First a Default, Then a Depression?

This headline appeared today on NBC's website;

First a default, then a depression? Some think so

Damage from a U.S. credit default would be more than bad public relations—it could affect everyone from bankers to pensioners to holders of supposedly sacrosanct money market funds.

In a research note analyzing the various consequences of a debt default, banking analyst Dick Bove pointed to a variety of areas:

Money market funds, which would "break the buck" and deliver negative returns; banks, which would not be able to lend because of the plunging value of the debt securities they own; and Social Security recipients and pensioners, for whom there would be a shrinking pool of funds, also because of the declining value of Treasurys, which are heavily owned by SS funds and institutional retirement plans.

For the first three days of the shutdown, equity market prices experienced just a mild net selloff while bond yields held tight.

Thursday brought a change to that trend, though, as investors heeded a dire message from President Barack Obama, who intimated in a CNBC interview Wednesday that Wall Street was taking the crisis too lightly.

Consequently, stocks sold off sharply and the Treasury Department warned of the dire consequences that might result from a full-blown debt default.

Picking up on that message, Bove said the situation could be more dramatic: A Depression that would cause severe and lasting economic damage.

"The devastation to the United States would be so severe that it would take decades to recover from the Depression caused by a default and the attendant dumping of trillions of dollars of U.S. Treasury securities on the global financial markets," said Bove, vice president of equity research at Rafferty Capital Markets.

Here; http://www.cnbc.com/id/101084623

Can you believe we are living in a day when the President of the USA tells Wall Street that they should take the financial crisis more seriously??

For our system, based on confidence, this type of chatter is not good.

Remember, the Mighty and Powerful Wizard of Oz lost ALL his power when Toto pulled the curtain away to reveal a pudgy man standing on a stool pulling levers.

What if that happens here??