Financial TimesFinancial Times

America is hurt by its debt ceiling theatre of the absurd

By Martin Wolf

16 May 2023 · 4 min read

Editor's Note

"In games of chicken such as this, collisions do happen." As Republicans and Democrats fight over raising the debt ceiling, the FT's Martin Wolf warns of the consequences of "voluntary default."

How is one to assess the possibility of a voluntary default by the world’s most important country? Is something as mad as this really likely to happen? What might be the consequences if it did? These questions are impossible to answer. This is not because it is a “black swan” — that is, unimaginable. A US default falls instead into a broad category of “known unknowns”, that is unforecastable, high-impact events. The financial crisis of 2007-09, the pandemic and Russia’s invasion of Ukraine were of this kind.

Such events are impossible to predict because of their rarity and the complexity of their causes. We do not know enough to predict when and in what form the next pandemic will emerge, when and where someone will start a war or if US politicians will destroy the credit built up by their country over centuries. Yet we know that such shocks do happen. They are a part of our reality.

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