Man on fire on National Mall in Washington

Catastrophic Consequences of a U.S. Default Explained

House Speaker John Boehner has said he won't let the government default on its debt, but until steps are taken to raise the nation's debt ceiling, the possibility of default is still theoretically alive.

"If they seriously default on the debt, what we're really talking about is a depression," says veteran financial sector analyst Richard Bove, VP of research at Rafferty Capital Markets. In the attached video he explains how the fallout would be a lot worse than the recession suffered in 2008 and the aftershocks would be felt for at least a decade.

"The first thing you have to do is look at who holds the debt," Bove says of the $16.7 trillion of bonds the U.S. currently has outstanding. "The first, biggest owner (of U.S. debt) is the social security fund, so you'd have all of these people who are receiving social security payments who now have to question whether they'll get their payments."

Clearly, that would cause a huge disruption to millions of Americans. But Bove says that is only the beginning since the second biggest holder of Treasuries (at about 12% of the total) is the Federal Reserve, which has "91% of its assets backed by U.S. government debt."

If the value of those assets were to decline, which they indisputably would in a default, Bove says the net effect would be that "we have nothing of value backing the dollar."

They're actually "Federal Reserve Notes" as well as the number one asset of choice held in the reserves of governments and businesses all over the world. A plunge in Treasuries would also devalue the dollar, which would instantly make everything we buy more expensive, and in turn destabilize countries and economies all over the world.

"Eleven-percent of all U.S. debt is owned by the Chinese," he says. "That $1.4 trillion represents about a third of the reserves of the People's Bank of China, so what we've now said to the PBOC is, 'Watch out, we may hit the value of a third of your assets and you can't do anything about it.'"

And this isn't even half of it.

As Bove explains, money market funds, which are used by virtually every person with a savings or investment account, are also "heavily loaded with Treasuries." So are most bond funds and so-called balanced funds (growth and income funds). A default on U.S. debt would not only cause money funds to "break the buck" --not be able to pay 100-cents for each dollar invested)-- but would also cause forced selling by countless other funds that are mandated to immediately sell any asset that has defaulted.

"That could easily put $750 billion of Treasuries on to the market" Bove says, inferring that rates interest rates would also spike, and normal borrowing/lending transactions would end.

Speaking of banks, the U.S. banking industry holds over a trillion dollars worth of Treasuries and another trillion dollars of government issued mortgage-backed securities, Bove says. If those bonds were to go down in value, he says the banks would also have to "write down the value of those assets and, in essence, wipe out their equity." It would make the banks insolvent.

To summarize, Bove asserts that a default is unthinkable because it would trigger a huge reduction in the value of U.S. debt, which would go beyond disrupting social security payments. A default would upend money markets, destroy bond funds, slam the brakes on lending, cause interest rates to spiral, make our banks insolvent, and deal a blow to our foreign trading partners and creditors around the globe; all of which would throw the U.S. and the world into economic disarray.

Be afraid: Why a default would be catastrophic

If the government actually defaults on its debts, "we have nothing of value backing the dollar."
Worse than 2008 recession

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Authorities enter an apartment building in Stamford, Connecticut October 4, 2013. REUTERS/ Michelle McLoughlin

By Edward Upright

NEW YORK (Reuters) - Police in Washington could have avoided shooting dead a woman pursued by officers in a car chase that led to the lockdown of the Capitol this week, the driver's sister, former New York police sergeant Valarie Carey, said late on Friday.

The family of Miriam Carey, whose one-year-old daughter Erica was in the car with her during the encounter with police on Thursday, has said she suffered from post-partum depression.

Carey, 34, a resident of Stamford, Connecticut, tried to drive her black Infiniti coupe through a barrier near the White House, then sped toward Capitol Hill, leading police on a high-speed chase that ended when her car got stuck on a median and police shot her.

"My sister could have been any person traveling in our capital," Valarie Carey told reporters outside her Brooklyn home. "Deadly physical force was not the ultimate recourse and it didn't have to be."

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Authorities enter an apartment building in Stamford, Connecticut October 4, 2013. REUTERS/ Michelle …

The chase and shooting came at a time of high political tension in the U.S. capital with Congress debating how to resolve the shutdown of the federal government. The Capitol was locked down after the shots were fired.

