The recent debt deal was brought down to the wire. While a deal was widely anticipated to get done before Treasury Secretary Janet Yellen's deadline, negotiators ran out the clock and avoided default.
If the US had defaulted, the effects would have been widespread. The government would have shut down as there would have been no cash in the Treasury to pay for anything. Entitlement programs, such as Medicare and Social Security, would not have been able to meet their payments, and defense would have gone unfunded. Of course, panic would have likely ensued in the stock market.
Now that a deal has been made, what will its impact be on the US economy? The current deal does put a small constraint on defense spending, keeping it flat until 2024, student loan payments will start up again, and IRS funding will be cut, among other things.
The economy was already slowing before the debt deal, so what little spending constraint there is won't likely have much impact on the economy.
“The impacts will be negative but small,” Mark Zandi, chief economist at Moody’s Analytics, told CNN. “When you net it all out, it’s a modest headwind to a sluggish economy, but I don’t think it’s the thing that’s going to blow the economy over into a recession.”
Goldman Sachs says we should only see a 0.2% decrease in GDP (gross domestic product) over the next two years due to federal spending cuts. This is basically within the margin of error for GDP estimates.
Student loan payments were already expected to restart before being included in the debt deal. Zandi says the impact of these payments on the economy should be minor. This is mostly because of the large amount of consumer savings.
Overall, the agreement to raise the debt ceiling isn't likely to have a noticeable affect on the economy.
Let Us Know What You Thought about this Post.
Put your Comment Below.