Economists fear debt ceiling fight may bring recession

October 4, 2013 by CNN Money

Forget the current government shutdown. Economists say it’s the upcoming debt ceiling impasse that could plunge the nation into a recession.

About half of the 22 economists surveyed by CNNMoney say a recession will be unavoidable if Congress fails to raise the nation’s debt ceiling before the Treasury runs out of cash later this month.

A couple more say a recession is possible depending on how far past the deadline Congress goes before acting. And even those who aren’t predicting recession say not raising the debt ceiling would be a very bad idea.

“Financial markets are already being impacted in the short-run as a result of heightened uncertainty,” said Sean Snaith, director of the Institute for Economic Competitiveness at the University of Central Florida. But he said there would be greater long-term damage due to the spending cuts that would occur.

“The fiscal shock treatment of having to eliminate the deficit in one fell swoop would reduce GDP by more than 5% and cause a severe recession,” he said.

The economists agree the threat posed by not raising the debt ceiling is significantly greater than that posed by the federal government shutdown that started Tuesday. None predicted a recession being caused by the shutdown alone.

“A short to medium duration partial shutdown is not enough to cause recession,” said Sam Bullard, economist with Wells Fargo Securities.