|US Treasury predicts dire outcome for dollar, financial markets from unresolved debt ceiling
The US Treasury warned of a disastrous outcome if US lawmakers refuse to raise the country's borrowing ceiling, thus forcing a default on obligations.
It said the fallout could include returning to a recession as deep as that of 2008-2009, if the US's borrowing is not increased by October 17, when it forecasts the government will exhaust its cash and be unable to pay all its bills, AFP reports.
“In the event that a debt limit impasse were to lead to a default, it could have a catastrophic effect on not just financial markets but also on job creation, consumer spending and economic growth,'' the Treasury said in a report.
“Credit markets could freeze, the value of the dollar could plummet, US interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse.''
The warning sent shudders through markets, with US stocks sinking Thursday and Asian indexes opening lower Friday, as Washington passed the third day of a shutdown due to US Congress stalemate over a new budget.
That battle appeared more and more likely to be subsumed by a tense fight over the debt ceiling, and the Treasury warned strongly against “brinksmanship'' that could carry the fight to or past the 17th.
“As we saw two years ago, prolonged uncertainty over whether our nation will pay its bills in full and on time hurts our economy,'' Treasury Secretary Jacob Lew said in a statement.
“Postponing a debt ceiling increase to the very last minute is exactly what our economy does not need – a self-inflicted wound harming families and businesses.''
In an op-ed due to appear in USA Today on Friday, Lew expanded on his dire outlook, saying failure to raise the debt-ceiling would have far-reaching consequences across all sectors of American society.
“If the United States cannot pay its bills in full and on time, each and every American will be affected, including seniors who rely on Social Security, veterans who depend on disability payments, children in need of food assistance, and doctors and hospitals who treat Medicare patients, among others,'' Lew wrote.
“The stock market, including investments in retirement accounts, could tumble, and it could become more expensive for Americans to buy a car, own a home and open a small business.''
The government is already just barely operating below the US$16.7 trillion ceiling on the back of “extraordinary measures'' carried out since May to meet a chronic deficit of about US$60 billion a month, according to the Treasury.
Those measures will be exhausted by October 17, leaving the Treasury with only a small amount of cash to meet constant payment obligations.
It said that the impasse in Congress over passing a new budget and raising the debt ceiling was already unnerving markets, echoing the fight over raising the limit two years ago.
The July-August 2011 battle went to the brink of default and, though that did not happen, still saw the US triple-A credit rating cut by Standard & Poor's.