News Column

U.S. Treasury Warns of Dire Costs of Brinkmanship

October 3, 2013

UPI Business News

treasury bldg
Seal of the U.S. Treasury Department (photo: MohitSingh, Creative Commons)

The U.S. Treasury Department warned Thursday that "political brinksmanship" over the debt ceiling could be catastrophic to the economic recovery.

In a report outlining the repercussions of a prolonged debt ceiling debate, the Treasury warned that even the idea of the U.S. government balking on its bills would have a serious impact on borrowing costs for the government, businesses and individuals and would jolt the confidence that is a key ingredient to a functioning economy.

"Political brinksmanship that engenders even the prospect of a default can be disruptive to financial markets and American businesses and families," the report titled "The Potential Macroeconomic Effect of Debt Ceiling Brinkmanship."

Treasury officials in a conference call said the Obama administration was only considering one option, which was to convince Congress to raise the debt ceiling, stating that there was no Plan B under consideration. "There is no alternative. Congress has to act. That's the only way out of this," said one Treasury official.

Halfway measures were not an option, the official said. If the government was missing any payments it was "just default by another name," the official said.

The Treasury has said that the federal government is going to hit its credit limit on Oct. 17, after which there was serious risk of a default, which would jolt financial markets and result in "reduced confidence and increased uncertainty."

It would also raise borrowing costs, turning a politically manufactured crisis into one that cost actual dollars and cents, the Treasury contends.

Pointing to repercussions of the last deadlocked debate on the debt ceiling, the Treasury said consumer confidence fell 22 percent and business confidence dropped 3 percent from June to August 2011. "Moreover, it took months before confidence recovered fully," the report says.

The report says, household wealth dropped by $2.4 trillion between the second and third quarter of 2011, when the debt ceiling debate surfaced in Washington, culminating in the deal that eventually created the sequestration budget cuts of 2013.

Private economists have already warned that the partial government shutdown created by a deadlocked budget appropriations bill already threatens the nation's economy.

If the partial shutdown lasts a week, that could slow the gross domestic product by a quarter percentage point, "while a longer shutdown could have a substantially greater effect, perhaps even causing a recession," the Treasury said.

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Original headline: Treasury warns of costs of brinkmanship


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