to the limit. Because the fact of the matter, we do not...
AMANPOUR: And default?
KRUGMAN: Possibly, if -- if we have complete -- if we have demands
for a large change in policy under threats of debt limit. This has to
be the point where you say, no, we don't believe in letting hostages be
AMANPOUR: Do you -- I mean, do you agree with that?
ALTMAN: No, I don't. I respect Paul, but I don't. I think default
would be a profound and hugely negative step. I think it would be
terribly destabilizing. I think it would reduce the amount of
institutions around the world that would, in the future, buy Treasury
debt and be...
KRUGMAN: But let me make my case here. We...
OK, but let me just say, we have an enormous budget dispute. We
have vastly opposed poles of policy. That's not something we should
resolve with a, you know, with a bomb hanging over our head. It's not
something we should try and change. And so Democrats have to make clear
that they're not going to let themselves be blackmailed in that way.
HOLTZ-EAKIN: The first choice is real solutions, so real cuts in
the near term, real targets over the medium term and real changes in the
It has to be -- the most convincing thing for markets is the actual
changes in the policy. It's what Americans know has to be done and it's
what would be best for the country. The backup is just a framework; we
promise to hit this target or that target with enforcement -- that's
less compelling. It might be easier to say, but less compelling.
AMANPOUR: An article -- a story that's in The Washington Post
today, talking about the negotiations between Vice President Biden and
congressional leaders, talking about federal pensions and what would
amount to about a 5 percent cut in salary. Does that -- is that a goer?
HOLTZ-EAKIN: I believe, as a matter of politics, the federal
government employees can't be exempt from whatever the deal is. The
perception that somehow everything has to change for Americans, but that
the sheltered few in D.C. are exempt -- nah, it's not going to fly.
BAIR: Can I just say I really -- I'm sorry, but I'm truly
frightened by even suggestions that we could default on Treasury debt.
I think the knock on impact on that would be tremendous. We would lose,
I assume, our AAA credit rating. A lot of institutions who currently
hold Treasuries would no longer be able to hold them. They would have
to liquidate them. That would create tremendous down-pressure on bond
The fact that interest rates would spike in terms of what Treasury
has to pay -- those yields all consumer and business credit price off of
Treasury yields, so borrowing costs for the real economy would go up.
Both consumers and businesses now are very hesitant and uncertain,
so they're not committing capital. If their borrowing costs go up, it
will -- it will be very detrimental to the economic recovery.
So I'm sorry, but I think -- it truly frightens me.
KRUGMAN: No, I'm terrified...
BAIR: I don't think we should be talking about it.
KRUGMAN: But I'm also terrified by a blackmail political system.
AMANPOUR: On that note -- on that terrifying note...
... we're going to have to pick this up another time.