WASHINGTON, Sept 18 A failure by Congress to
raise the U.S. debt limit in time to avoid a default would spark
a severe recession, a prominent economist warned lawmakers on
Mark Zandi, chief economist at Moody's Analytics, told the
congressional Joint Economic Committee that the U.S. Treasury
will be unable to meet all of its payment obligations as early
as Oct. 18 and by Nov. 1 at the latest without an increase in
the $16.7 trillion borrowing cap.
He said up until early October, financial markets, which
have been "desensitized" by past budget battles, will anticipate
a last minute deal by Congress.
Financial markets will start to get jittery by early October
if there is no clear path to a deal, Zandi said. That will turn
into panic once Treasury can't make payments.
"If you don't do it in time, confidence will evaporate,
consumer confidence will sharply decline," Zandi said.
"Businesses will stop hiring, consumers will stop spending, the
stock market will fall significantly in value, borrowing costs
for businesses and households will rise."
He said if the government can only spend what it takes in,
about nine percent of U.S. economic output will evaporate.
"We'll be in the middle of a very severe recession and I
don't see how we get out of it. There's no monetary policy
response in the current context. We're already at zero interest