ICYMI: BLOOMBERG ECONOMICS: REPUBLICANS’ DEBT LIMIT GAME WOULD SHAVE 1.5 POINTS OFF 4TH QUARTER GROWTH
Republicans’ Refusal to Raise or Suspend the Debt Limit Would Have Disastrous Effects on Still-Recovering U.S. Economy
Annualized fourth-quarter growth would shrink by 1.5 percentage points if Congress fails to suspend or raise the debt limit, according to a report by Bloomberg Economics. With the U.S. economy still recovering from the shocks of the pandemic, that failure would have catastrophic consequences for middle-class Americans and the larger economy.
Despite mounting evidence from economists and experts that Republicans’ irresponsible political ploy would have disastrous effects on all Americans, Senate Minority Leader Mitch McConnell continues to oppose raising the debt ceiling, claiming yesterday that Senate Republicans will not vote to do so, despite admitting that the debt ceiling “always should be” raised.
The U.S. government is expected to reach the limits of its debt-servicing capacity in October. Default, a potentially catastrophic event for the global financial system, still appears an outside possibility. But even without one, recent history shows that dancing around the possibility — triggering a persistent risk-off period in the markets — can have serious consequences. Separately, a government shutdown starting Oct. 1 would hardly be helpful when the recovery is already struggling to find its footing.
In the three weeks around the 2011 debt-ceiling standoff, the S&P 500 index plummeted more than 15% and corporate borrowing costs spiked.
- Using SHOK <GO> we estimate that a repeat performance would shave about 1.5 percentage points off annualized fourth-quarter growth — and ensure a rocky start to 2022.
Read the full report from Bloomberg Economics here.