An economist for Moody's sounded the alarm Tuesday that a government shutdown or a default on the country's debt would derail an already tepid recovery and perhaps ignite a new recession.
Testifying before a Senate Budget Committee, Mark Zandi, chief economist for the credit rating agency and a former adviser to Sen. John McCain's presidential campaign, warned that political uncertainty in Washington was stifling economic growth. While he was critical of regulations handed down from the Obama administration, Zandi also cautioned that the brinksmanship displayed by Republicans over the debt ceiling and government funding fight was of grave concern to investors, entrepreneurs and even middle-class Americans.
"Breaching the debt limit would be cataclysmic — a full-blown recession," said Mark Zandi, chief economist for Moody's. "It is critical you come to terms on this in a timely way."
Congress has until the end of the month to pass a resolution to fund the government, a prospect dimmed by a conservative effort to strip funding for Obamacare in any continuing resolution. By the middle of October, the country is also likely to reach its borrowing threshold, threatening the United States' credit and its financial standing.
Republicans have pushed for spending cuts and entitlement reform before agreeing to raise the debt ceiling, but President Obama has said he refuses to negotiate or strap conditions to another increase.
But even as Zandi and other experts speaking before the committee warned that the partisanship in Washington was a detriment to the economy, lawmakers spent much of 90-minute hearing pointing fingers and assigning fault.
"Stop the hostage taking, stop the political games that are really hurting our economic recovery," Sen. Patty Murray, D-Wa., said, blaming Tea Party Republicans in Congress for initiating the crisis.
Sen. Jeff Sessions, R-Ala., shot back that the recovery under Obama was weak and regulations from the administration, particularly stemming from Obamacare and the Environmental Protection Agency, have killed jobs. Sessions also said Republicans should continue to insist on tying spending cuts to the debt ceiling debate and not to worry about a potential shutdown.
"We've had these crises before and we bounce back rather rapidly," Sessions said.
That opinion was shared by one expert. Allan Meltzer, an economics professor at Carnegie Mellon University, said a short-term government shutdown would not be detrimental. Instead, Meltzer opined that unsustainable budget deficits were of greater concern.
Zandi disagreed, noting that a government shutdown was just as problematic. The former Republican adviser said federal housing, student and small business loans would all be affected by a failure to fund the government, and Social Security payments would be threatened if the debt ceiling were not increased.
"Why go down that path if you know what you're going to have do, which is raise the debt ceiling and fund the government?" Zandi said.