In another incident that caused alarm in Washington, a man appeared to have set himself on fire at the National Mall on Friday. He was listed in critical condition at a hospital.

Law enforcement sources said Carey did not shoot a gun and there was no indication she had one.

"I'm more than certain that there was no need for a gun to be used (by police) when there was no gunfire coming from the vehicle," Valarie Carey said. "I don't know how their protocols are in D.C., but I do know how they are in New York City."

Representatives from the Capitol Police and the District of Columbia's Metropolitan Police Department could not be reached for comment early on Saturday.

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Authorities prepare to search an apartment building in Stamford, Connecticut October 4, 2013. REUTER …

DEPRESSION

The Metropolitan Police Department said in a statement the shooting is under investigation by its internal affairs division with assistance from the Secret Service, the Capitol Police and the FBI.

A Secret Service officer was struck by Carey's car outside the White House during the incident on Thursday, said U.S. Secret Service spokesman Ed Donovan.

A Capitol Police officer was hurt when his car struck a barricade during the mid-afternoon chase, which ranged over about a mile and a half and lasted just a few minutes, officials said.

At the news conference in Brooklyn, Carey's other sister, Amy Carey-Jones, described to reporters the struggles her sibling had with post-partum depression.

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Authorities prepare to search an apartment building in Stamford, Connecticut October 4, 2013. REUTER …

"I can tell you that she was a law-abiding citizen, carefree and loving. She had a baby and she did suffer from post-partum depression with psychosis," Carey-Jones said, adding that her sister had been receiving medication and therapy.

The visibly emotional sisters held hands during the news conference. They had traveled to Washington earlier in the day to identify their sister to authorities with the use of photos, Carey-Jones said.

Investigators are focusing on whether Carey had mental problems that triggered her actions, said a U.S. official, speaking on condition of anonymity.

Eric Sanders, an attorney for the Carey family and a former New York police officer, said the woman's relatives have not decided whether to take legal action.

Carey's daughter was unharmed when taken in by the District of Columbia Child and Family Services on Friday, said Mindy Good, a spokeswoman for the agency.

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Authorities prepare to search an apartment building in Stamford, Connecticut October 4, 2013. REUTER …

Carey was a licensed dental hygienist, according to records kept online by the state of Connecticut. She had been employed at a dental office but at the time of her death was no longer working there, said Carey-Jones, who declined to go into detail about her sister's work.

(Writing by Alex Dobuzinskis; Editing by Janet Lawrence)

The undercover narcotics cop did not intervene in the beating out of fear that his cover would be blown, sources said.

The cop's identity has not been released by the NYPD. According to officials, the officer notified his superiors days after the incident. He was a motorcyclist who was there on his own time, they said.

The information is part of the ongoing investigation by the NYPD and the Manhattan district attorney into the confrontation and beating that happened Sunday afternoon between a group of 20 to 30 motorcyclists and Lien, caught on video and uploaded to the Internet.

The officer's involvement is also the subject of an Internal Affairs investigation, sources said.

Lien was driving his SUV on the West Side Highway in Manhattan with his wife and 2-year-old as part of a wedding anniversary celebration around 2 p.m. Sunday when their SUV was surrounded by the motorcyclists, who were doing an annual ride through the city, police and Lien's wife said.

The bikers tried to slow traffic and one biker cut Lien off, slowing down and leading Lien to bump into the biker, police said. The group of motorcyclists then slowed down further and surrounded the SUV, causing Lien to accelerate away from the group. Lien's wife, Rosalyn Ng, said that her husband feared for their lives when he decided to take off to get away from the group. As he sped off, Lien hit some of the motorcyclists, critically injuring one, authorities said.

Other motorcyclists then chased Lien's SUV and then bashed in his windows, pulled him out of the car, and beat him, police said.

The undercover police officer was at the scene where Lien was beaten, officials said.

The prime suspect of the beating is still at large, though he could surrender to cops as early as this evening, officials said.

A source briefed on the case told ABC News that in the days since the attack "new evidence has been coming in and it will give prosecutors much better evidence for charging the attackers."

The new evidence includes additional video footage and stills compiled from a variety of cameras that were situated around the scenes of the chase and melee, the source said.

