STRATEGIC ASSESSMENT. A government debt default would be catastrophic for the US economy, sparking mass unemployment, payment failures, and interest rates rising “into perpetuity,” according to US Treasury Secretary Janet Yellen.
A debt default will likely result in the government failing to make key military and social security payments, she speculated, and would cause mass layoffs of government officials. Households would also likely fail to make payments on mortgages, cars, and credit cards, causing a collapse in US credit markets.
The U.S. economy slowed sharply from January through March, decelerating to just a 1.1% annual pace as higher interest rates hammered the housing market and businesses reduced inventories. Thursday’s estimate from the Commerce Department showed that the nation’s gross domestic product — the broadest gauge of economic output — weakened after growing 3.2% from July through September and 2.6% from October through November.
