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Bill Clinton: Brief Debt Default 'Might Not Be Calamitous' [UPDATED]

First Posted: 05/25/11 12:58 PM ET   Updated: 07/25/11 06:12 AM ET

This story was updated to include a statement from Clinton's spokesman.

Former president Bill Clinton expressed optimism Wednesday about the immediate consequences of failing to raise the debt ceiling by the August 2 deadline.

"If we defaulted on the debt once for a couple of days, it might not be calamitous," Clinton said at a fiscal summit sponsored by the Peter G. Peterson Foundation. The trouble would come only "if people thought we weren't going to pay our bills any more and ... they would stop buying our debt," he explained, according to Politico.

Clinton also downplayed the results of a recent Washington Post poll, which showed that a majority of Americans are more worried about Congress raising the debt ceiling than they are about a default. Voters "haven't lived through [a default]," Clinton said. "Nobody knows what will happen."

Previous predictions about the fallout from a debt default have been notably more severe. Federal Reserve Chairman Ben Bernanke, Treasury Secretary Timothy Geithner and President Obama have all warned that it would trigger dire consequences, ranging from devastation of the U.S. financial system to a global recession.

[UPDATE: 2:15 p.m.

Clinton's spokesman, Matt McKenna, released a statement Wednesday afternoon clarifying Clinton's remarks:

"We regret if there has been a misinterpretation of a comment President Clinton made about raising the debt limit. President Clinton did not in any way mean to suggest that a default would not be highly damaging for the economy even for a very short period of time. He inadvertently misspoke. What he meant to say was that if a vote to extend the debt limit failed in advance of a default, that might not be harmful for a couple of days, but that if people thought that we might actually default, that in his words 'we were literally not going to pay our bills anymore, then they would stop buying our debt.'"]

Below is a rundown of some of the effects of failing to raise the debt ceiling.

The Stock Market Takes A Dive
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If the U.S. starts defaulting on its debt, everybody who owns U.S. stocks and bonds will take a big hit. This will affect the big banks, corporations and even countries -- pushing some toward bankruptcy. That's the kind of slide that can spark a panic. On a more personal note, your 401(k) and/or pension will suffer big losses. It could take a long time to rebuild those funds, delaying retirement -- or making it impossible.
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Filed by Nick Wing  |