Since Republicans in Congress seem intent on flirting (again) with hitting the debt ceiling, the Joint Economic Committee’s Democratic staff is out with a report reminding us that doing so is a terrible, horrible, no good, very bad idea.
Here’s what happens when you lead the financial markets to think the U.S. government might fail to pay its obligations:
- Your debt gets downgraded (Standard & Poors cut the U.S. sovereign bond rating to AA+ as a result of the last crisis).
- The stock market plunges (down 16% in three weeks during the last debt ceiling crisis).
- Consumer confidence falls, which means people don’t buy as much and the economy slows down. Last time, a deal to raise the debt ceiling was reached in August, but consumer confidence didn’t reach pre-crisis levels until January 2012.
People arguing about economic policy talk a lot about “uncertainty,” and usually they’re B.S.ing. But the debt ceiling is one of the few topics where uncertainty is really the big deal.
When the government risks creating a payment crisis, people start to wonder whether they’re going to get their Social Security checks or their paychecks or their bond interest. And they wonder what broader effects a payment crisis may have on the economy.
All that causes people to stop spending and prepare for crisis. It slows down the economy. And it makes us look stupid, as a country. We shouldn’t do it.
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