the events of 2011 <\/a>could lend some perspective as to what would happen if the debt ceiling drama turns into a debacle, said Gregory Daco, chief economist at EY-Parthenon.\n <\/p>\n\n \u201c2011 was the first time in a long time that we came close to a debt ceiling breach,\u201d he said. \u201cAnd that was a time when there was a lot of political fragmentation and there was a strong desire to essentially attach spending cuts to any debt ceiling increase.\u201d\n <\/p>\n
\n The current environment includes similar brinksmanship and desires to attach spending cuts, he said.\n <\/p>\n
\n But some fear this fight may be tougher than those in the past, a concern reinforced by the fact it took 15 ballots to elect the Speaker of the House in what is normally the easiest vote taken by a new Congress.\n <\/p>\n
\n The economy nearly 13 years ago was different, as well.\n <\/p>\n
\n At the time, the Fed was in an easy monetary policy mode and the economy in a weaker position, as it was still recovering from the Great Recession of 2008, Pugliese said. Unemployment was north of 9% in July 2011.\n <\/p>\n
\n That same year, Treasury projected the \u201cX date\u201d \u2014 the date on which it would be unable to pay its obligations on time \u2014 would fall on August 2, 2011. That ultimately was the date when Congress passed, and President Barack Obama enacted, a law increasing the ceiling.\n <\/p>\n
\n The actual economic impact of the debt ceiling run-up in 2011 is hard to isolate and quantify, Pugliese said, noting how the sluggish US economic recovery also experienced spillover effects from global events, notably Europe\u2019s sovereign debt crisis.\n <\/p>\n
\n Still, there were some indications that the protracted congressional battle contributed to a shake-up in the economy then, he said. Real GDP growth was a weak -0.1% on a quarter-over-quarter annualized basis in the third quarter of 2011. Financial markets were roiled, consumer confidence weakened, the US economic policy uncertainty index set a new high and Standard & Poor\u2019s <\/strong>credit rating agency downgraded the United States to AA+ from AAA.\n <\/p>\n\n \u201cI think you would be hard pressed to say [the debt ceiling debacle] was a positive thing,\u201d he said. \u201cI think of it more as one other hurdle among a lot of other hurdles for the economy as it emerged from 9% unemployment at the time.\u201d\n <\/p>\n
\n This time, if the X date were to come without a resolution, there is speculation that the Treasury could prioritize principal and interest payments to prevent a technical default, Pugliese said. There are potentially other \u201cbreak the glass\u201d options from the Treasury and Federal Reserve, but those are untested and short-term solutions, he added.\n <\/p>\n
\n \u201cSomeone, somewhere is going to get shortchanged if the government doesn\u2019t have all of its money, whether that\u2019s Social Security beneficiaries, defense contractors, civil service employees, veterans, [etc.],\u201d he said.\n <\/p>\n
\n
\n
\n Adding to the uncertainty is the current economic climate, Daco said.\n <\/p>\n
\n \u201cWe are going into this delicate period at a time when the US economy is clearly slowing down and at a time when the global economic backdrop is also weakening \u2026 so the economic environment against which this debt ceiling debacle is unfolding is one of increased economic softening.\u201d\n <\/p>\n
\n While a self-inflicted recession would be likely after the point when an X date is hit, some upheaval could come sooner, Daco said.\n <\/p>\n
\n \u201cFinancial markets and private sector actors tend to react ahead of that date,\u201d he said. \u201cIf there is the anticipation that we will get very close to that drop-dead date, then financial market volatility generally tends to increase, stock prices tend to react adversely.\u201d\n <\/p>\n
\n A Treasury default would undermine the global financial system, said Louise Sheiner, policy director at the Hutchins Center on Fiscal and Monetary Policy and former senior economist with the Fed and the Council of Economic Advisers.\n <\/p>\n
\n \u201cIf Treasuries become something that people are worried about holding, then that has ripple effects throughout capital markets throughout the world, in ways that are really difficult to predict,\u201d she said.\n <\/p>\n
\n Considering the potential consequences in the United States and abroad, Sheiner believes the debt ceiling will be lifted or suspended \u2014 eventually.\n <\/p>\n
\n \u201cThere\u2019s no other way around it,\u201d she said. \u201cThere\u2019s no way that Congress is going to cut spending 20% in the middle of the year. It would plunge the economy into a recession. It would be a terrible policy.\u201d\n <\/p>\n
\n She added: \u201cIf you care about the long-term debt, you have to actually change different laws, Social Security law, Medicare, or the tax law \u2026 you want to do that in the appropriate process, you want to do it well thought out. It\u2019s not the kind of thing that should be done under duress.\u201d\n <\/p>\n
\n CNN\u2019s Maegan Vazquez, Matt Egan and Tami Luhby contributed to this report.<\/em>\n <\/p>\n<\/p><\/div>\n\nSource link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"Minneapolis CNN \u00a0\u2014\u00a0 After the United States hit its debt ceiling on Thursday, the Treasury Department is now undertaking \u201cextraordinary measures\u201d to keep paying the government\u2019s bills. A default could be catastrophic, causing \u201cirreparable harm to the US economy, the livelihoods of all Americans and global financial stability,\u201d Treasury Secretary Janet Yellen has warned. Yellen …<\/p>\n","protected":false},"author":1,"featured_media":45231,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[161],"tags":[],"_links":{"self":[{"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/posts\/45230"}],"collection":[{"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/comments?post=45230"}],"version-history":[{"count":0,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/posts\/45230\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/media\/45231"}],"wp:attachment":[{"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/media?parent=45230"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/categories?post=45230"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.brandon.ddtest.info\/multisite-test\/wp-json\/wp\/v2\/tags?post=45230"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}