Wednesday, 27 July 2011

Here is What Happens if there is no Deal on the US Debt Ceiling

According to David Walker -- the former Comptroller General of the United States and head of the Government Accountability Office, here is what happens if the federal government cannot reach a deal.

1. $4 billion-plus a day will come out of the economy.
2. Government and civilian military workers will be laid off temporarily. That will result in penalties for late payment, to be paid by taxpayers.
3. Social security payments will be delayed.
4. No one knows how bad the reaction will be, but Walker is confident it will be negative for the stock and bond markets and the economy.
5. Interest rates will rise. For every 1% rise in interest rates, taxpayers will be on the hook for an additional $150 billion in debt payments.

1 comment:

  1. Why is it that the debt ceiling was raised 20 times during the GW Bush regime without the theatrics that we see on display today?
    The ideological debate is replete with inconsistencies but ultimately the sides are performing a poor pantomime by arguing over backward looking policy since Obama will cave in. Here is the view from the credit markets:
    Will be interested to see that the US repo desk deals at tomorrow.