Part 7/9:
The Broader Economic Risks
Could a Default Trigger a Recession?
A key concern is whether a U.S. default, even a minor one, could trigger a full-blown recession. The apprehension is rooted in fears of widespread layoffs, rising unemployment, and adverse real economic effects. However, most experts believe that a quick resolution should prevent a severe downturn. The immediate liquidity crunch—where the government cannot meet its obligations—is a solvency issue rather than a liquidity crisis for households and businesses. As long as the crisis is contained swiftly, the broader economy is expected to recover without long-lasting damage.