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While the country temporarily averted major financial repercussions during the government shutdown, a report from the United States Department of Treasury (Treasury) called attention to the debt ceiling, government default, and its potential damage to our economy.
In its report, The Potential Macroeconomic Effect of Debt Ceiling Brinksmanship, Treasury noted that recent events could have an effect on the financial markets. If these markets lose confidence in the nation’s ability to repay its debts, the disruptions that took place in 2011— such as the U.S. downgrade and the stock market crash—could reappear.
According to the report, any possibility of default could shake the already fragile American economy and lead to “sharp declines in household wealth, increases in business costs and a fall in private-sector confidence.” Other impacts include, “the value of the dollar could plummet, and U.S. interest rates could skyrocket.”
When the shutdown ended, the solution to re-open the government was only temporary. In mid-January 2014, there is a real possibility that our country could find itself in the same position. If a more permanent solution is not found, the Treasury report predicted that the effects would spread well beyond the financial markets and into job creation and consumer spending, stating these consequences could last generations. To read the complete report, click here.