WASHINGTON (CBSMiami) – “A financial crisis and recession that could echo the events of 2008 or worse.” That’s the dire warning the Treasury Department issued Thursday about the possibility the GOP forced government shutdown could tumble into a debt default by the United States.
“As we saw two years ago, prolonged uncertainty over whether our nation will pay its bills in full and on time hurts our economy,” said Treasury Secretary Jacob J. Lew in a statement urging lawmakers to act. “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.”
The government shutdown, forced by the House of Representatives, came after a plan was first put together by Senators Marco Rubio, Ted Cruz, and Mike Lee to refuse to fund the government or raise the debt ceiling unless the Affordable Care Act was gutted and defunded.
The GOP-led House went all-in behind Senator Cruz who has led the effort, but there is zero chance Democrats in the Senate or President Obama would allow a signature piece of legislation like health care reform to be overturned by a small minority of House members.
The shutdown, instituted at midnight Tuesday, is only the first step in a potentially devastating two-step process that could threaten the entire global economy. While the small faction of House members continue to hold the economy hostage to get their political will, the Treasury Department is trying to warn of exactly what could happen.
The Treasury said the exact estimate of the effects of a debt default are impossible to predict. However, “economic theory and empirical evidence is clear about the direction of the effect: a large, adverse, and persistent financial shock like the one that began in late 2011 would result in a slower economy with less hiring and a higher unemployment rate than would otherwise be the case.”
While there is no deadline for a deal on a government shutdown, the Treasury will run out of money to pay the nation’s bills already incurred by Congress by October 17, two weeks from Thursday.
According to the New York Times, markets have pushed one-month Treasury yields to their highest level in nearly a year. The stock market has declined on Wednesday and Thursday after the government shutdown and both could be a sign of things to come.
For his part, President Barack Obama is imploring business leaders and CEO’s to emphasize to Republicans in Congress the need to restart the government and most importantly raise the debt ceiling.
“This time I think Wall Street should be concerned,” President Obama told CNBC yesterday. “When you have a situation in which a faction is willing to potentially default on U.S. government obligations, then we’re in trouble.”