S&P Warns of Dire Consequences of U.S. Default

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Report: Default and Government Shutdown Would Be Calamitous for U.S. Economy

Standard & Poor’s warned that if the U.S. either defaults or shuts down the government, the consequences will be dire for the American economy, claiming that a default would result in a worse situation than the economic collapse and Great Recession of 2008.

In a report titled “With A Shutdown, There Will Be Blood,” Standard & Poor’s U.S. chief economist, Beth Ann Bovino, said that a default would be worse for the American economy than the Lehman Brothers Holdings, Inc. collapse in 2008 that led to a global debt crisis and thrust the U.S. economy into years of downturns and recovery.

“The economy would fall back into a recession, wiping out much of the progress made by the recovery,” Bovino said in the report.

Both a default and government shutdown are possible in the U.S., where Washington has been defined by infighting and partisan squabbling since the election of President Donald Trump. The president himself has threatened to shut down the government should Congress not pass legislation that would earmark money for his controversial border wall proposal.

The wall was one of his principal talking points during the campaign, but Trump claimed that Mexico would pay for the wall. With that option seemingly abandoned, Trump is now seeking funding for the wall despite its highly controversial nature.

At the moment, a default seems far less likely compared to a government shutdown, though it is still possible should Congress and the president become even further mired in partisan conflict and inaction.

Tropical Storm Harvey will likely have an effect on Congress’s willingness to cooperate, however, as trying times and natural disasters are often catalysts for a political armistice in order to pass appropriate legislation.

Still, the executive and legislative branches remain highly divided, with Democrats seemingly dead-set on opposing most of Trump’s policies, while also being fervently against the wall and other similar proposals on immigration.

Republicans, for their part, have also begun feuding more publicly with the president. Senate Majority Leader Mitch McConnell was the target of several of Trump’s latest tirades, while rumors have swirled that the two are not happy with one another. Without Sen. McConnell’s support and with the opposition of the Democrats, there is virtually no chance that the wall will be earmarked in the budget, potentially leading to a government shutdown should Trump follow through. At this time, however, it is by no means certain that Republicans will oppose the wall, even with Trump’s criticisms.

 

Source

S&P warns of dire impact on U.S. economy from any shutdown, default,” Reuters, August 30, 2017.

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