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Treasury Notes

 Report on Macroeconomic Effect of Debt Ceiling Brinkmanship

By: Sabrina Siddiqui
10/3/2013

Today, the U.S. Department of the Treasury released a report on the potential macroeconomic effects of debt ceiling brinksmanship.  The report states that 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.  By looking at the disruptions to financial markets that ensued in 2011, the report examines a variety of economic indicators – including consumer and small business confidence, stock price volatility, credit risk spreads, and mortgage spreads – through which a similar episode might harm the economic expansion. The report also notes that if the current government shutdown is protracted, it could make the U.S. economy even more susceptible to the adverse effects from a debt ceiling impasse than it was prior to the shutdown.
 
Read the report here.
Posted in:  Debt Limit
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