Hitting Debt Ceiling Could Erase Two Years Of 401(k) Gains: Economist

Testifying before a Congressional committee on Thursday, economist Heather Boushey said that reaching the debt ceiling could trigger a stock market plunge that would wipe out nearly two years of 401(k) gains, Think Progress reports.

"Reaching the debt ceiling will, in all likelihood, trigger a sharp fall in the stock market, which also
will likely reduce employment," Boushey told the Congressional Democratic Policy and Steering Committee.

"The drop in stock prices will have an immediate effect on the economy, but also on families. Families with 401(k)s would likely lose all the gains they have made in 2010 and much of their gains in 2009, moving them further below where they were at the end of 2007 after the stock market fell sharply."

Boushey, a senior economist with the Center for American Progress, also warned that if the debt ceiling is not lifted, the housing market is likely to experience "a severe double-dip contraction marked by much-lower home sales and depressed house prices."

And, she said, hitting the debt ceiling could worsen the nation's unemployment problem.

"If the government is forced to limit spending to what it takes in in revenues, the resulting deterioration of economic conditions could very well be deeper than the worst quarter of the Great Recession," said Boushey. "Between the third and fourth quarter of 2008, the economy contracted by 2 percent and shed nearly 2 million jobs."

The United States will reach its borrowing limit on August 2, unless a deal is reached to raise the ceiling. On Thursday, President Obama announced that he would meet with lawmakers this Sunday to continue negotiations.

The president expressed a hope that by Sunday, all parties involved would be able to "start engaging in the hard bargaining necessary to get a deal done."

A full transcript of Boushey's remarks is available here.

Comments

[fortressfountain]

10:00 PM on 07/11/2011

But the so called free markets like the banks and corporations depend on welfare of the government.

[dan laurie]

09:23 AM on 07/11/2011

Ifr the debt ceiling doesnt pass. Wew will see a massive depression and hyper inflation. Medicare and Social security will not be paid and our troops will not be paid...After massive rioting we will see the beginning of martial law and God help us.

[RockiesFan]

11:49 AM on 07/09/2011

I am so sick and tired of our country being held hostage by the Republicans. The president and the senate need to draw a line in the sand. The priorities:

1. Raise the debt ceiling - just a clean, no-frills bill. End the uncertainty and dealing. Just raise the darn ceiling - no strings attached.
2. Jobs - we MUST get American working again. Focus 100% on jobs bills. Use a carrot/stick approach. Provide incentives for companies that hire here and tax penalties for those that hire overseas. Start repairing the infrastructure. Bring back the CCC. Expand Americorp. Be creative! Do whatever we have to do to get more jobs.
3. Health care - control costs as everyone needs access to basic health care services. The single payer public option would help everyone from the unemployed to corporations.
4. Fix Social security - make the SS funds a lock box from which Congress cannot borrow.
5. End the wasteful wars in Iraq & Afghanistan. Bring home our troops. End the vast flow of money to these hopeless causes which are sucking the life out of America. Then cut the defense budget.
6.When everything else is working, then worry about balancing the darn budget.

[grf67]

05:28 AM on 07/09/2011

Did we reelect george bush and the economically ignorant repubs? Don't any of these people know how to play this game? Get rid of harry reid and find a senate leader with courage. The dems are the majority and they should act like it.

[Gabe61]

12:29 AM on 07/09/2011

So let me get this straight. Please someone help me.
We as a country have too much debt. Right?
In order to pay our countries debt we need to borrow money by raising the debt ceiling?
If yes . What happened to the 750 billion and the 800 billion we suppose to use to fix our economic crisis. OH I KNOW. Gs AIG and the rest took it and got rich off of it.

If we owe money as private individuals on our credit cards and we can't pay it then can we ask the bank to raise our credit limit to pay our balance? I guess not.

Maybe we should just stop paying China then our country will be fine. If our country is bankrupt than why do we need to borrow more money? We can't pay what we owe now right?

For a private individual the bank would not raise the credit limit. In fact they would lower it if you have financial problem. What is the different. Our country is bankrupt both financially and morally.

So we can tell the Chinese we have no money and the US should file for Bankruptcy.
Than have a new start by bringing home all the jobs from overseas than we will be fine.

[jefferson0467]

09:54 AM on 07/09/2011

Will all due respect the economy of the US, the world's largest, is a lot more complicated than your personal finances. A lot more. And that's the real issue here, we have a lot of people in America trying to make an analogy to our nation's fiscal policy with balancing their checkbook at home.

Yes, we need to start taking in as much or more money than we spend. That's something that should be dealt with, and it's a long-term solution. But a nation of our size cannot just declare bankruptcy, by defaulting on our debt we could wreck the world economy (and our own). Do you really want to do this? Seriously? Keep in mind we raised the debt ceiling SEVEN times during the Bush administration. Why all of a sudden is it something we cannot do?

[bornorange]

11:25 AM on 07/09/2011

With all due respect, the economy of the US ain't half as complicated as you have been led to believe. It gets complicated when you play with it too much.

Free enterprise and capitalism is pretty simple... have government get out of the way and everything is pretty predictable. When two consecutive administrations spend, OVERSPEND to the extent they have you're going to screw it up.

Goverment regulations at all levels have crippled business and industry. (Gulf oil drilling, nuclear plants, global climate change, etc etc)

Uncertainty of the future drives hesitence to act. (Obamacare etc)

You wanted to know why we shouldn't raise it? This administration has spent us down the road and there is no indication that they plan on stopping. (No budget in two years) With no change in spending habits, it will only get worse. Obama has redistributed our wealth and is working on redistributing the next 2 generations' wealth.

