Treasury Department Issues Somber Report on Possibility of Default

Earlier today, as the government shutdown entered its third day, the Department of the Treasury issued a report called "The Potential Macroeconomic Effect of Debt Ceiling Brinkmanship".

The Treasury Department has previously stated that they will exhaust their "extraordinary measures" by October 17th, and that the nation's debt ceiling must be raised by that date. The United States bumped its head on the debt ceiling a number of months ago, and the country has been using "extraordinary measures" to continue operations ever since.

In two weeks, time is up.

With the debt ceiling situation needing to be resolved in just two weeks, the government shutdown and debt ceiling situation are becoming intermingled. It seems to be a near certainty that any agreement between the Democrats and Republicans will involve a continuing resolution and an agreement on the debt ceiling.

Both sides are digging in their heels on both issues, and you can bet that the two sides will take this right down to the wire before hammering out a deal. The Republicans want to include changes or delays to "Obamacare" in any deal, while the Democrats are steadfast in their "no negotiating" stance.

What happens if the two sides don't hammer out a deal before October 17th? What happens if the United States goes into default for the first time in its history?

According to the Treasury Department, it wouldn't be pretty. Here are some of the things, according to the Treasury Department, that may happen if the nation defaults:

-credit markets could freeze
-value of US dollar could plummet
-US interest rates could skyrocket

The Treasury Department states that a default would have the potential to create a financial crisis that equals or is even worse than the "Great Recession" of 2008. Economic activity would grind to a halt, and many Americans would lose their jobs.

--

The Treasury Department also warned that even the prospect of a default can be damaging to the US economy.

Is anybody in Washington listening? Probably not.

Source: Time.com - Treasury Warns of Debt Ceiling Crisis' Economic Impact


Filed under: General Knowledge