NEW YORK -- The crisis over the debt ceiling may have already taken a toll on the fragile economy and jobs market
“I think it's clearly done some damage," says Ryan Avent of The Economist magazine. "During the run-up to this August 2nd deadline a lot companies that were concerned that a deal might not have been reached started stockpiling cash -- holding on to money that they could have been using to invest to hire new workers...sort of tumbled."
Worries about government debt have been a distraction at a time when the economy is weak, Avent explains. "We want companies out there doing what they can to get the economy moving and when you scare them like that with the threat of default that's obviously not what they're going to do."
The deal to extend the debt ceiling, says Avent, will end fears of a default and a potential financial crisis. "The agreement will be good for the economy in the sense that it prevents something really bad from happening. Either us default or the treasury scrambling around trying to figure out what bills they can not pay for the moment while legislators continue to negotiate. Markets were very nervous about something like that happening.
As for the future, many economists are concerned that cutting government spending while the private sector is weak could add to problems in the short term
"We really don’t need to be talking about cutting spending in the short term so much as seeing what we could o to boost the economy a little," Avent maintains.
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