The Debt-Ceiling Fight Is Already Costing the Economy.

Lawrence White

By Lawrence White

Here we go again. The Republicans in Congress and the Biden administration are deadlocked over the possibility of raising the current ceiling on U.S. government debt. It currently appears that the “X date ”—the day when the U.S. Treasury will not be able to pay all its bills on time and will consequently default on the obligations of the federal government—will be as soon as June 1.

It is widely understood that the consequences of a default would be hugely negative for the U.S. economy. What is less well-recognized is that the uncertainty over the past few months as to what could happen has already inflicted some costs. Even if a compromise is reached and disaster averted, the longer-run consequences for the federal government and the U.S. economy more generally are still likely to be adverse.

Enter the credit rating agencies.

Read the full Barron's article.
Lawrence White is the Robert Kavesh Professorship in Economics and the ​Deputy Chair, Economics.