The economic consequences of a default on US debt, or even another congressional confrontation that threatens such a default, are generally believed to be severe. But now a team of noted economists at the Peterson Institute for International Economics has spelled out the true costs of such fiscal irresponsibility to the US economy and just how those self-inflicted wounds erode American global leadership.
The research explains how lurching from government breakdown to breakdown has damaged an already fragile US economic recovery and will continue to do more harm. The damage from last year's threat of default includes higher borrowing and mortgage costs ($450 a year increase on average for mortgages* ), suppressed investment, and 750,000 people added to the unemployed rolls. Even US Treasury securities, long held as a completely safe asset, may now have up to a 10 basis point risk premium priced in, raising federal debt service costs as well as financial uncertainty.