BofA sees recession threat from ‘few weeks’ at debt ceiling

MarketWatch
Jan. 16, 2013

The U.S. economy could slip into recession even if the Treasury pays some of its obligations in the event Congress doesn’t raise the debt ceiling, Bank of America Merrill Lynch economists wrote Wednesday.

Citing Bipartisan Policy Center estimates that there will be $277 billion in revenue and $452 billion in spending between February 15 and March 15, the analysts note that 39% of obligations ($175 billion) could go unpaid. “That’s equivalent to 14% of monthly GDP,” they write. “In our view, if such cuts persisted for more than a few weeks, a recession would likely follow.”

It’s estimated that the U.S. will hit its borrowing limit sometime between mid-February and early March. That rapidly approaching deadline hasn’t brought President Barack Obama and congressional Republicans closer together, however. Writing Wednesday in National Review Online, Senate Republican Leader Mitch McConnell pushed back against Obama’s insistence on de-linking an increase in the debt limit from a debate about spending.