Great Plains storm brings both snow, tornadoes

SIOUX FALLS, S.D. (AP) — The storm system that covered parts of Wyoming and South Dakota in heavy, wet snow also brought powerful thunderstorms and tornadoes to the Great Plains, causing millions of dollars in damage.

The storm dumped at least 33 inches of snow in a part of South Dakota's scenic Black Hills, National Weather Service meteorologist Eric Helgeson said Friday afternoon. Thunderstorms rolled across the Plains later in the day, with witnesses reporting tornadoes in Nebraska, Iowa and South Dakota.

No one died in the tornadoes, reports said, but snow was blamed in the deaths of three people who were killed in a traffic accident on U.S. 20 in northeast Nebraska.

Forecasters said the cold front would eventually combine with other storms to make for a wild — and probably very wet — weekend for much of the central U.S. and Southeast.

Wayne, Neb., saw some of the greatest damage from tornadoes where at least four homes were destroyed in the town of 9,600.

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A house damaged by a tornado, in the background, sits among the damage Friday Oct 4 2013 in Wayne, N …

Mayor Ken Chamberlain said at least 15 people were injured, but none was life-threatening and seven stemmed from two separate car accidents. Chamberlain said all of the residents in the northeast Nebraska town were accounted for, but the storm caused millions of dollars in damage to an area that includes businesses and the city's softball complex.

In northwest Iowa, a mile-wide tornado touched down near the town of Cherokee, cutting a 2- to 3-mile path through farmland but missing any population centers, the state Department of Homeland Security said.

Meteorologists with the National Weather Service said they were still trying to figure out exactly how many tornadoes touched down Friday evening.

Snow postponed the annual Octoberfest in Deadwood, S.D., including Friday night's dancing-and-singing pub crawl and Saturday's Wiener Dog Races and Beer Barrel Games.

Julie Lee said she and fellow members of the White Rose Band had barely unloaded their instruments in the Old West casino town before the heavy snow started falling and closed part of Interstate 90, the area's only interstate. The interstate was closed from the Wyoming border to Murdo by Friday night.

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Zack Ruml, 20, of Rapid City, S.D, lifts a heavy crab apple tree branch off of his 1998 Pontiac Gran …

"Our car is like an igloo," said Lee, who sings and plays the clarinet and saxophone for her North Dakota-based polka band. "I'm glad we got everything out."

Officials were warning drivers to stay off the roads in the Black Hills and in eastern Wyoming, where reports of 5 to 10 inches of snow were common. Forecasters urged travelers to carry survival kits and to stay in their vehicles if stranded. The storm system also blanketed Colorado's northern mountains with snow.

"I've lived in Wyoming my whole life and I've never seen it like this this early," Patricia Whitman, shift manager at the Flying J truck stop in Gillette, said in a telephone interview. She said her truck stop's parking lot was full of travelers waiting out the storm.

Although early October snowfalls aren't unusual for the region, a storm of such magnitude happens only once every decade or two on the Plains, National Weather Service meteorologist Steve Trimarchi said.

"I couldn't say when the last time we've had one like this. It's been quite a while," Trimarchi said.

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Ronnie Tonuci, 21 of Rapid City, S.D., puts gas in his pickup truck after it ran out in the middle o …

The cold front is moving slowly east and expanding south and will meet up with the remnants of Tropical Storm Karen on Saturday or Sunday once that storm makes landfall along the Gulf Coast.

Though much of the Midwest and Southeast may get soaked, it won't be as devastating as past combination storms, such as Superstorm Sandy, said William Bunting, operations chief at the Storm Prediction Center in Norman, Okla.

The Midwest — especially Kansas, Nebraska and Iowa — will see the highest risk for large thunderstorms, tornadoes and hail, "perhaps baseball-sized," Bunting said.

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Associated Press writers Grant Schulte in Lincoln, Neb., Seth Borenstein in Washington, D.C., Chet Brokaw in Pierre, S.D., Steve Paulson in Denver and Bob Moen in Cheyenne, Wyo., contributed to this report.

Rare early storms bring snow, tornadoes

The storm that causes big snow in South Dakota, Wyoming also causes costly damage to other states.
More threats coming