What Needs to Come Out of the Debt Ceiling Negotiations

June 21, 2011 |

Policymakers from both parties are engaged in intense negotiations over how to raise the nation's debt ceiling as well as how to begin addressing our burgeoning debt.

If the debt ceiling is not raised by the beginning of August, we risk a default. In recent weeks, rating agencies have warned that failure to meet interest payments could result in a downgrade of U.S. debt -- a signal to markets that could lead to rising interest rates and possibly a fiscal crisis.

At the same time, our debt is on an unsustainable path, and we need to enact a credible plan to stabilize and ultimately reduce the debt relative to the economy. If any debt deal from the ongoing negotiations is perceived as being too weak or fails to include improvements to the drivers of the debt, it could indicate that the political system is unable to produce meaningful reforms. This too could cause market instability and weaken the economy in both the short and long-term.

 

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