Photo: Park Hyatt Washington DC
It’s a cliche that the debt ceiling is the last big threat to the US economy.But there’s a growing meme that it’s not, and that the “sequester” (the automatic spending cuts that are due to kick in on March 1) is the real issue.
Here’s what Eurasia Group analyst Sean West just told us.
I think the debt ceiling is a loser for the GOP and they know it. My fear is not of technical or actual default. It’s of continued short extensions–a continuous kick the can punctuated by moments of panic. The chance of either the sequester or a shutdown for a brief period is real and higher than the risk of cliff crisis ever was, even if it’s still not my base case.
He’s not the only one who has this view.
Goldman’s top economist recently also said that the sequester is the number one risk.
In a note discussing the Sequester, a Government Shutdown, and the Debt Ceiling, Jan Hatzius wrote:
Among these three options, the sequester may present the greatest risk to growth in 2013 because it might actually happen–unlike a debt-limit induced default which is very unlikely–and because it would have longer lasting effects, unlike a government shutdown, which would be reversed quickly.
A government shutdown, a debt ceiling breach, and the sequester all pose near-term immediate risks to the economy. But they’re different, and have different implications. All eyes turn to the sequester, as hope grows that the debt ceiling issue will be diffused with enough outside pressure.
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