United States Congress sanctions Americans

“It almost goes without saying, but Brian Beutler of Talking Points Memo got Standard & Poor's to say it anyway. "A sovereign's failure to service its debt as payments come due is a default according to S&P's sovereign rating criteria," according John Piecuch, spokesman for Standard & Poors. "In that case, the rating would be lowered to 'SD' (Selective Default)."

A few months ago, S&P revised our credit outlook to negative: that meant they thought there was a slightly higher chance we'd lose our credit rating in the future. That was a bit of a shock to the political system, but this would be the real thing. So it's worth being clear: when you hear Paul Ryan say the market would accept a default “for a day or two or three or four," or Devin Nunes say that “by defaulting on the debt, in the short and long term, it could benefit us to go through a period of crisis that forces politicians to make decisions,” you're not hearing about some alternative to default. To S&P, that'd be a default. They'd lower our credit rating. The market would see our political system diving into an abyss that every other congress and presidential administration in history had considered unthinkable, and they'd see the rating agencies downgrading our debt, and that's plenty of fuel for an epic freak out.

A lot of Republicans get this. Doug Holtz-Eakin, president of the American Action Forum, released a YouTube video detailing the disastrous consequences of default and flatly concluding that "we’re going to raise the debt ceiling.” But the danger is that the Republican Party will want other things -- say, a bill with extremely deep spending cuts but absolutely no tax increases -- more than it will want to raise the debt ceiling. And with enough voices saying that the debt ceiling doesn't need to be raised, and enough other voices saying it can't be raised outside of one-sided concessions the Democrats will not make, it won't get raised.

Five in the morning

1) Moody's and S&P say the debt ceiling battle is risking the US's credit rating, reports Brian Beutler: "Two of the biggest ratings agencies say they could downgrade the United States' triple-A credit if the government misses even a single debt-service payment. 'A sovereign's failure to service its debt as payments come due is a default according to S&P's sovereign rating criteria,' writes John Piecuch, spokesman for Standard & Poors, one of the 'Big Three' credit ratings agencies, in an email to me. 'In that case, the rating would be lowered to 'SD' (Selective Default).' A U.S. analyst for Moody's -- another Big Three ratings agency -- was not available for an interview. But a spokesman referred me to a February report in which they downplay the likelihood that they'll have to reduce the country's credit rating. But it could happen as the result of a major political failure."

2) A bunch of key regulatory posts are still empty, reports Jesse Eisinger: "With Sheila C. Bair soon to leave her post at the Federal Deposit Insurance Corporation, the Obama administration will have five major bank regulatory positions either unfilled or staffed with acting directors. The administration has inexplicably left open the vice chairman for banking supervision, a new position at the Federal Reserve created by the Dodd-Frank Act, despite having a candidate that many people think is an obvious choice: Daniel K. Tarullo. The new Consumer Financial Products Board chairman is unnamed. There are some lower-level positions that don't have candidates, including the head of the Treasury's Office of Financial Research and the Financial Stability Oversight Council insurance post."

3) Senate Democrats won't release a debt plan, reports Lori Montgomery: "Senate Democrats decided Thursday not to release their spending plan to counter the budget blueprint approved last month by House Republicans, saying they will wait to see whether talks at the White House produce a compromise plan for reining in the national debt. Democrats said they are close to agreement on a spending plan that would reduce borrowing by more than $4 trillion over the next decade, with about half the savings coming from higher taxes. That would offer a sharp contrast to the GOP budget, which relies entirely on deep cuts in spending. But rather than subject a proposal for higher taxes to Republican attack, Senate Budget Committee Chairman Kent Conrad (D-N.D.) said he would 'defer' action."

4) The US wants a European to lead the IMF, report Sudeep Reddy, Geraldine Amiel, and David Gauthier-Villars: "The U.S. stood behind the International Monetary Fund's longstanding succession guidelines Thursday--averting rising calls by emerging-market officials for more sway over the IMF and boosting Europeans' efforts to name the next IMF chief...The fund's six-decade tradition calls for appointing a European to lead it, but the post now comes open amid a shift in the longtime balance of global economic power. Emerging-market nations, arguing that their new strength should be reflected in senior management of the IMF, are pressing for more say in the body, which directs the flow of billions of dollars to stabilize the global economy... The U.S., IMF's largest shareholder, isn't supporting developing countries' call."

5) Insurers will have to justify any premium hikes over 10 percent, reports Robert Pear: "Alarmed at soaring premiums and profits in the health insurance industry, the Obama administration demanded on Thursday that insurers justify proposed rate increases of more than 10 percent, starting in September. Kathleen Sebelius, the secretary of health and human services, issued a final rule establishing procedures for federal and state insurance experts to scrutinize premiums. Insurers, she said, will have to justify rate increases in an environment in which they are doing well financially, with profits exceeding the expectations of many Wall Street analysts...Federal health officials proposed the 10 percent threshold in December. The insurance industry criticized it as an arbitrary test that could brand a majority of rate increases as presumptively unreasonable."”