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| Treasury Says Mere Prospect of Default May Harm Economy | |
| (39 minutes later) | |
| WASHINGTON — The debt-limit impasse could cause credit markets to freeze, the dollar to plummet and interest rates to rise precipitously, the Treasury Department said in a report released Thursday. A default might prove catastrophic, the report said, and could potentially result “in a financial crisis and recession that could echo the events of 2008 or worse.” | WASHINGTON — The debt-limit impasse could cause credit markets to freeze, the dollar to plummet and interest rates to rise precipitously, the Treasury Department said in a report released Thursday. A default might prove catastrophic, the report said, and could potentially result “in a financial crisis and recession that could echo the events of 2008 or worse.” |
| “As we saw two years ago, prolonged uncertainty over whether our nation will pay its bills in full and on time hurts our economy,” said Treasury Secretary Jacob J. Lew in a statement urging lawmakers to act. “Postponing a debt ceiling increase to the very last minute is exactly what our economy does not need – a self-inflicted wound harming families and businesses.” | “As we saw two years ago, prolonged uncertainty over whether our nation will pay its bills in full and on time hurts our economy,” said Treasury Secretary Jacob J. Lew in a statement urging lawmakers to act. “Postponing a debt ceiling increase to the very last minute is exactly what our economy does not need – a self-inflicted wound harming families and businesses.” |
| The report shows that the Congressional debt-limit standoff in 2011 hurt consumer confidence, small business confidence, household wealth and the stock market, with ramifications for lending and the economic recovery. | The report shows that the Congressional debt-limit standoff in 2011 hurt consumer confidence, small business confidence, household wealth and the stock market, with ramifications for lending and the economic recovery. |
| “A precise estimate of the effects is impossible,” the report says, “and the current situation is different than that of late 2011, yet economic theory and empirical evidence is clear about the direction of the effect: a large, adverse, and persistent financial shock like the one that began in late 2011 would result in a slower economy with less hiring and a higher unemployment rate than would otherwise be the case.” | “A precise estimate of the effects is impossible,” the report says, “and the current situation is different than that of late 2011, yet economic theory and empirical evidence is clear about the direction of the effect: a large, adverse, and persistent financial shock like the one that began in late 2011 would result in a slower economy with less hiring and a higher unemployment rate than would otherwise be the case.” |
| Economic officials have privately indicated that they are worried Washington’s repeated flirtations with budgetary and financial crises have inured the markets to the real possibility of missed or delayed payments, or even default. By mid-October, the Treasury expects to have only $30 billion in cash on hand, meaning that on any given day it might have too little money to pay all the government’s bills. | Economic officials have privately indicated that they are worried Washington’s repeated flirtations with budgetary and financial crises have inured the markets to the real possibility of missed or delayed payments, or even default. By mid-October, the Treasury expects to have only $30 billion in cash on hand, meaning that on any given day it might have too little money to pay all the government’s bills. |
| The stock market has slid for the past two weeks. But the Dow Jones industrial average, for instance, is about 2 percent higher than it was a month ago and up about 13 percent this year. | The stock market has slid for the past two weeks. But the Dow Jones industrial average, for instance, is about 2 percent higher than it was a month ago and up about 13 percent this year. |
| There are signs the markets are starting to wake up. One-month Treasury yields have jumped to their highest level in nearly a year. | There are signs the markets are starting to wake up. One-month Treasury yields have jumped to their highest level in nearly a year. |
| Wall Street “should be concerned,” President Obama told CNBC yesterday. “When you have a situation in which a faction is willing to potentially default on U.S. government obligations, then we’re in trouble.” | Wall Street “should be concerned,” President Obama told CNBC yesterday. “When you have a situation in which a faction is willing to potentially default on U.S. government obligations, then we’re in trouble.” |
| He added that it is “important” for Wall Street “to recognize that this is going to have a profound impact on our economy and their bottom lines, their employees and their shareholders.” | He added that it is “important” for Wall Street “to recognize that this is going to have a profound impact on our economy and their bottom lines, their employees and their shareholders.” |