Recession Looms If Treasury Uses Tools to Prevent a Default

The U.S. Treasury can avoid a debt default even if Congress fails to raise the government’s $16.7 trillion borrowing limit by Oct. 17 but it would put the United States on a path toward recession. Economists at Goldman Sachs Group Inc., IHS Inc. (IHS) and BNP Paribas SA said they expect the Treasury to husband the tax money it collects to make sure it can meet interest payments on the nation’s debt. Other obligations, from salaries of government workers to payments to defense contractors, would face the ax. The result would be $175 billion less in government spending during November alone, said Goldman’s Alec Phillips. “The cutting would be so huge it would put the U.S. back into recession,” said Jim O’Neill, former chairman of Goldman Sachs Asset Management. Yikes!