The federal government slowdown threatens to reduce hiring, cut into consumer spending, and poison public opinion about dysfunctional governing. But the threat of a showdown over raising the debt ceiling runs the risk of significant and sustained damage to investor and consumer confidence.
In the new week, the positions of each side on the debt ceiling debate will continue to be examined for any sense of cooperation. Markets will be listening for any room for compromise. As the government slowdown enters its second week, reaching the $16.7 trillion debt ceiling becomes that much closer, reducing the negotiating time necessary to raise the roof on borrowing.
The U.S. Treasury Department has warned a U.S. debt default "could result in recession comparable to or worse than 2008 financial crisis." Granted, this is the same agency that failed to be concerned with the massive amount of subprime mortgages, shadow banking and very loose lending standards that led to the housing bust. The Treasury Department would be quick to point out it isn't responsible for any of those misdeeds, but it is responsible for paying the country's bills.
Unfortunately, recent experience may embolden both sides of the conflict. When Congress and the White House last flirted with the government's ability to borrow money to pay for what has already been spent, the nation's credit rating was cut. But no one really paid for that. Instead, bond prices rose, interest rates fell and stocks went on to hit record highs.
A lot of factors helped create those reactions, but those were the results. This time around, the investment markets and the economy are not likely to be so forgiving of Washington fooling around with our credit.
Tom Hudson, financial journalist, hosts "The Sunshine Economy" on WLRN-FM in Miami. He is the former co-anchor and managing editor of "Nightly Business Report" on public television.