Debt Ceiling Fears Already Drag on Economy

Posted on July 8, 2011. Filed under: Uncategorized | Tags: , , , , , , , , |

Nervous — that is the one word that best describes the mood on the Hill as the August 2 deadline to reach a deal on raising the debt ceiling draws nearer.

The nervousness stems from the realization that if the debt limit is not raised, the U.S. will be unable to pay its bills. If that occurs, the country will either cease spending money on government programs, or default on paying its creditors, which in turn will lead to spiking interest rates, inflation, a second recession, and other financial disasters.

According to a new report released yesterday by the Center for American Progress, a Washington, D.C. progressive think-tank, all the drama surrounding the debt ceiling debate has already had a negative impact on the nation’s economy. Their researchers say that the poor job creation numbers in May and June are the direct result of uncertainty about the debt-ceiling. The report noted that the three months from February through April (2011) each had job growth of more than 200,000 jobs. However, that all came to an end in “May when only 83,000 net private-sector jobs were created.” Forecasts for the June number are also well short of the 200,000 jobs mark. (Let’s try 18,000 jobs created in June according to the Labor Department today.)

“Most businesses don’t make big investments or ramp up hiring when they see a substantial risk of the economy tanking. They don’t want to be on the hook for the costs if there aren’t going to be customers and revenue for what they produce. Right now the failure to increase the federal debt limit is creating such a risk and that may well be why the economy is starting to drag,” the report concluded.

Clearly, the nervousness on the Hill over the federal debt limit is magnified on Main Street.

C.Z.T.

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