National default now looks like a real possibility. Why we should worry about the fallout.
What started as hot air has now become a thunder cloud. Should Congress fail to reach a compromise to raise the debt ceiling, a multitude of economic sectors could take a hit--if not come to a screeching halt. We review the effects as forecasted by economists and ask "Should you worry?" The answer, in short: Yes, probably so.
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Ron Paul: Defaulting on Debt is America's Only Hope
1. Global economy: Asian and European stocks "shuddered," on Monday, as William Alden of the Huffington Post put it, after Congress failed to reach a compromise by the end of last week. The tumble was slight for now, but Alden suggests that the fall was just the first tremors of a greater catastrophe waiting when the stalemate in Washington triggers panic on Wall Street.
2. Government programs: If the Treasury loses its authority to borrow, economist Nigel Gault of IHS Global Insight predicts that the government would have to cut its spending by 40 to 45 percent. Highway projects, federal courts, Pell Grants, and food stamps are all on the line.
3. The recovery: Gains made since the bottom fell out in late 2008 could slip away and "would no doubt have a very adverse effect very quickly on the recovery," said Federal Reserve Board Chairman Ben Bernanke.