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Ask the Experts: What Will Happen If the U.S. Defaults?

It has been more than two weeks since the federal government closed many of its doors, sending roughly 800,000 employees home to wait without pay and taking a yet unknown toll on the country's economic recovery from the Great Recession. During that timeframe, as politicians have pontificated to no end and worried consumers have prepared cash flow contingency plans, we've all kept one eye glued to cable news and another focused on the calendar—Thursday Oct. 17, to be specific.

That date has been looming over the debate from the jump, as it represents the time by which the U.S. Treasury will have exhausted its legal borrowing authority and will therefore no longer be able to guarantee its capacity to pay the country's debts.

We've all heard how disastrous it would be for Congress not to raise the debt ceiling by then, but with all of the rhetoric and political posturing we've been forced to endure of late, it’s understandably difficult to differentiate fact—or at least well-reasoned likelihoods—from all of the nonsensical chatter.

So, it's fair to wonder whether or not we should actually be concerned about this man-made crisis point. In other words, is the hype justified this time around or is this simply another case of the boys and girls in Washington crying economic wolf?

WalletHub consulted a number of leading experts in the fields of economics, banking, and public policy for answers to that very question, and the breadth of their opinions spans nearly as far as the political leanings of our country's leaders.

David S. Bates—University of Iowa

Does a short-term debt ceiling increase (as was proposed Thursday) simply mean that we will encounter the same market volatility and concern witnessed over the past few of days a month from now?

"Markets have not in fact been particularly volatile during the past weeks, with the VIX only briefly going above 20 early last week. By contrast, the VIX went above 40 during the 2011 fiscal confrontation and the 2010 Greek crisis, and above 80 in the fall of 2008. The options markets seem to feel this confrontation will be resolved uneventfully."

For a full listing of expert opinions, please visit the article online. http://wallethub.com/blog/ask-the-experts-what-will-happen-if-the-u-s-defaults/1159/#bates


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