A US debt default or even a near-nonpayment could plunge the economy into recession, top Goldman Sachs economist says
limit last week, forcing the Treasury to step in with extraordinary measures to prevent a default. The steps include cuts to investments in retirement plans and and the Government Securities Investment Fund.
However, such measures may support public finances only until early June. The prospect of a longer-term solution remains clouded amid continued political wrangling over how much more money the government can borrow to meet its payments. Democrats and Republicans are divided over whether to raise the debt ceiling or not, and Treasury Secretary Janet Yellen has warned lawmakers need to"If there were any doubt about the US government's ability or willingness to make interest and principal payments on time, that could have very, very adverse consequences," Goldman's Hatzius said.
However, he said the bank remains optimistic that Congress will eventually reach a decision."We think ultimately a solution will be found," Hatzius said, adding that"these solutions are often found at the very last moment." If the US escapes risks of defaulting on its debt, it's likely to avoid a recession, Hatzius said, maintaining the house view.
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