National Lampoon had a magazine cover years ago with the picture of a dog with a gun to his head. The magazine cover was, "Buy this magazine or we'll shoot this dog."
Eric Cantor (from the Latin meaning, can't do, referring to someone who obstructs progress), has essentially become a financial terrorist, holding the state hostage to his tax cutting demands.
Not raising the debt limit means insisting that the budget be instantaneously balanced. Cantor refuses to raise taxes a penny, so he's essentially demanding that the federal budget be cut by about 1/3 or more. The implications of this are many, but here are the highlights:
1. The deficit is about $1.5 trillion a year. The American economy is about $15 trillion. So, Cantor is threatening to eliminate about 10% of the total number of jobs in the US economy, more than doubling unemployment in a time of already high unemployment. This means that folks at the EPA will be let go, as will military personnel, government contractors, research scientists (some on government grants and some actually employed as government scientists), etc. Unemployment would, overnight, jump from about 9% to nearly 20%.
2. The implications of the above is a ripple effect into the private sector and into local governments. Dry cleaners by the air force base, sandwich shops by the Pentagon, and car rental staffs around the country are just a few of the thousands of businesses that will layoff in response to a severe drop in demand from former government employees and contractors. This, alone, would raise unemployment another 2% to 10%.
3. It is hard to imagine that the government would be able to quickly respond as described in the first bullet. This means that the budget will also be "balanced" by stopping payment on government debt. The implications of this include (paradoxically) a huge surge in interest payments as agencies lower the rating on government debt. A default would ripple through credit markets, raise interest rates on most every kind of loan (most are tied to government rates), and trigger a fresh round of mortgage defaults, and further contraction in hiring and expansion from a private sector that has just begun to (slowly) expand in this year. This, alone, would raise unemployment by another 2% to 10%.
4. Worse, this would ripple out from the US to the rest of the globe. The 2008 financial crisis destroyed trillions in wealth and millions of jobs. This Cantor-induced default on debt payments would screw up credit markets around the world, particularly the already shaky euro market.
In short, what Cantor would do is plunge us into a depression just as we're (barely) recovering from a recession
One thing that Cantor does make clear, though, is that this determination to reduce the size of government does not come from a vision of economic prosperity, an actual belief that the economy will thrive in response to smaller government. This is, instead, an ideology that has to do with a belief in little or no government rather than a commitment to a healthy and growing economy. Like the Taliban, Cantor is committed to an ideology that has nothing to do with normal measures like poverty reduction, rises in income, or low unemployment.
Cantor has the world economy hostage. One can only hope that voters will realize what a calamitous mistake this is when he next comes up re-election. Then maybe he can go in to real estate and see how much success he has selling houses only to families who can afford down payments that are 100% of the purchase price, avoiding debt and living within their means.