Treasury: New Debt-Ceiling Fight Could Derail Economy

The Treasury Department is issuing a warning of dire economic consequences that could rival the Great Recession if Congress is unable to agree on raising the debt ceiling and the nation defaults on its obligations.

Treasury’s report, entitled The Potential Macroeconomic Effect Of Debt Ceiling Brinkmanship, comes as Congress is still wrangling over a short-term spending bill to reverse a partial government shutdown that went into effect Tuesday. Later this month, House Republicans and Senate Democrats will need to agree to raise the $16.7 trillion debt ceiling or face a possible default.

“[A] default would be unprecedented and has the potential to be catastrophic: credit markets could freeze, the value of the dollar could plummet, and U.S. interest rates could skyrocket, potentially resulting in a financial crisis and recession that could echo the events of 2008 or worse,” Treasury said in a statement.

The department said “political brinksmanship that hints at even the prospect of a default can be disruptive,” (emphasis in report) citing the 2011 debt ceiling impasse, when consumer and business confidence fell sharply, job growth slowed and financial markets were stressed.

Treasury Secretary Jacob Lew warned that “Postponing a debt ceiling increase to the very last minute is exactly what our economy does not need – a self-inflicted wound harming families and businesses.”

Update At 11:20 ET. Obama Echoes Treasury’s Warning

Speaking at a small business just outside of Washington, President Obama echoed the Treasury Department’s dark assessment on Thursday, blaming Republicans’ “obsession” with dismantling the healthcare overhaul for the government shutdown and the looming fight over the debt ceiling.

The president said “the whole world will have problems” if the U.S. defaults on its obligations.

 

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Read original article – Published October 03, 2013 11:09 AM
Treasury: New Debt-Ceiling Fight Could Derail Economy