The Argentine dolores de cabeza comes to USA

Given how heated the fiscal cliff negotiations were, a short-lived partial government shutdown and default emanating from the federal debt ceiling cliff cannot be completely ruled out. Such a tail-risk event would likely have shattering consequences for the credibility of the US government and the entire economy, particularly if it lasts more than a few weeks.
If investors fear for warnings about how America’s addiction to deficit spending is going to make the economy look like Greece’s, they can stop fretting. The bigger concern is that America will look like Argentina.
That could happen, theoretically, if the threatened refusal by Republicans in the House to raise the federal debt limit leads to a default on US government bonds. How bad could it be? Think about it this way: Because of lawsuits over Argentina’s 2001 default on nearly $100 billion in sovereign debt, President Cristina Fernandez de Kirchner rents a private jet for state visits abroad. That’s because she fears that her presidential plane (“Tango 01”) would be seized by creditors the moment it lands in a foreign airport.
It may sound far-fetched that the family car of a low-level US consular official gets pulled over and impounded in Beijing, or that Obama’s checking account gets attached by a Hedge Fund. But the US government itself has said that some US court rulings against Argentina – such as those allowing creditors to seize Argentine property in the US – could backfire against the nation. The State Department and Treasury said in a brief last April that they’re concerned that the rulings could encourage foreign courts to “issue like orders against the United States and its property abroad.” That would undermine the principle of sovereign immunity that protects US diplomatic personnel, embassies and military assets overseas.
A US bond default, even if “technical” and even if it lasts a day, could put the economy into unchartered territory. Argentina also thought all the existing consequences of its post-default settlement were far-fetched. The settlement entailed a loss to bondholders of 70 cents on the dollar. Owners of seven percent of the defaulted bond refused to trade in to the settlement, and the Argentine Government underestimated the subsequent tenacity of the holdout “vulture funds”.
With the game of brinkmanship being played by the House Republicans, the dolores de cabeza (headache) of Argentina will set sail to US homeland.
Technically speaking, the government has already breached the debt limit, but the US Treasury’s ability to move accounts around has staved off an actual breach for a few weeks or so. If Congress fails to act by then, the consequences for the US economy and global financial markets could be dire. Interest rates could spike, the recession could return, the federal deficit could soar. That’s just for starters. Much of the financial system depends on US government debt being risk-free, and if that gets called into question, the domino effect could happen to all kinds of other assets.
The Government is being held hostage by House Republicans, who are vying for deeper public spending cuts to accompany the raising of the debt ceiling. Ideas to circumvent the intransigence of the House Republicans and stave off default have yet to come to fruition. Until that does, the government is at the mercy of the House GOP and the whims of potential holdout bondholders, the kind that have plagued Argentina.
International political and economic relations are flammable enough to not throw additional, and entirely unnecessary, kindling on the fire, as Argentina has already learned. The people in Congress who think it’s no big deal to see how high the flames might go should be called by the right label. They’re arsonists.