The Treasury Department warned on the third day of the federal government shutdown that a debt default due to congressional “brinkmanship” could cause markets to freeze, the value of the dollar to plummet and U.S. interest rates to skyrocket—resulting in a financial crisis and recession echoing the one in 2008.
But clear partisan divide continues. The same day, President Barack Obama said in comments from Rockville, Md., that the shutdown could end Thursday if House Speaker John Boehner would get out of the way. “There are enough Republicans and Democrats in the House of Representatives today that if the speaker of the House, John Boehner, simply let the bill get on the floor for an up-or-down vote, every congressman could vote their conscience, the shutdown would end today.”
Said Obama: “The only thing that’s preventing all that from happening right now today, in the next five minutes, is that Speaker John Boehner won’t even let the bill get a yes or no vote because he doesn’t want to anger the extremists in his party.”
But Boehner said in response to Obama’s remarks that “Republicans have sent bill after bill after bill to the Senate to keep the government open, and Democrats have rejected every one of them – refusing to even talk about our differences. We want to resolve this dispute as soon as possible, but that will require Washington Democrats to realize neither side gets everything it wants.”
Continued Boehner: “With Obamacare proving to be a train wreck, the president’s insistence on steamrolling ahead with this flawed program is irresponsible.”
In its report, Treasury examines the disruptions to financial markets that ensued in 2011, including a variety of economic indicators — consumer and small business confidence, stock price volatility, credit risk spreads and mortgage spreads — and says a similar episode might harm the economic expansion.
Treasury also says that if the current government shutdown is protracted, it could make the U.S. economy even more susceptible to the adverse effects from a debt ceiling impasse than it was prior to the shutdown.
“As we saw two years ago, prolonged uncertainty over whether our nation will pay its bills in full and on time hurts our economy,” Treasury Secretary Jacob Lew said in releasing the report. “Postponing a debt ceiling increase to the very last minute is exactly what our economy does not need – a self-inflicted wound harming families and businesses. Our nation has worked hard to recover from the 2008 financial crisis, and Congress must act now to lift the debt ceiling before that recovery is put in jeopardy.”
The report notes that “even the possibility of a default could roil financial markets and damage the economy, thereby harming American businesses and households. Sharp declines in household wealth, increases in the cost of financing for businesses and households, and a fall in private-sector confidence, all tend to undermine economic expansion.”
In the event of a default, Treasury says the U.S. economy could be plunged into a recession worse than any seen since the Great Depression. “The U.S. dollar and Treasury securities are at the center of the international finance system,” the report says. “In the catastrophic event that a debt limit impasse were to lead to a default on Treasury securities, financial markets could be shaken to their core.”