7.18.2011

Bernanke: Debt ceiling breach 'calamitous'


Debt ceiling delay: Gun shot to the economy

Excerpt:

No one knows what will happen to the economy if lawmakers fail to reach a debt ceiling deal by Aug. 2.

Except this: It won't be good.

For starters, interest rates could shoot up and stock prices could plummet -- leaving Americans less well off and less willing to spend, to say nothing of having less economic confidence going forward. The same goes for business owners and investors.

On top of that, the federal government won't be able to pay 44% of its bills worth an estimated $134 billion, according to a Bipartisan Policy Center analysis.

On an annualized basis, that's like cutting spending by $1.6 trillion -- which is nearly all of discretionary spending, including defense. Looked at another way, it's like slashing $33.5 billion a week.

Technically, it wouldn't be a "cut" in spending so much as a postponement. That's because the bills the Treasury Department puts off will have to be paid once the debt ceiling is raised. It is, after all, money owed for goods and services already provided, government benefits already earned or agency funding already appropriated.

Comment: My own view ... not sure of the effect but I doubt it would be good

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