- Oldest ex-MLB player dies in Cuba, 2 days shy of 103rd birthday
- ‘Top Gun’ for drones: Squadrons of carrier-based killers have Navy’s approval
- Bill Clinton to endorse Charlie Rangel for re-election
- Pfc. Bradley Manning is now Pfc. Chelsea Manning: Court says so
- Secret base U.S. special forces used to train Libyans now under terrorist control: report
- 9th suspect in N.C. kidnapping turns self in to FBI
- L.A. sheriff admits to testing flyover spy program without notifying residents
- Foreign minister vows response if Russians are attacked in Ukraine
- Robert Griffin III to drive pace car before Richmond NASCAR race
- Material on Australian shore examined in jet hunt
Stocks fall on dire Treasury debt warning
Stocks on all the major indexes fell sharply on Wall Street on Thursday as the lengthening government shutdown showed no signs of ending and the Treasury Department warned of an economic calamity later this month if Congress doesn’t act to raise the federal borrowing limit.
The Dow Jones industrial average closed below 15,000 after losing 136.66 points, or 0.9 percent, to close at 14,996.48, as both political parties dug in on the third full day of shutdown after an unproductive White House meeting, with Washington observers predicting the standoff will continue into next week. Both the S&P 500 and the Nasdaq indexes also lost ground.
The economic costs of the government impasse mount each day that the shutdown continues, but the Treasury Department warned that the worst is yet to come later this month when a failure by Congress to increase the nation’s borrowing authority could cause an economic and financial disaster. The Treasury said it will hit its $16.7 trillion debt limit and start running out of cash on Oct. 17.
In a scenario worse than the financial crisis of 2008, the Treasury said stocks could plummet by thousands of points, credit and loan markets could shut down and the U.S. dollar could collapse in value if a prolonged impasse forces the Treasury to miss payment on its debt obligations for the first time.
In a report comparing experiences with previous episodes of debt-ceiling “brinkmanship,” the Treasury noted that the mere anticipation of a debt default in August 2011 prompted the first-ever downgrade of the Treasury’s gold-plated credit rating, caused the Dow to drop thousands of points, drove up the interest rates paid by taxpayers on Treasury’s debt and triggered a nosedive in consumer and business confidence.
“As we saw two years ago, prolonged uncertainty over whether our nation will pay its bills in full and on time hurts our economy,” Treasury Secretary Jack Lew said. “Postponing a debt ceiling increase to the very last minute is exactly what our economy does not need — a self-inflicted wound harming families and businesses.”
Prominent stock gurus and Wall Street investment banks have issued similar warnings in recent days, while Federal Reserve Chairman Ben S. Bernanke last month cited the unsettling 2011 experience as a source of risk for the economy this fall and said it is one reason the central bank decided against paring back on its massive purchases of Treasury bonds and mortgage bonds.
This time around, the debt crisis is looming when much of the federal bureaucracy is already shut down and the loss of federal grant money, loans and other payments is weakening the economy. Beyond that, analysts note the shutdown has left the Treasury running at half staff and behind schedule, raising the odds that unintended mistakes and accidents could trip the Treasury into default as the money begins to run out.
“If the U.S. were to default on its debt, it would undermine the economy dramatically and potentially throw the markets into disarray,” said Judd Gregg, chief executive of the Securities Industry and Financial Markets Association and a former Republican senator from New Hampshire.
“Our debt is the currency of the world. For us to default would call into question our world leadership and inevitably lead to American taxpayers having to pay more to finance our debt,” he said. “It would limit our capacity to grow and negatively impact job creation, unnecessarily.”
Financial markets until now have largely taken the fiscal crises in Washington in stride, as investors wagered that the seemingly implacable differences between congressional Republicans and the White House would eventually be resolved.
“We’ve simply grown immune to political brinkmanship,” said Wall Street strategist Lou Basenese, who advises his investors to ignore “scare stories” from the Treasury and the media.
But Thursday, the lack of progress in Washington appeared to be weighing more on the markets and stoking fears that the latest Washington drama may end badly. Most of the major stock indexes fell close to 1 percent, the dollar and commodity prices tumbled.
The Dow pared some its losses late in the day after House GOP leaders — who want to attach major reforms of the entitlement programs and other controversial amendments to any increase in the debt ceiling — said they wouldn’t allow the country to go into default.
Many stock analysts believe the market has grown complacent because of the resolution of previous conflicts over the debt limit, usually at the last minute after a lot of grandstanding. Being unprepared, that makes it all the more likely markets would react sharply if the debt dispute isn’t resolved by Oct. 17.
© Copyright 2014 The Washington Times, LLC. Click here for reprint permission.
About the Author
- Stalemate on the Hill may spare Fannie and Freddie from reform
- U.S. Treasury warns China on currency
- IMF gives U.S. Congress year-end deadline for passing reforms
- IMF eyes 'Plan B' for reforming itself without U.S.
- Russia, China leading efforts to bypass U.S. as IMF reforms stall on Capitol Hill
Latest Blog Entries
TWT Video Picks
Feds who send arms against ranch families betray American values
- Nevada rancher Cliven Bundy hailed as patriot, ripped as lawless deadbeat
- CARSON: When government looks more like foe than friend
- Pentagon plans to replace flight crews with 'full-time' robots
- Georgia governor signs bill expanding gun rights
- America is an oligarchy, not a democracy or republic, university study finds
- Texas is next! AG warns BLM wants 90,000 acres after Bundy ranch standoff
- Opposition rising to Colorado gun control laws
- Professor apologizes after blasting Republicans in class
- Harry Reid using tax dollars to fight Koch brothers, La. GOP chair charges
- Ukraine claims torture by pro-Russian forces on the heels of Biden's stern warning to Moscow
Top 10 handguns in the U.S.
Celebrity deaths in 2014