CNBC’s Michelle Caruso-Cabrera Schools Morning Joe Panel On Potential Government Default

The Morning Joe crew, along with much of the liberal media, has lately been ringing the debt-ceiling alarm, saying that a failure to raise the debt ceiling by October 17 would cause a default that would devastate the U.S. economy. But on Friday’s Morning Joe, CNBC’s Michelle Caruso-Cabrera stepped onto the set and took a wrecking ball to the wall of hysteria surrounding a possible default.

With the air of an economics professor, Caruso-Cabrera educated the other panelists, attempting to set right their erroneous impressions: [See video below.]


 "Default is a very definitive thing, right? It’s if we do not pay interest on the U.S. government debt. If you pay things late, that's not a default. The chances of a default happening are slim to none. Almost zero. And we see that in the bond market because if the bond market thought that bonds weren't going to get paid, they would be selling them and they're not."
 

Her more liberal colleague Brian Shactman pushed back, trying to keep the fear alive, but Caruso-Cabrera put the matter in a historical perspective: “ In the history of the world, there have been many, many times where governments have lost their ability to borrow. And when they lose their ability to borrow and yet they have to borrow to fund, they literally have to balance the budget overnight.

Caruso-Cabrera laid out the top three priorities of past countries that have found themselves in such a tight situation:
 

"[Y]ou pay interest on the debt because, gosh, you don't want investors to think you're not going to pay it because you really need them to start giving you money. You pay the military because you fear a coup, and you pay Social Security to the elderly.... Treasury so far has refused to say that that would be the priorities. They're saying, oh, we don't have the ability to do that."
 

Reminds you of the sequester, doesn’t it? Obama administration officials have the flexibility to decide how to allocate limited funds, but they pretend they don’t. They pretend that excruciating economic pain is inevitable. It’s no wonder liberals believe a default would bring an economic collapse – the alternative would be to undertake true austerity, which they would hate to do.

Caruso-Cabrera essentially called "B.S.!" on the Treasury Department:
 

"This is a government that can read every e-mail, follow every phone call, look at every social interaction but it tells us that it can't pay U.S. debt before it pays everything else? Nobody's going to believe it."
 

Co-host Mika Brzezinski sat in stunned silence throughout most of the segment, but near the end she finally spoke up and grudgingly half-agreed with Caruso-Cabrera. "I do think that perhaps catastrophic is overstated unless it progresses. That's fair, right? For a long period of time," the Morning Joe sidekick admitted.

Shactman had a harder time admitting that Caruso-Cabrera was right. He repeated three times throughout the discussion that people don’t know what’s going to happen if the government hits the debt limit. That was his best hope of keeping people afraid.

Brzezinski, meanwhile, seemed to be shaken by hearing a different opinion on the debt ceiling on her show for once. At the end of the segment, she muttered in amazement, “Oh my Lord. Okay. We bring all points of view here.”

Below is a transcript of the complete discussion:

MIKA BRZEZINSKI: In the process, what do you make of the shutdown and then bring us to the debt ceiling debate.

MICHELLE CARUSO-CABRERA: Okay. So look, I've got one major thought. I have one major thought which is we keep hearing talk about default and just yesterday U.S. Treasury put out a report that was very alarmist about us defaulting on our debts. Default is a very definitive thing, right? It’s if we do not pay interest on the U.S. government debt. If you pay things late, that's not a default. The chances of a default happening are slim to none. Almost zero. And we see that in the bond market because if the bond market thought that bonds weren't going to get paid, they would be selling them and they're not.



BRIAN SHACTMAN: Here's where the problem is. Fear. Uncertainty. These are cliches on Wall Street.

CARUSO-CABRERA: But they impact the economy.

SHACTMAN: Right. So if there’s -- investors don't want uncertainty, that means they need an excuse to sell. If they sell or if the cost of borrowing goes up, then people will constrict their borrowing. And it’s a snowball effect that has nothing -- you may be right.

CARUSO-CABRERA: Right.

SHACTMAN: But that doesn't mean it could not still have a dramatic impact on the economy.

CARUSO-CABRERA: But see, here's where the impact I think is going to come. Every time the Treasury talks about something being so catastrophic -- I mean they put it in terms of, like, Lehman failure, that bad. Chances of that are very, very low. So instead what they've done, they’ve sold off –

SHACTMAN: But you don't know. That’s –

CARUSO-CABRERA: You pretty much know.

SHACTMAN: The reason why AIG was so scary because you didn't know what was on the other side of the precipice. And people don't know.

CARUSO-CABRERA: Here's what you do know. In the history of the world, there have been many, many times where governments have lost their ability to borrow. And when they lose their ability to borrow and yet they have to borrow to fund, they literally have to balance the budget overnight. So what does that mean? You get all this tax revenue in every day. And you have to make choices about where that money is going to go, right? And what has historically always been the case all over the world, you pay interest on the debt because gosh, you don't want investors to think you're not going to pay it because you really need them to start giving you money. You pay the military because you fear a coup, and you pay Social Security to the elderly. Those are the three priorities. Treasury so far has refused to say that that would be the priorities. They're saying, oh, we don't have the ability to do that.

HAROLD FORD JR: All or nothing for them.

CARUSO-CABRERA: They almost suggest it's technical. The bond market doesn’t believe them. This is a government that can read every e-mail, follow every phone call, look at every social interaction but it tells us that it can't pay U.S. debt before it pays everything else? Nobody's going to believe it. And so far there’s nothing – you see teeny little movements in CDS, in short-term rates but not even an eighth of a point, .005 on a one-month bill? I mean, it’s hardly catastrophic. You know what, I would like it if the bond market would move. You know why? Because everybody would finally come to the table.

SHACTMAN: It would force you to do something. I just think you don't know what's going to happen.

BRZEZINSKI: It would bring everyone to the table.

CARUSO-CABRERA: It would. You know what I'm surprised about, is they've used -- look, we've been through this so many times. And the White House always says the consequences are dire. Usually what they threaten is Social Security. This time they've tried to work the bond market and Wall Street. That hasn't been very effective because they don't believe it. If you threaten Social Security, then everybody starts calling in, right? Every member of Congress is flooded with phone calls. That's what gets people back to the table.

BRZEZINSKI: So a short –

CARUSO-CABRERA: Even though I don't think that would be true, either.

BRZEZINSKI: I do think that perhaps catastrophic is overstated unless it progresses. That's fair, right? For a long period of time.

CARUSO-CABRERA: A possible -- a sharp recession, yes. Catastrophic, over the cliff, looking into the abyss? No.

BRZEZINSKI: Oh my Lord. Okay. We bring all points of view here. Michelle Caruso-Cabrera, thank you.

Paul Bremmer
Paul Bremmer is a Media Research Center News Analysis Division intern.