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CBO director: Debt default could increase the deficit

By Ezra Klein,

One possible consequence of defaulting on the national debt? Well, according to the director of the Congressional Budget office, it could ... increase the deficit:

Elmendorf noted that one of the potential consequences of even a brief period of default would be higher federal debt, triggered by a spike in interest rates and, thus, higher interest payments on federally issued debt.

“If Treasury rates moved up by just 10 basis points over the next decade, that would add $130 billion to interest payments over the decade,” Elmendorf said. A basis point is one-one hundreth of one percent. Thus, according to Elmendorf, each 0.1 percent increase in interest rates on U.S. Treasuries would amount to a significant increase in U.S. debt.

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