The fight over raising the U.S. debt ceiling is causing “unnecessary uncertainty” that will lead to delays in business and consumer plans, said economist Carmen M. Reinhart, senior fellow at the Peterson Institute for International Economics.
“Seeing a political system that is so fractured cannot be confidence-building at a minimum,” Reinhart said in a radio interview on “Bloomberg Surveillance” with Tom Keene. “This kind of uncertainty, unnecessary uncertainty, will generate delays in plans of consumers, in plans of businesses.”
House Speaker John Boehner of Ohio gained support among fellow Republicans for his plan to raise the debt ceiling after reworking the legislation to cut more than $900 billion in spending over 10 years. The House is expected to vote on the proposal today. All 51 Senate Democrats and two independents signed a letter pledging to oppose the measure. Senate Majority Leader Harry Reid of Nevada also offered a budget-cutting plan on July 25.
Lawmakers are preparing the dueling plans, unable to break a partisan stalemate over how to tackle the nation’s $14.3 trillion debt limit by Aug. 2. That is the date when the Treasury Department says its borrowing authority will end.
Consumer confidence fell last week, the Bloomberg Consumer Comfort Index reported earlier today, in part on concerns over the debt-ceiling stalemate.
Reinhart, 55, and Harvard University Professor Kenneth S. Rogoff are co-authors of the book “This Time is Different: Eight Centuries of Financial Folly.”
She said today a U.S. default would differ from past international defaults because the lawmakers would be choosing not to pay the nation’s debts instead of being forced into default.
“When you look at the broad international history of default, defaults are extreme events, they’re the last resort, you try to fight it you try to do everything you can, but in the end it’s usually about not being able to pay,” she said in the radio interview. “This is very different from the flavor we’re getting out of Washington right now.”
Standard & Poor’s President Deven Sharma told lawmakers yesterday that the ratings agency would decide whether to downgrade the nation’s top credit rating based on the long-term impact of any final measure.
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