"A U.S. State on the Verge of Default: A Simulation… Or Is It?"

From Real Time Economics:

The scenario: It’s 2013. The third largest U.S. state — dubbed New Jefferson — faces a $1.5 billion bond payment and its governor and legislators are gridlocked. The governor calls Washington and asks for an emergency loan to avoid default and another $10 billion to tide the state over. The chairman of the National Economic Council — played by Robert Rubin, who actually held the job in the Clinton White House, convenes a meeting. The audience at the Economist magazine’s Buttonwood conference in New York Monday afternoon watches as Rubin listens to the Treasury secretary (played by Laura Tyson, another Clinton White House veteran), the Fed chairman (played by former Fed governor Laurence Meyer), the chief of staff (played by former Bush chief of staff Joshua Bolten), and the chairman of the Council of Economic Advisers (played by Glenn Hubbard, who held that job in the Bush White House.)

But at times, it’s hard to tell what’s simulation and what’s reality. Tyson inadvertently refers not to the fictional state of New Jefferson, but to California –- and then catches herself, saying that California isn’t quite as bad off as the fictional N.J.  Rubin makes skeptical remarks about “quantitative easing” to Meyer, betraying some skepticism of the Fed’s likely next step in real life. He frets about “monetizing the debt.” When someone suggests tapping the Treasury’s Exchange Stabilization Fund –- used to aid Mexico in the mid-1990s and to insure money market funds in 2008 –- Rubin reminds everyone that after those two episodes, Congress specifically forbid that use again –- and wonders if using the ESF to help a state would produce the same result. After Tyson derides former Treasury Secretary Hank Paulson for being inarticulate, Rubin defends him as “courageous.”...MORE