Here's What Will Happen to the Economy as the Debt Ceiling Drama Deepens

Read the article below.

In order to continue paying the government's obligations after the United States reached its debt ceiling on Thursday, the Treasury Department is now using "extraordinary measures." According to Treasury Secretary Janet Yellen, a default could be disastrous and result in "irreparable harm to the US economy, the livelihoods of all Americans, and global financial stability."

Every American would experience the effects, Yellen said in a statement to Christiane Amanpour of CNN on Friday. Yellen noted, "If that happened, our borrowing costs would increase and every American would see that their borrowing costs would increase as well." In addition, she said, "a failure to make payments that are due, whether it’s the bondholders or to Social Security recipients or our military, would undoubtedly cause a recession in the US economy and could cause a global financial crisis.” She added: “It would certainly undermine the role of the dollar as a reserve currency used in transactions worldwide." The dire warnings of debt ceiling difficulty are nothing new. Additionally, many Americans would lose their jobs, and their borrowing costs would undoubtedly increase. The federal government's lawmakers have previously achieved deals, and the current Congress has some time — at least until early June, based on Yellen's official projections — to do the same.

Many economists predict that an agreement will be reached. However, because of the "extremely fractious political environment" at the moment, it might take a while and cause "flare-ups" in financial market volatility, according to a note published on Thursday by Moody's Investors Service. Such volatility is occurring as the Federal Reserve works to control inflation and steer the economy toward a soft (or softish) landing with the least amount of damage possible.