Five ways US default would hit your pocketbook

3. Bigger recession threat

Frances M. Roberts/Newscom/File
A worker holds up a sign advertising that the Circuit City electronics store is liquidating, in New York on March 1, 2009. A US default would make a recession more likely.

Growth has already slowed in recent months. An increase in borrowing costs would reduce spending even more. Lending would slow as cash left the financial system, potentially ushering in another credit crunch similar to the one that helped spark the previous recession. Even if declining growth alone wasn’t enough to send the economy back into recession, the resulting credit crunch would administer the coup de grâce.

This could force the Federal Reserve to initiate a third round of quantitative easing to inject money into the banking system.

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