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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