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Defaulting on the debt would return us to recession

at 11:19 AM ET, 07/11/2011

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On Friday’s edition of the “Martin Bashir” show, Jay Powell, who’s conducted the most thorough study of the aftermath of a debt default, gave me a number I hadn’t heard before: $134 billion, or 10 percent of August’s GDP. That’s the size of the economic hit we’ll take if the debt ceiling isn’t raised and the federal government has to slash spending by 44 percent for the month of August. If it continues through to September, well, that’s even worse.

Even without accounting for the knock-on effects of uncertainty in our political system and chaos as the Treasury Department tries to figure out how to cut federal spending in half, that’s more than enough to tip us back into a recession.

 
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