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Friday, October 4, 2013

Treasury Warns Of Debt Ceiling Crisis’ Economic Impact


With less than two weeks remaining for Congress to raise the debt limit, the Treasury Department released a report Thursday revisiting the economic impact of the 2011 debt ceiling crisis, which sent financial markets into a tailspin and slowed economic growth.

The current $16.999 trillion debt limit was reached in May, but Treasury has used creative financing to keep the government functioning normally at that cap. Those measures won’t be enough for the United States to meet its obligations come Oct. 17, Treasury Secretary Jack Lew informed Congress earlier this week.

Warning of “a large, adverse, and persistent financial shock” this time around, Treasury highlighted the impact of lower consumer confidence, slower hiring, and increased market volatility after Congress came close to not raising the borrowing cap in 2011. “Between the second and third quarter of 2011, household wealth fell $2.4 trillion,” the department wrote. “[L]ower stock prices reduce retirement security – from the second to the third quarter of 2011, retirement assets fell $800 billion.”

Treasury warned that the current government shutdown puts the nation’s economic outlook at risk, something that would be exacerbated by another drawn-out debate over raising the borrowing limit. “We may be starting to see some tentative signs that the current debate is affecting financial markets,” the department wrote.

And if Congress does not raise the debt limit, raising the possibility of default if the government is unable to meet its bond obligations, Treasury said the results could be worse than the 2008 “Great Recession.”

“In the event that a debt limit impasse were to lead to a default, it could have a catastrophic effect on not just financial markets but also on job creation, consumer spending and economic growth—with many private-sector analysts believing that it would lead to events of the magnitude of late 2008 or worse, and the result then was a recession more severe than any seen since the Great Depression,” the report states.

The full report is below:


Read more: http://swampland.time.com/2013/10/03/treasury-warns-of-debt-ceiling-crisis-economic-impact/#ixzz2giGnUd95

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