“In the event that a debt limit impasse were to lead to a default, it could have a catastrophic effect on not just financial markets but also on job creation, consumer spending and economic growth,” the Treasury said in a report.The Raw Story
“Credit markets could freeze, the value of the dollar could plummet, US interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse.”
U.S. Treasury warns of catastrophic effects if debt ceiling isn’t raised
Agence France-Presse
No one thinks that the US is going to default in a way that creditors won't receive full payment in a relatively short time and that any interruption would be temporary.
The issue is basically two-fold. First liquidity. Many depend on government paying what it owes on time to meet cash flow. Would banks be able and willing to step in? Who knows.
Secondly, "confidence." Psychology plays a big part in economics and finance, and even the serious suggestion that the US would not meet its obligations, even temporarily, would likely be destabilizing.
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