Finally a difference of opinion with Krugman

There’s a reason he’s been called Krugtron. Oppose him at your peril. 

Nevertheless, I’d personally play down the ‘financial catastrophe’ angle of failure to raise the debt ceiling. 

Krugman in today’s NYT: “it looks quite possible that default would create a huge financial crisis”.

I think it would certainly hurt from a GDP point of view, through the cuts and the fiscal multiplier, but I don’t think it would trigger a flight from the Treasury market / dollar, since the Treasury market’s main virtue is liquidity. Yes, that liquidity was probably founded on (lack of) repayment risk (although I’d be open to arguments otherwise), but it is probably self-sustaining, at least for a while yet. And that’s a shame. Because if there’s one thing the US economy needs, its less of the “exorbitant privilege” of cheap financing for trade deficits. The economy needs a weaker dollar.
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