17 Jul '11, 8am

Failure to raise debt cap would shock US economy

WASHINGTON - THE US economy faces a shock worse than the 2008-2009 financial crisis if the government fails to raise its borrowing cap before Aug 2, analysts and officials say. While attention has focused on the possibility of an unprecedented US default on its debt, economists say the government is more likely to slash spending come Aug 2, the day spending needs surpass receipts. And at the current size of the budget deficit, that could mean cutting 40 per cent - shutting down much of the government, halting paychecks to soldiers, closing courts, or delaying social security payments to seniors. 'That would be really catastrophic,' said Michael Ettlinger of the Centre for American Progress. Mr Ettlinger says if the debt ceiling remains frozen through September, it would force a quarterly economic contraction over more than two per cent - worse than the worst quarter in the...

Full article: http://www.straitstimes.com/BreakingNews/Money/Story/STIS...

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