If the BPC is correct in their numbers, it is unlikely that the U.S. government would default on interest payments to investors.
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Congress could either provide guidelines to the executive on how default spending reduction is to occur or it could give the president authority, after paying all interest on the debt and Social Security payments, to whittle spending down as it sees fit to squeeze it within the debt limit.
They argue that such a rash move will cause the U.S. to default on outstanding debt obligations, thereby sending interest rates sharply higher across the board.
One way to visualize the damage from ZIRP is to recognize that the spread between real and nominal interest rates is analogous to the spread between rates on default-free and risky debt.
The simultaneous contracts could be arranged to replicate any agreed interest rate while providing legal protection against default on one side and loan sharking on the other.
At an earlier hearing, Mr McKillen's lawyer, Shane Murphy, told the court his client was continuing to make interest repayments on all his loans, no default notices had been issued by the banks and even loans that had expired had been assessed by Nama as performing.
Indeed, using more sophisticated means, including comparing T-bill rates to interest on commercial paper, the authors conclude that default led to a persistent increase in T-bill rates and, therefore, higher borrowing costs for the federal government.
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In the meantime, threatening default on the interest payment is an important club Clearwire has to swing at Sprint.
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And others may judge that an interest rate big enough to compensate for the risk of default would only add to the pressure on Greece, making default more likely.
Right now, if Greece were to default on its debt and lose all external financing, it would be forced to immediately cut its non-interest spending from 43.9% of GDP to 39.0% of GDP.
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