Anyone know for sure what would've happened if Thursday came and went and Congress was still stuck at an impasse without being able to raise the debt ceiling?
I'm by no means an economics expert, but based on what I've read about this, a few things would happen. First, there would be panic on Wall Street. Investors would start dumping stocks and bonds, and there would likely be runs on banks -- essentially the same shitstorm that happened in 2008 that triggered a global recession. To compound this problem, most government employees would likely not be paid, causing unemployment to jump sharply, which would also have an effect on Wall Street. Other problems, which we're already seeing now simply due to the threat of default, are:
Increased borrowing costs. Investors demand more money for riskier investments. S&P and Fitch were minutes away from sinking our credit rating last night.
Economic output slows because a large chunk of the economy -- the federal government -- is stalled and federal employees aren't spending.
Businesses halt spending and hiring due to economic uncertainty.
I'm sure I'm missing a few things, but you get the idea.
Couldn't the president just, you know, ignore the borrowing limit?
Probably, but until the issue is resolved in an official capacity (the Supreme Court), investors will be wary of buying bonds in a questionably legal way. There's apparently a commemorative coin law in which a loophole exists that allows the Treasury to mint a trillion dollar platinum coin and deposit it into the Treasury's account. "Mint the coin!" was a popular chant during previous debt crises, though I'm not sure how realistic this is from a legal standpoint. It's certainly not a great precedent to set.
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Date: 17/10/13 15:50 (UTC)I'm by no means an economics expert, but based on what I've read about this, a few things would happen. First, there would be panic on Wall Street. Investors would start dumping stocks and bonds, and there would likely be runs on banks -- essentially the same shitstorm that happened in 2008 that triggered a global recession. To compound this problem, most government employees would likely not be paid, causing unemployment to jump sharply, which would also have an effect on Wall Street. Other problems, which we're already seeing now simply due to the threat of default, are:
- Increased borrowing costs. Investors demand more money for riskier investments. S&P and Fitch were minutes away from sinking our credit rating last night.
- Economic output slows because a large chunk of the economy -- the federal government -- is stalled and federal employees aren't spending.
- Businesses halt spending and hiring due to economic uncertainty.
I'm sure I'm missing a few things, but you get the idea.Couldn't the president just, you know, ignore the borrowing limit?
Probably, but until the issue is resolved in an official capacity (the Supreme Court), investors will be wary of buying bonds in a questionably legal way. There's apparently a commemorative coin law in which a loophole exists that allows the Treasury to mint a trillion dollar platinum coin and deposit it into the Treasury's account. "Mint the coin!" was a popular chant during previous debt crises, though I'm not sure how realistic this is from a legal standpoint. It's certainly not a great precedent to set.