Oct
07

Debt Ceiling Catastrophe

The government shutdown, if short, will mildly depress Q4 GDP growth. The same can’t be said for failing to raise the debt ceiling. The government currently runs a $640 billion deficit/year, 4% of GDP, while GDP growth is 2%. If the debt ceiling isn’t raised, the budget must be balanced, thus federal spending would drop by $640 billion/year causing a recession. Worse, there wouldn’t be mitigating fiscal or monetary policy.

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