Republicans should insist on trillions of dollars in expenditure reductions now, Mr. Trump said last week during a live town hall hosted by CNN. If the White House doesn’t agree, he said, “you’re going to have to do a default.”Mr. Biden has said that long-term fiscal questions should be dealt with separately from the debt ceiling, which is merely a formality. Nonetheless, negotiations are underway, and Speaker McCarthy insists that a final deal must include long-term spending cuts.Most economists say that when borrowed money is used productively and borrowed at a reasonable rate, deficits need not be a problem. The details matter. But paying America’s debts promptly is essential if financial markets are to function properly.What Credit Default Swaps SayFor the moment, the stock market and the broader bond market are treating the debt ceiling negotiations as a nonevent. Other issues dominate: persistent inflation, high interest rates, bank failures, the possibility of an imminent recession and of a pivot by the Federal Reserve, after tightening financial conditions for more than a year.Th …
