy and reliable, in view of their demonstrated lack of ability to evaluate securities at the most rudimentary level, much less macro-economies?

      In this respect we might learn something from Warren Buffett. When asked, as a principal shareholder of Moody's, what he intended to do about Moody's shocking and shameful failure of basic due diligence, Mr. Buffett replied "nothing", because he never interferes with a successful business model.

      And these are the same agencies you're quoting to make a case about the economy?

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