The Obama administration warned Thursday that a prolonged debate over whether to raise the federal debt ceiling would harm the economy by depressing business and consumer confidence, increasing stock market volatility, erasing household wealth and increasing interest rates on mortgage and corporate loans.
In a new report, the Treasury Department studied the economic fallout from a similar debt ceiling impasse in 2011 — when the nation came within days of defaulting on its obligations — and said that the country could see similar effects this year if lawmakers wait until the final hours to raise the debt ceiling.
In 2011, according to Treasury economists, “consumer and business confidence fell sharply, and financial markets went through stress and job growth slowed. In 2011, U.S. debt was downgraded, the stock market fell, measures of volatility jumped, and credit risk spreads widened noticeably.”
Given that the ongoing government shutdown is already harming the economy, they warned, the effects this year could be worse.