We will default on our debt ONLY IF THIS ADMINISTRATION CHOOSES TO. Their is plenty of revenue for it.

[Gabe61]

10:02 PM on 07/10/2011

To jefferson0467 Just to make a few points if I may.

1. I am not talking about my personal finances.

2.The world economy already been wrecked. ( Bush and his goonies took care of it)
3. How do you expect to pay for future debt if our country has problem paying its current obligation? It is simple math. If you don't have income to cover your current debt then can you pay for higher obligation?

4. We raised the debt ceiling 7 times under Bush because Haliburton and other boddies of the Bush Administration needed money. Incompitent people allowed to happen. Maybe with compitent people we would not had the financial crisis what the whole world experienced.
5. About the US bankruptcy. What do you think China could do, if the US decided one day and tell China we can't pay our debt? The Anser is NOTHING. Without the UNITED STATES Chinese people would go hungry just like 20 years ago.

[sjcarl]

10:40 AM on 07/09/2011

Why would we have to "file for bankruptcy" to bring home jobs from overseas?

[Gabe61]

10:12 PM on 07/10/2011

sorry but you don't get it. We should not pay China a penny. China has most of the manufacturing jobs from the US. The Chinese agenda is to wreck the United States financially.

It is the same as when Banks loaned money to people they knew never able to pay back, while Wall street maid trillions of dollars. China is doing the same thing to the US but 1000 times worst.
You think we had a financial crisis? It was nothing compare to what China is creating against our country as I am writing these words. If you don't believe now , remeber my words 5 years from now.

[Frog in a pot]

12:06 AM on 07/09/2011

401ks were never meant to be a retirement pension plan.401ks were designed to be stolen.

[dontblowit]

10:44 AM on 07/09/2011

exactly since the GOP is still trying to privatize social security wall street needed the 401k money to steal in the mean time. They are still working on the SS $ unless that too has already been stolen.

[lvdragonlady]

10:08 PM on 07/08/2011

Well, this should make the GOP extremely excited, because this is just one more thing, taking away from their pockets.

[AmosKnows]

07:36 PM on 07/08/2011

Extortion. Some "economist" who was paid by the extortionists to pressure the other criminals. It's like Mafia Wars.

[dididangerlove]

06:19 PM on 07/08/2011

I was wondering when someone would point this out. The Republican scorched earth policy is real.

[jefferson0467]

09:57 AM on 07/09/2011

Indeed. It's become clear that unless they are in power, they will destroy America in order to get back in power.

The debt ceiling was raised seven times during the Bush administration by a GOP controlled Congress. But now that Obama is president they refuse to do it. They love to talk about how much they love America but the truth is they love power a lot more.

[bornorange]

06:57 AM on 07/14/2011

jeff said: The debt ceiling was raised seven times during the Bush administra­tion by a GOP controlled Congress

The election in 2007 gave both the house and the senate to democrats.

An interesting exercise... google national debt by year and watch what happens in 2007. Then google unemployment and watch what happens in November 2008... when Obama was elected.

[LCDTV]

05:19 PM on 07/08/2011

“House Majority Leader Eric Cantor's (R-VA) latest financial disclosure statement indicates that he owns up to $15,000 of ProShares Trust Ultrashort 20+ Year Treasury EFT, a fund that will likely skyrocket as U.S. debt becomes less desirable.

republican­s are willing to increase unemplymen­t and destroy america to inflate their bank account. i find it amazing how these super rich people can get the rest of america to do their bidding. we are in trouble.”

[trekie70]

04:59 PM on 07/08/2011

So, let's summarize:
-tremendous job losses
-tremendous 401(k)losses
-severe contraction in the housing market, leading to more job losses

Gee, the GOP and TP is right-a default will be a virtual paradise!

[Richard Novak]

04:17 PM on 07/08/2011

Money is like energy, it can not be created or destroyed. A company has a worth based on revenue. If Wall Street creates the worth they then can take it away. It is the short sellers (hedge fund managers) who take away. But if people don't sell due to the short sellers the value will decrease by only what the short sellers do by pulling their money out. If they force a stock price down and no one sells, how can they buy it back even lower, to make a buck?

[StopMakingSense2]

03:42 PM on 07/08/2011

That's good news republicans! Soon American retirement savings will be gone and your dream of people having to work for next to nothing until they drop will be realized! Kudos to you!

[Vantunow]

03:03 PM on 07/08/2011

Shock and Awe!

Yep, if you don't go along with whatever Banksters want, following things would happen:

- Crisis and Collapse
- Lending will stop
- Pensions will be wiped out
- Everything will cost lot more
- Your Dog will die and your spouse will leave you

[Jon David]

04:21 PM on 07/08/2011

And youre pinhead will explode from sarcastic lies.

[Vantunow]

04:50 PM on 07/08/2011

How dare you call my lies sarcastic?

You can either go further in Bankster dead, and then they would gamble and steal your 401K anyway, or you can stay out of bigger debt.

Furthemore, new money that is created, does't have to be a new debt.

JFK's executive order #11110 created 4 Billion Dollars backed by Silver. We can do it today.

However, that would require a real President and real Congress, and since we only have left puppets and right puppets, what you gonna do...

Finally, OTHER countries such as Russia, Argentina, Chile, they all Defaulted, sufferred for a bit and recovered and are doing GREAT.

Longer Bankster ponze scheme continues, more painful the END will be.

Here is another sarcastic lie:

Bankster Ponze scheme will END. Sooner, the better.

[Steve Rockett]

02:43 PM on 07/08/2011

What the republicans are doing is criminal and should be counted as treason. If they spent money at home on their credit cards and refused to pay, they would be just like the people they despise. Shame on them for bringing shame on our country.